ENB Publishers Note: This is an article I wrote regarding some consulting work I have worked on over the last 6 months regarding the incoming changing rules as it pertains to Colorado.
____
(Sandstone Group) One of the most underreported stories in the US oil industry is the battle happening within Colorado, as both operators and regulators struggle to grasp the fallout from Senate Bill 181 and the subsequent action from the COGCC.
Before diving into the impact, it is best to return to the bill itself. According to the COGCC,
“On April 3, 2019, the Senate passed SB 19-181. The Governor signed SB 19-181 into law on April 16, 2019. SB 19-181 ensures that oil and gas development and operations in Colorado are regulated in a manner that protects public health, safety, welfare, the environment and wildlife resources. SB 19-181’s amendments to the Oil and Gas Conservation Act (“Act”) are effective as of April 16, 2019, the date the Governor signed the bill into law.”
The key phrase is “…SB 19-181 ensures that oil and gas development and operations in Colorado are regulated in a manner that protects public health, safety, welfare, the environment and wildlife resources”.
This is something that is not new to Colorado’s oil and gas industry. Numerous innovative energy technology companies focusing on emissions monitoring and reduction have begun popping up, sometimes in an attempt to stay ahead of ESG regulations. Colorado operators have been working with local stakeholders for years on noise reduction, outreach programs etc..
Diving deeper into the language of the SB 181, we find Rule 302 b.(4)J which talks about “Disproportionately Impacted Communities” and goes into detail outlining increased outreach needed to cover these DI communities
Also, as part of the bill, COGCC implemented and has passed a 2,000 ft setback rule, requiring no new wells within 2,000 ft of an occupied structure, an increase from 500 ft previously.
Analysis by Sandstone on SB181 impacts are shown below:
- Top effected companies based upon acreage[1]
- PDC Energy
- Bonanza Creek
- HighPoint Resources
- Occidental Petroleum
- In Weld County (where over 90% of all CO oil production lies), over 42% of the county will be labeled a DI community as a part of Rule 302 b.(4)J[2]
- Recurring costs could run in the tens of millions annually[3]
- When broken down to a per-well cost, could be several thousand dollars per active well
- Emission-monitoring technology
- Enhanced reporting measures
- Alternative facilities locations
- When broken down to a per-well cost, could be several thousand dollars per active well
Sandstone expects the low to moderate ($40-$55) oil price environment heading in Q1 2021, resulting in lower than usual drilling activity. This mean well locations chosen by Colorado operators are even more critical with fewer room for mistakes.
Reach out to the team at Sandstone for any feedback michael@sandstonecg.com
Bonanza Creek Energy
High Point Resources
Occidental Petroleum
[1] COGCC Data
[2] SB 181, Sandstone
[3] Bloomberg
