Reacting to oil and gas spills during the September 2013 floods that caused over $1 billion worth of damage, the Colorado Oil and Gas Conservation Commission set new rules for operations in flood plains. The rainfall and subsequent floods, described by some experts as a 1,000-year rain and a 100-year flood, caused spills of more than 48,000 gallons of oil and 43,000 gallons of drilling wastewater and raised concerns among some environmental groups and local governments that operations in floodplains need tighter controls.

While rejecting language that would have required oil and gas facilities to be located “as far as practical” from waterways, the commission unanimously approved rules that require companies to take measures to guard against future spills. Facilities in flood plains will have to be anchored in place, flood deflectors installed, and new wells will be required to have remote shut-offs.

Oil and gas industry officials said that the rules could cost $4,000 per well for anchoring, $40,000 for shut-in capacity and $13,000 for steel rings while offering little protection against damage from catastrophic floods that submerge pumps and tanks.

The hearings were dominated by arguments over local vs. state control issues raised by groups advocating for different sides of the issue. Local government officials from Boulder County and the Northwest Colorado Council of Governments claimed that the Colorado Water Conservation Board allows them to regulate development in flood plains, while state natural resources director Mike King said that the COGCC’s mandate to ensure orderly extraction of resources trumps the authority of other government agencies over flood plains.

An attorney for Western Resource Advocates was quoted in the Denver Post as predicting litigation will result as a result of the COGCC’s decision. “The concern is there will be a state decision to put new oil and gas facilities in a known flood-prone area where a local government doesn’t want that,” attorney Matt Sura said. “It looks as if a conflict like that will end up in court.”

Increased production costs could have a negative impact on Colorado’s robust oil and gas business, an industry that is already seeing margins severely cut by the decline in oil prices over the past several months. New drilling slowed by 36 percent in the first two months of 2015 according to state-furnished data, and increased regulatory costs could further dampen production in Colorado, leading to layoffs and loss of tax revenue.

The oil and gas experts at BWAB constantly monitor regulatory impacts as well as other industry trends as we continue to identify hidden opportunities in oil and gas properties that offer excellent values for both institutions and individual investors.

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