May 2 (Bloomberg) -- Colorado, where hydraulic fracturing has helped push oil production to the highest level in 55 years, is considering legislation to rein in the practice, drawing threats from drillers who say they will flee the state if the restrictions become law.
The General Assembly is debating at least nine bills that would require additional groundwater sampling, prioritize inspections of oil and natural gas facilities, increase penalties for violations, revise the state oil and gas regulator’s mission, strengthen reporting standards for spills, and expedite certain air permits.
“If you go walking down the street in Erie you will see a drilling rig and a school 500 feet away,” said state Senator Matt Jones, a Democrat from Louisville, about 22 miles (35 kilometers) northwest of Denver, in a telephone interview.
“It’s an industrial activity going on 750 feet from peoples’ back doors,” said Jones, who is sponsoring some of the most contentious bills. “A lot of middle-class people that would never be involved in political issues contacted me with concerns.”
The bills are the latest salvo in an intensifying effort by Colorado municipalities to restrict drilling they say may be polluting their air and water. Longmont residents voted last year to amend the city’s charter to ban fracking, a process that forces millions of gallons of water, sand and chemicals into rock formations to release oil and gas. Fort Collins, the fifth-largest city, voted in March to outlaw the method. The Colorado Oil & Gas Association, a Denver-based trade group, filed a lawsuit challenging the Longmont ban.
The measures being debated -- with seven days left in the legislative session -- come after the state’s largest oil production year since 1957, with 49 million barrels produced in 2012. Colorado is the country’s ninth-largest oil producer. Gas production also hit a historic high in the state last year.
Most of the increased drilling involves hydraulic fracturing, or fracking.
California, the nation’s fourth-largest oil producer, is also reviewing fracking regulations, including a proposal to create the state’s own system for tracking chemicals used in the process and extend the time required for notification of drilling.
In Colorado, the energy measures are creating a rift between the Democratic majority in the legislature and Governor John Hickenlooper, a first-term Democrat and former geologist, who has said he would veto at least one of the bills, leading lawmakers to charge that he’s too close to the industry.
“My hope was that we might be able to reach agreement with the governor’s office on a number of these bills -- we have not,” said House Majority Leader Dickey Lee Hullinghorst, who represents Boulder County, in a telephone interview.
“I’m not sure the measures we’re sending to the Senate will pass,” she added. “Part of that is that the Colorado Oil and Gas Conservation Commission and the administration and the governor’s office have been lobbying against them.”
The governor opposes a bill that would require uniform groundwater sampling at oil fields statewide and a second measure that would revise the mission of the state’s oil and gas regulator, said Eric Brown, Hickenlooper’s director of communications. The administration is working with lawmakers on legislation that would increase penalties for violations and expedite air- and water-quality permitting, and he supports a bill that would increase inspections, Brown said.
“Some people say we’re too close to oil and gas; others say we’re too close to environmentalists,” Brown said. “We’re focused on doing what’s right for Colorado.”
Industry representatives said in interviews that even if the bills don’t become law, they illustrate an anti-fossil-fuels mentality that is pervading a state where mining and energy represent one of largest economic generators.
“Colorado because of this legislative session has really earned a reputation as being a battleground on oil and gas issues,” said Stan Dempsey Jr., president of the Denver-based Colorado Petroleum Association, in a telephone interview. “This is being debated in the context of Colorado’s shifting political dynamics -- we were a red state that shifted purple but is now maybe a blue state.”
Republicans agreed, echoing the testimony of industry lobbyists in hearings that the measures imperil 108,000 direct and indirect jobs and annual public revenue of $1 billion.
“All of the restaurants where those employees eat, all of the hotels where those employees sleep, if you look at all the jobs the oil and gas industry affect in Colorado, it’s enormous,” said state Senator David Balmer, a Republican from Centennial, at a committee hearing on April 30.
“I think we should be careful to moderate our zeal in regulating the oil and gas industry because we don’t live in a vacuum,” said Balmer, who joined a majority of the Senate Local Government Committee in voting down a measure that would have allowed local governments to impose fees on energy companies.
Democrats countered that oil and gas firms’ warnings that they would move drilling operations out of state were not borne out five years ago when lawmakers last voted to significantly revise rules governing the industry.
“I think it’s an idle threat,” said Hullinghorst, adding she recently counted 23 energy lobbyists at a hearing to two employed by environmental groups. “They talked about that when we last had rulemaking here and since then we’ve had the biggest boom in oil and gas in decades.”
Among the most contentious bills is a measure that would revise the mission of the state’s energy industry regulator, the Colorado Oil and Gas Conservation Commission. The body is charged with both promoting energy development and protecting the public health. The legislation would elevate environmental concerns over drilling, said Jones, who sponsored the measure in the Senate.
Jones argued at a hearing on April 29 that the commission’s mission must be revised because it instituted rules that give preferential treatment to oil companies. Firms drilling in one of the state’s largest oil fields, for example, are required to test water less often than those exploring other areas of the state, he added.
“We don’t get the same water quality sampling around wells as the rest of the state,” he testified. “Why would anybody in the Wattenberg basin not deserve the same sampling as anyone on the Western slope?”
The bill would also prohibit those serving on the commission’s nine-member board from being an employee, officer or director of an oil or gas operator. Three current commissioners are employed by the energy industry.
Regulators argued at the April 29 hearing of the Senate State, Veterans and Military Affairs committee that the commission’s composition is not a conflict of interest and that the complexity of energy production requires the expertise of industry members.
“It’s a solution looking for a problem,” said Mike King, executive director of the Colorado Department of Natural Resources. “To my understanding, there are no assertions that there have been conflicts. The position of the department and the administration is that they oppose this bill.”
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