Colorado Establishes New Drilling Regulations

Wall Street Journal
23 January 2008
By Sephanie Simon

DENVER -- Colorado's Oil and Gas Conservation Commission is asserting control over the state's booming energy industry with its approval of the most far-reaching drilling restrictions in the nation.

Regulations laid out this month in a 177-page document immediately drew fire from the industry and from some lawmakers, who say the restrictions will drive energy companies out of the state at a time when Colorado needs more high-paying oil and gas jobs.

The rules, which take effect in the spring, aim to strike a balance between two resources critical to Colorado's future: the bounty of natural gas buried underground and the natural beauty of a state rich in outdoor tourist draws, from sparkling trout streams to rugged big-game habitats.

Among other things, drilling will be restricted -- and, in some areas, prohibited -- around streams that provide drinking water. State wildlife officials must be consulted before drilling proceeds in vast stretches of western Colorado that are labeled "sensitive habitat" because bald eagles nest there or mule deer overwinter.

Health officials can override corporate concerns about trade secrets and demand lists of all chemicals used in drilling, while energy firms working around certain residential neighborhoods must install odor and dust controls.

Developed after nearly 18 months of deliberation, including scores of public hearings, the regulations are highly specific on some points. One provision, for instance, requires companies extracting natural gas from certain coal seams to treat their water pits so as not to attract mosquitoes that could transmit West Nile virus to pregnant sage grouse.

Industry officials and environmentalists agree that no other state has introduced such rigorous controls on the oil and gas industry. But there is wide disagreement on the impact.

Michael Saul, an attorney for the National Wildlife Federation, said the regulations will ensure, for the first time, "a voice for wildlife concerns" in the permit process without affecting "the pace or intensity of development." He hopes other states will follow suit.

Ken Wonstolen, an attorney for the Colorado Oil and Gas Association, said the regulations allow too much meddling, delay an already-slow permitting process and in general add "a whole new set of burdensome regulation."

Colorado's natural-gas wells aren't as productive as those in other states, and prices here have been depressed because of low pipeline capacity. Even so, drilling applications have soared to 7,600 this year, up from a little more than 1,000 in 1999.

The sector supports about 70,000 jobs, with average salaries topping $60,000 a year, according to the Colorado Energy Research Institute.

In the past several months, as energy prices have dropped, drilling in Colorado has shown signs of softening. Several rigs have pulled out.

Energy companies blame the slowdown in part on discomfort with the pending regulations, which were approved Dec. 10, and on the slow permitting process. It takes about 65 days to get a drilling permit in Colorado, compared with about a week in other states, Mr. Wonstolen said.

Colorado's permitting commission is hiring more staff, hoping to cut processing time to less than 40 days. But that isn't good enough for some state lawmakers, who say they will revisit the permit process and overhaul the new regulations.

"These rules have made a grim situation almost intolerable for these companies," said state Sen. Josh Penry, a Republican who represents a heavily drilled region on the western slope. "This is killing jobs."

Republicans are in the minority in both houses, though, and it is unclear how much change they can accomplish. Gov. Bill Ritter, a Democrat, backs the new rules, calling them "right for Colorado, for Colorado's future, and for Colorado's economy."

Write to Stephanie Simon at