Colorado issued the fewest oil and gas well drilling permits in more than a decade in 2019, and the industry is growing anxious about permitting exacerbating an industry slowdown. But low crude prices aren’t the only reason why it’s happening.
The state approved 2,111 applications to drill new oil and wells in 2019, a 59% drop in permits compared to 2018, Colorado Oil and Gas Conservation Commission figures show according to the Denver Business Journal.
It’s the fewest number of new well permits issued in a year dating back to at least 2009.
“The uncertainty and instability are tough right now,” said Lynn Granger, executive director of the Colorado Petroleum Council, a local affiliate of the American Petroleum Institute. “We are all working really closely right now with the commission to keep operations going, but there is a lot of concern.”
The Democratic-controlled Colorado Legislature passed Senate Bill 181 last spring, changing state law to prioritize public safety and health, and protect wildlife and the environment, in how it regulates oil and gas.
The COGCC also has to rewrite rules to start considering the cumulative impacts of oil-field development, not just each individual well in isolation.
Until the new regulations are done, Jeff Robbins, COGCC director, tightened scrutiny of well sites proposed within 2,000 feet of an occupied building or other sensitive areas to ensure permits are fitting the spirit of the law.
Companies producing crude oil and natural gas in unconventional shale deposits have to regularly drill new wells to keep their production volume up because well output falls sharply after a couple years.
Legislators and regulators during debates over SB-181 tried to reassure executives by saying the state would not place a moratorium on drilling while regulations are rewritten.
But permitting since SB-181 has grown slower and less predictable across the board, not just for well sites triggering closer review because of their proximity to homes or other sensitive locations.
The situation is frustrating some. One company official likens it to watching a once-stocked pantry showing bare shelf space and not knowing if or when restocking will be possible.
New rules and a reformed COGCC permitting process are expected to be in place by midsummer. Until then, companies expect new drilling permits to continue to come slowly.
Having new rules in place, plus the formation of a COGCC with full-time professional commissioners, is expected to make permitting more predictable, said Megan Castle, spokeswoman for the COGCC.
“That’s the purpose of the rulemaking and of professionalizing [the commission] — to make changes to the process,” she said.
Companies submitted a flood of new drilling permit applications in 2018 as oil prices peaked and they tried to get ahead of looming rule changes.
Since then, oil prices have come down, and that’s reduced oil company staffing and their pace of drilling in the Denver-Julesburg Basin and elsewhere in the country.
Industry members worry that the permitting unpredictability is dampening investment in Colorado even more. In a couple years, that would begin to pull down production and by extension shrink the state’s severance tax and local governments’ property tax collections, Granger said.
It’s hoped that the changes to the COGCC this year will return permitting to being predictable and at a sustainable level for companies, Granger said.
“Colorado already has the strictest regulations in the nation, so we’re hopeful we can get through the rulemaking and have some stability,” she said.
Source: Denver Business Journal