Just over a year has passed since La Plata County’s new ordinances regulating the oil and gas industry took effect.
After a year working with the new version of the land-use code’s chapter 90, have county planners and natural gas operators learned to walk, so to speak, with the regulations?
Well, there’s good news and bad.
The bad news? County officials and industry representatives have made slow work of figuring out how to apply the few retroactive provisions of the new code.
Of the 19 regulated operators in the county, only one – Harvest Midstream, which does not extract natural gas but operates pipelines and a compressor facility – submitted an annual report that adequately meets the county’s standard, as far as planners can tell.
That doesn’t necessarily mean operators are woefully out of compliance with regulations intended to protect the public, as most of the regulations are not retroactive. But the planning department is having a hard time figuring out who has adequately followed the new rules and who hasn’t.
And as for the good news?
Lynn Hyde, the county’s community development director, and Michelina Paulek, the executive director of the Energy Council representing the oil and gas industry, say their working relationship with one another is reaching new highs. And that’s a noteworthy development between two entities, the regulator and the regulated, which butted heads during the two-year drafting process as county staff pursued more restrictive regulations than what is required by state law.
The Board of County Commissioners adopted a sweeping set of new oil and gas regulations in April 2023, which took effect Aug. 1 of that year.
The code regulates the industry at a level above and beyond the baseline regulations adopted by the state in 2020, when Colorado reoriented its regulatory philosophy from one intended to “foster, encourage and promote” extraction to a philosophy seeking to protect and minimize adverse impacts to public health, safety, welfare, the environment and wildlife resources.
Throughout the drafting and even after the BOCC adopted the code, Paulek decried what she said was a lack of industry input from the outset.
The day the code was adopted, Paulek wrote to commissioners that it did not “reflect the participation by the regulated community that this code proposal will impact.”
A year later, most of the new regulations have yet to be fully stress-tested. They apply primarily to new applications, of which three are under review and none have yet been approved.
But there are several provisions with which existing operators must comply. In a major change, the code demands larger financial assurance bonds.
Those bonds are intended to ensure that if an operator walks away from a project or does not comply with all standards, the county can pay for the cleanup without taxpayers footing the bill.
Before the adoption of the new code, the county required a reclamation bond of either $7,000 or $7,500 per minor facility, depending on the number of facilities an operator had. The maximum bond amount for minor facilities was $175,000.
Today, the code requires all operators, regardless of scale, to post a blanket bond of at least $175,000.
Operators must also submit lengthy annual reports, some over a thousand pages, detailing their compliance with the codes. Those reports were due 90 days after the new code took effect, and again on April 30, 2024.
According to internal spreadsheets used by planning staff to track compliance, which The Durango Herald obtained through a Colorado Open Records Act request, none of the extraction companies have submitted satisfactory reports demonstrating that they have secured adequate financial assurances.
Five of nineteen operators have not submitted any annual report, although nearly all of those that did not submit a report are small operators with no more than six wells, according to state records.
“They may not even know that chapter 90 has been implemented,” Paulek said.
Of the operators that did submit reports, all have submitted the required contact information and disclosures of emergency situations; most have shown that they are in good standing with the state and are in compliance with the bulk of the other reporting requirements.
No operator other than Harvest Midstream has been able to demonstrate compliance with the financial assurance requirements – but that doesn’t necessarily mean the operators don’t have adequate bonds.
“I'm not sitting here confidently able to say nobody's in compliance, or 50% are, because we need to match up the oil and gas facilities and locations, which can be in the thousands for some operators, with financial assurances,” Hyde said. “So it's a big review that involves working between the operators and the county staff.”
The regulations create a hefty administrative burden for the county planning staff, Paulek said.
In July, the county terminated the natural resources planner who worked with the industry for failing to achieve an acceptable level of performance, a letter obtained through a records request shows. The planner had started around the time that the new code was adopted.
“It was new staff coming on board and not only needing to learn a new job, it was also the first time through a lot of processes with the oil and gas, and there's going to be a learning curve,” Hyde said. “And if you couple that with multiple learning curves, it's going to take longer.”
But compliance issues predated concerns over that planner’s performance.
On Aug. 28, 2023 – 28 days after the new rules took effect – Paulek wrote a letter to the county documenting concerns over operators’ ability to comply with the new requirements.
The county had not provided an avenue through which drillers could comply with county regulations, she said, and the Energy Council foresaw that outcome and requested a remedy throughout the summer.
“La Plata County aggressively put in place a set of rules but has seemingly taken a less urgent approach to the regulated community’s ability to fulfill its obligations,” she summarized in her letter.
La Plata County is not alone in this struggle.
A recent study from the nonprofit think tank Carbon Tracker found that the Colorado Energy and Carbon Management Commissions is owed $66 million in financial assurance and 117 listed operators, which hold approximately 14% of the wells under state jurisdiction, have failed to file proof of financial assurance.
Part of the issue locally, Hyde and Paulek recognize, is the fact that the state may hold bonds that cover some of what the county demands – but that’s hard to tell.
“I'm not surprised to see the operators not getting 100% the first round, because it's on the county as well to make sure we're clearly articulating what we're asking for them to provide,” Hyde said.
Both Hyde and Paulek tiptoe with calculated diplomacy around the issue – Paulek because she does not want to jeopardize a flowering relationship with the county, and Hyde because she is awkwardly in the position of implementing a code, which has proved to be unwieldy, that was written and adopted before she started the job in July.
But both say progress is being made.
“The county and the industry, because of Lynn's extraordinary leadership and accountability … are trying to come up with a better, streamlined approach to the annual reporting, and that we're working very collaboratively together to make this happen,” Paulek said.
It’s the kind of collaboration, Paulek seemed to indicate, that the industry wished had happened earlier. But with an invite extended, the Energy Council is ready to come to the table.
“Now starts the conversation, and I have seen willingness from all the operators I've worked with to provide us what we need when we ask for it,” Hyde said. “We've been moving forward with really great conversations and relationships, and it's not adversarial, it is collaborative.”
rschafir@durangoherald.com
