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Oil and Gas Regulation: A Guide for Local Governments

Photo courtesy of Brian Ray, Craig Daily Press

COLORADO DEPARTMENT OF LOCAL AFFAIRS

Oil and Gas Regulation: A Guide for Local Governments page 1

DIVISION OF LOCAL GOVERNMENT



DEVELOPED BY GERALD D AHL, CHRISTOPHER PRICE AND DEBRA K ALISH MURRAY D AHL KUECHENMEISTER & RENAUD LLP2010

Thanks to all the survey respondents, communities providing case study information,Colorado Oil and Gas Conservation Commission, Anadarko/Kerr-McGee, several peer reviewers, with special thanks to the late Randy Russell.

Statement of Limitations: The purpose of this document is to provide generalguidance and clarity on the issues surrounding oil and gas development. Thisinformation is general in nature and should not be interpreted as legal advice. Pleaseconsult your attorney when considering new or amended regulations. This guide ismeant to encourage collaboration among local governments, the Colorado Oil and GasConservation Commission, and industry representatives.




TABLE OF CONTENTS

OVERVIEW 1 DESCRIPTION OF IMPACTS 3 WHAT IS PREEMPTION? 11 STATUTORY AUTHORITY FOR LOCAL REGULATION OF OIL AND GASDEVELOPMENT 14 REGULATIONS, FEES AND MITIGATION STRATEGIES 19 CASE STUDIES 31 ROLE OF THE COLORADO OIL AND GAS CONSERVATION COMMISSION 47 WORKING WITH THE INDUSTRY 51

APPENDICES 56 Appendix A: FAQs and Links 57 Appendix B: State and Federal Regulations 60 Appendix C: Colorado Preemption Case Law 73 Appendix D: Legal Issues for Local Governments Regulating Oil and Gas Development on Federal Land 81




OVERVIEW

The oil and gas industry in Colorado, asacross the West, is volatile. In 2008,exploration, permitting and drillingactivity surged, bringing associatedpositive and negative impacts. In 2009and 2010, the opposite was true,creating a different set of impacts. Whileto some extent the boom/bust cycle of energy development is a natural featureof that industry, local governments arealways faced with the task of coming togrips with the impacts of both sides of that equation and what it really means

for their citizens and their localoperations. Complicating this situationis the fact that regulation of oil and gasactivity is shared with the state andfederal governments. The impacts of oiland gas development are themselvescomplex, extending well beyond thetraditional issues with which localgovernments are familiar and to whichexisting land use regulations aregeared. Who could have imagined, for

example, that a significant impact of oiland gas development in westernColorado at one time would be ashortage of hotel and motel rooms for tourists, and the resulting impact onlocal economies through loss of taxrevenues?

The purpose of this guide is to provide abroad evaluation and perspective tohelp counties and municipalities in

Colorado come to terms with and shapethe way in which they individually wishto work with the industry to addressthese new concerns. This handbookcontains the following major sections:

Photo cou rtesy of Br ian Ray, Craig Daily Press

General description of the type of impacts occurring across thestate from oil and gasdevelopment (both traditional andnontraditional impacts). Thisinformation is drawn from a broadsurvey of information of representative local governmentson both sides of the ContinentalDivide.

Statutory and case law authorityaffecting local regulation of oiland gas activities, with aparticular emphasis on thedegree to which local regulationis or may be precluded through"operational preemption."




The range of available regulatorytechniques, with examples andillustrations.

Available mitigation strategies,

illustrated by case studies fromselected jurisdictions that haveachieved instructive results.

Use of consultants or specializedstaff to advise regarding industrypractices in the field.

The role of the Colorado Oil andGas Conservation Commission (COGCC) and its rules and

regulations, including recentchanges.

How the COGCC and localgovernments can work together to successfully manageexploration and production.

Suggestions from the oil and gasindustry on how to achieve aworking relationship.

An especially important part of this handbook is its appendices,including frequently askedquestions and sources for further information, listing website andcontact information for government and industryagencies and programs.

Photo courtesy of Mesa County

The focus of this handbook is oil andgas development. However, the reader

will quickly come to appreciate thatmany of the concerns are no differentfrom those raised with other extractiveindustries, such as uranium milling andmining and other hard rock mining.While it is not the intention of thishandbook to specifically addressregulation of hard rock mining and other extractive industries, local jurisdictionsmay wish to draw from examples here toexamine their regulatory and permitting

processes for other extractive andindustrial activities. Of special notewould be potential geothermal futuredevelopment or slurry pipelines andconveyor systems. Geothermal, wherethe resource can be tied to groundwater,is classified as a 'mineral' and under the

jurisdiction of the BLM. The resultingwell pads, drilling activity, pipelinecorridor development, consolidationfacilities and power conversion or

generation facilities may well havesimilar development characteristics andimpacts to those being described here.





DESCRIPTION OF IMPACTS

THE IMPACT SURVEY

A survey1 was conducted with the goalof obtaining a broad understanding of the impacts of oil and gas developmenton local governments in Colorado.Some respondents expressed concernfor the environment, including theprotection of wildlife, drinking water, andthe natural beauty that brings millions of people to the state each year. Othersexpressed satisfaction with the wellpaying jobs and tax revenue from an

industry that experts believe will developresources throughout the state for manyyears to come. Ultimately, there arevery real impacts, both positive andnegative, on local governments andtheir residents throughout the state fromthis rapidly expanding (and currently,contracting) industry. This is not uniqueto the oil and gas industry since some of these impacts could occur from anyrapidly expanding industry. However,

depending upon the local circumstancesand their potential for oil and gasdevelopment, individual counties andmunicipalities may want to consider howto prepare and deal with the followingpotential issues.

1This survey included: 1) interviewing, by

telephone and in person, local government staff from around the state whose counties or municipalities have oil and gas developmentwithin their boundaries; 2) a review of

newspaper articles from around the stateregarding oil and gas development; 3) attendingthe 2008 rulemaking hearings of the ColoradoOil and Gas Conservation Commission("Commission"); 4) reviewing various writtentestimony submitted to the Commission byparties to the rulemaking hearings; and, 5)reviewing expert reports produced on behalf of counties, municipalities, industry, and the state.

INTRODUCTION TO OIL AND G AS

IMPACT ANALYSIS

Any listing of the impacts of oil and gasdevelopment is by necessity arbitrary,as the industry itself is a complex andintertwined set of activities that impactland use, local infrastructure, the sizeand type of workforce involved and theduration of the impacts. Some activitymay last one construction season, whileothers may have a 40 year life. Thisintroduction contains a short description

of the broad outlines of the industry asrelated to its impacts and regulatoryconsiderations, and serves as a factualbasis for the listing of specific impactswhich follows.

Well field development Development of a field involves accessto the area (typically a fairly highstandard road to handle heavy trucks),individual well pad access, well pad

clearing and preparation, utilityinstallation to the pad (monitoringequipment, maybe utilities), drilling andthe related stages, wastewater storageor piping facilities, and once inproduction, the servicing of the wells. Awell field may require a source of water,or it will need to be hauled. Many fieldseither have individual holding ponds atthe pads, or a consolidated reservoir.The wells are connected with internal

field piping. Field characteristics willvary considerably depending on theterrain and well spacing requirements.




Regulatory issues include field accesstraffic and weight levels, frost thaw

constraints, reclamation concerns, weedcontrol issues, drainage andcontainment, fire suppression andresponse, seasonal wildlife concerns,dust control, access control (lockedgates and ensuring sensitive areasaren't exposed to public traffic), finalvisual impact, noise and the duration of noise during development, mudtransported to county or municipal roadsand inspection requirements.

Pipeline development andcompressor stations Well fields need to be connected withthe natural gas market, and this involveslarger pipes and varying degrees of pressure to deliver the product to arefining and upgrading facility. Thesepipelines can span many miles, andoften cross a variety of jurisdictions anda mix of public and private lands.

Where they cross public land they aresubject to environmental review and willbe permitted with a variety of stipulations. Those stipulations willtypically apply only to the public landsthey traverse, however, and individualagreements with private landowners aretypically negotiated separately. As

examples, a landowner may prefer anew access road on top of the pipeline,rather than restoration to a natural state,or new fencing. Pipelines of this sizeand length often require one or more

compressor stations to upgradepressure along the pipe. These areusually situated near an existing sourceof power wherever possible. Theindustry has become very adept atpipeline construction, and constructionis typically done in one season.

Regulatory issues include thedesignation of temporary constructionstaging areas for materials storage,

equipment, employee parking andshuttles, agreement on the width of thecorridor to be disturbed, reclamation andreseeding (and bonding and inspectionfor that), visual impacts of corridor scarsin sensitive view areas, temporaryaccess road reclamation, dust control,drainage control, pipeline pressuretesting issues (they use water), trafficpatterns (school bus route sensitivity),hours of operation, whether employeesare shuttled to the work site as itprogresses, wildlife and livestockprotections, stream and ditch crossingsand watershed protection issues,compressor station siting and noiseremediation issues, and any inspectionof structures.

Refinement facilities Natural gas when delivered from thevarious well fields needs to undergosome refinement before it can be fedinto the national natural gas network of distribution lines. These are relativelycentralized, and resemble moderatelylarge industrial facilities, as they involveseveral refinement processes. Theydevelop marketable byproducts that aretrucked away. They are likely to be




located on valley floors in closeproximity to major feeder pipelines andwith good highway access, and oftencomprise many acres in size. Giventheir size and activity, they fall under a

variety of federal regulatoryrequirements for internal setbacks,materials handling, spill containment,and safety compliance. They may takea year or two to construct, and employ aconstruction workforce with a substantialimpact depending on the size of thesurrounding communities. Their operational workforce is modest, as isoperational traffic.

Regulatory issues include access andhighway connectivity, appropriatezoning and land use considerations,buffering and containment off site for watershed protection, buildinginspection, emissions monitoring, noise,odors, visual impact, dust duringconstruction, inspection of structuresduring construction, and emergencyplanning with first responders.

Industrial s taging areas The current oil and gas industry isfragmented in where it works, bynecessity, and who works for it. Unlikemost major industrial or other extractiveindustries, the boom and bust nature of oil and natural gas has led to a workforce and agglomeration of sub-contractors that often comprises over 90% of a given company’s work force.Sub-contractors often work for a varietyof companies, as they play a specializedrole in the various stages of well fielddevelopment and stages of infrastructure development. As a result,local jurisdictions are likely to feelpressure for siting what might be termed'industrial staging areas' or 'warehousingand storage' areas. The industry is

heavy truck and trailer intensive,needing staging areas for truck parkingand maintenance, storage of pipe andrelated materials, storage and assemblyareas for tanks, metal building materials,

etc. In many instances the applicantsfor these land use permits will not be theoil and gas company, but rather localcontractors who wish to provide servicesto that oil or gas company. If the local

jurisdiction doesn't have in its inventoryappropriate sites for these kinds of staging areas, some critical land useissues may result. And, given the upand down cycles of this industry,consideration should be given to site

clean up and maintenance requirementsshould a downturn occur.

Regulatory issues include appropriatehighway access for heavy trucks, railaccess and sidings where appropriate,screening and buffering, inventory of appropriate sites and appropriate landuse regulations, fencing, surfacetreatments, drainage and run off,hazmat considerations and containment,structure inspection, hours of operation,noise, odor, dust and weeds, and sitemaintenance responsibilities.





SURVEY RESULTS FOR SPECIFIC

IMPACTS

1. IMPACTS ON EMPLOYMENT

Loss of an available pool of workersSome local governments and other employers have experienced pressureon their workforce. In cases of rapidindustry growth in an area, the oil andgas industry often pays better wagesthan the public or service sectors. For local governments this means thatcertain positions like police officersbecome increasingly harder to fillbecause local governments cannot

compete with the pay scale of theindustry. Similar challenges may be feltin the private service and retail sector,as labor migrates to higher paying jobs,leaving service employers short handed.In an attempt to remedy this, localgovernments and other employers mustoffer additional incentives to retainworkers or to hire workers lost to theindustry. Complicating this issue is theincreasing cost of living and especially

the cost of housing.

2. HOUSING IMPACTS

Loss of affordable housing Local governments in areas of expanding oil and gas development

often see a loss of available workforcehousing as the local housing stock istaken up by industry employees.Because it takes months to years todevelop new housing, there issubstantial upward price pressure onexisting units. This makes itincreasingly difficult for employers torecruit workers to the area because theincrease in housing costs outpacesgrowth in salaries. One surveyrespondent noted that because housingprices had increased substantially, apotential hiree declined a job offer because the closest affordable housingwas over thirty miles away. This is asimilar situation faced by the ski industrywhere many workers are forced to drivefarther to find affordable places to live,placing increased demands ontransportation networks as well.

Upward pressures on housingdisproportionately impact low wageearners, persons on fixed income andseniors. Social services and non-profithousing agencies and authoritiesstruggle to place people in lower rent or assisted housing in a heated rentalmarket. In jurisdictions where affordablehousing hasn't been a demonstratedneed or local government priority in thepast, rapid development may trigger theneed to develop response mechanismsand an expenditure of public funding tomeet this need for an at risk population.

“The oil and gas industry in Coloradocontributes significantly to theColorado economy, withapproximately $22.9 billion ineconomic output or 6.1% of theeconomy. Additionally, oil and gasactivities contribute to 2.2% of theemployment in the State with $4.3billion in labor earnings annually. Theaverage annual earnings per worker for these activities are approximately$61,000, which is 32% higher than theState average.”

- Oil and GasEconomic Impact Analysis,

Colorado Energy Research Institute,2007




3. TRANSPORTATION IMPACTS

Deteriorating roadwaysSome local governments are strugglingto maintain roadways and bridges

because of the increase in heavy haulvehicle traffic from oil and gasdevelopment. In general, the effect is asubstantial decrease in the quality of roadways because of an inability tokeep pace with the necessarymaintenance and improvements.

Traffic congestion Because most oil and gas activityoccurs in the unincorporated ruralportions of counties, those roads are notdeveloped for commuter traffic loads or consistent use by heavy equipmentvehicles such as drill rigs or servicesemis. As oil and gas developmentincreases, the road limitations createcongestion where none previouslyexisted.

Highway design capacity Many rural highways were designed tomeet anticipated traffic levels and mix,as were municipal streets. A suddenincrease in traffic loading, or the mix of heavy trucks, can trigger the need for passing lanes, acceleration anddeceleration lanes, intersectionsignalization or reconfiguration, theneed for designated truck routes andenhanced maintenance schedules.

Traffic enforcement Increased trip generation to moreremote areas can strain existing lawenforcement capacity in areas of speedenforcement, weight limit enforcementand response to accidents. Weight limitand noise ordinance enforcement canalso affect municipalities.


DustBecause most roads accessing well

sites are gravel or dirt, the increasedtraffic on those roads creates additionaldust in the area with associated impactsto air and water quality.

4. ENVIRONMENTAL AND COMPATIBILITY

IMPACTS

Ai r qual ity In 2007, the Denver metro area violated

Environmental Protection Agency ozonepollutants that regulators attributed, inpart, to increased well density and thetoxins associated with oil and gasdrilling. This resulted in increasedemission controls for gas and oilequipment in the area.

Visual blight As drilling increases, pumping stations,access roads, well pads, storage tanks,

power lines, pipelines and other materialand machines are added to thelandscape. For some, this creates avisual impact because it disruptspreviously undisturbed natural settings.

At night drill rigs light up what was oncedark sky.





Increased noise Drilling and maintaining a well cancreate noise. As a well is drilled, thedrill rig usually operates non-stop untilthe well is complete. In certain areas

this can take six weeks. Even withnoise mitigation efforts, there may be aconstant audible hum. Compressor stations can be a permanent noisesource. In rural areas, noise is noticedat a farther distance because there isless interference and therefore little toprevent noise from traveling.

Threats to wildlife Documented impact of loss of wildlife

caused by increased drilling is difficult toassess and evaluate. According tosome, wildlife in certain areas is thrivingwith the increase in drilling activity.

According to others, wildlife is under threat due to the fragmentation of habitat from increased activity. This is acomplex issue that cannot be resolvedby looking at success or decrease inone species. As the issues continue tobe studied, it will be important to monitor the results.

Sage-grouse, Colorado Division of Wildlife

Water quality According to one article2, theCommission received thirty eightcomplaints over the past decaderegarding contamination of water wells.

As drilling increases throughout thestate, local governments should beprepared to discuss the industry's use of chemicals and drilling activities inproximity to local water supplies, as wellas controls to address stormwater runoff from disturbed areas.

5. SEWER AND W ATER INFRASTRUCTURE

IMPACTS

Sewer infrastructure Drilling activities, including the housingof workers on site in temporary livingquarters, create significant amounts of waste. Well sites generally do not haveaccess to sanitary sewer infrastructureand therefore sewage from such sitesmay be trucked to local treatmentfacilities. In some intensive drillingareas in the state, treatment facilitieshave reached their capacity. Aspopulations expand from increasing oiland gas jobs and housing is developedcorrespondingly, there is a need toexpand existing sanitary and wastewater infrastructure at a significant costto the service provider.

Water infrastructure As housing is developed to handle thepopulation expansion from the increasein oil and gas jobs, there is concern thatexisting local water infrastructure isinsufficient to handle the growth.

2 See "5 key environmental concerns" ; RockyMountain News, Monday, December 10, 2007.



6. SOCIAL AND ECONOMIC IMPACTS

Increased local worker income A benefit of increased oil and gasdevelopment to local governments is the

increase in many local worker salaries.This increase creates additional salestax revenues for local governments asthose workers spend their earnings inlocal establishments. Additional salestax revenues could help localgovernments offset the costs to expandservices required as populationsincrease due to expanded oil and gasdevelopment.

Increased crime As population in areas increases due togrowth in the oil and gas industry, localgovernments have seen an increase inlocal crime rates. In a couple of counties, the rapid increase of oil andgas development has strained county

jails and available law enforcement staff.

Loss of tourist housing In some areas, the industry has thepotential to take over all of the hotel,motel, and recreational vehicle space toprovide housing for its workers. Whilethat may be great for certainbusinesses, many communities also relyon tourism and annual events for their economic well being. In addition, theloss of tourists may impact employersrelying on those tourist dollars.Because tourism generates tax dollars,the loss of tourists may impact localbudgets relying on those revenues.

7. STAFF IMPACTS AND SERVICE

REQUIREMENTS

Vegetative managementThe control and containment of infestations of noxious weeds has

become an increasing priority in ruralareas both on public and private land.The incursion of roads, well pads,pipeline corridors, utility corridors,worker housing sites and general traffic

adds greatly to enforcement, monitoringand containment responsibilities. Many jurisdictions now mandate vehiclewashing and specify a seed mix for usein reclamation activity, and weed freestraw or hay for use in drainage control.Requiring a bond for reclamation placesa strain on administrative andmonitoring staff time. While the industryas a whole has been very supportive of weed control activity, the large numbers

of subcontractors and staff turnover makes this an ongoing educational andenforcement challenge.

Staffing Impacts and servicingrequirementsIt is helpful to review oil and gasdevelopment in two dimensions: spaceand demographics. Spatially, the wellfield and pipeline activity may be veryfar flung and in areas that required verylittle attention in the past. County roadsthat saw little traffic and maintenanceneeds may suddenly require upgradingand increased maintenance.Municipalities that have watershedprotection ordinances may need toinspect and process permits for development miles away. Ruralvolunteer fire districts may findthemselves with requests for unfamiliar inspection requirements and increasedlong response trips. Building inspectorsand county health department officialsmay be travelling long distances tocertify structures and living quarters.Weed control staff responsibilities mayincrease exponentially. EMTs andambulance services will register morecalls and more calls requiring longer




travel time. The Sheriff's departmentwill have increasing calls in remoteareas of all types. Planning, legal andadministrative staff will find an increasedburden dealing with various permits,

liaison with state and federal agencyreviews, tracking and clearing bonds or other forms of assurance.

On the demographic side, the increasedpopulation will increase demands for other types of services, and itscharacteristics will change over time.During the development phase someelements of that new population will bevery transient. Examples include

specialized pipefitters and electriciansthat may only be on site only for a fewmonths. Drilling crews typically worklong hours, but have long periods of time off, and may essentially commuteto the area. As the industry matures, ahigher percentage of employees will bepermanent with full time jobs and thelikelihood of being long term residentswith families. As this employment curveshifts, so will the demand on a variety of services. Law enforcement and criminal

justice institutions will likely see anincreased but shifting case load over time from those dealing with a transientpopulation to a more stable one. To theextent that the area becomes known asa likely employment center, socialservices and charitable organizationsmay encounter an increase in thenumber of people arriving to seek work

with little means of support. Schoolsmay encounter a high student turnover rate and difficulty recruiting teachersand staff. Mental health, drug andalcohol service providers will likely see

case loads increase both from the newpopulation and the historic residents if the transition is dramatic in a givencommunity. Emergency rooms andclinics will likely see a rise in workplacerelated accidents, traffic accidents, andsubstance abuse.

All of the demographic impacts increasedramatically with a rapid boom in newresidents, and also of note with a rapid

bust. A major decline in employmentlevels can trigger tremendous impactson law enforcement, social services,non-profit charities and things astangential as animal shelters whenpeople leave the area and abandon their pets.

Nuisance complaints Residents may become frustrated withtheir local government's limited authorityto respond to nuisance complaints.These complaints are often related totraffic, noise, and site disturbancesarising from drilling and/or maintenanceactivities. These activities are notnecessarily unlawful; thus education andproactive relationships are necessary topromote responsiveness by the industryand understanding by the public.

“In 2001, there were fewer than 1,000 natural gas wells in Garfield County. By themiddle of 2005, that number has almost tripled, with industry predicting as many as20,000 wells by the time the resource here has been fully developed. The questionfacing Garfield County and its communities is how to manage the growth of naturalgas industry in a way that preserves economic diversity and the quality of life thatthe people living here value so highly.”

-The Rifle, Silt, New Castle Community Development Plan, 2006





WHAT IS PREEMPTION?

When creating local regulations for oiland gas operations, it is important to beaware of areas in which Congress, theColorado General Assembly, andfederal and state agencies, including theColorado Oil and Gas ConservationCommission, have enacted laws andregulations. Understanding thestandards set in these laws andregulations are important in order toavoid “operational preemption,” whichcan be a basis for invalidating localregulations.

THE PREEMPTION DOCTRINE Preemption is a doctrine adopted by theUnited States Supreme Court that holdscertain matters are of such a nationalinterest that federal laws on thosematters preempt – that is, takeprecedence over or “trump” – conflictingstate laws. Similarly, state law canpreempt local regulations if the matter being regulated is determined to be a

matter of state interest. As expressedby the Colorado Supreme Court, "thepurpose of the preemption doctrine is toestablish a priority between potentiallyconflicting laws enacted by variouslevels of government." 3

DETERMINING WHETHER A M ATTER IS OF

STATE OR LOCAL INTEREST

In order to determine priority betweenconflicting state and local laws, we must

first determine whether a particular matter is: (i) a matter of state interest;(ii) a matter of local interest; or (iii) amatter of mixed

3 Bd. of County Comm'rs v. Bowen/Edwards Assocs., Inc., 830 P.2d 1045, 1055 (Colo. 1992).

state and local concern. This distinctionis significant:

If a matter is primarily of stateinterest, the state legislature maylegislate in the area, but localgovernments may not unlessauthorized to do so by statestatute.

When the matter is primarily of local interest, such as land useregulation, the local interest will

generally control.

When the matter is a question of mixed interest, that is, both thestate and local governments havean interest in the matter, the courtwill examine the issue on a caseby case basis to determine whichlaw, state or local, shouldcontrol.4 Often, if the two lawscan co-exist, there will be no

preemption in the mixed interestarea.

The bottom line is this: if a matter isprimarily of state interest or of mixedstate and local interest, a localregulation will or may be preempted bya state statute.

EXPRESS, IMPLIED AND OPERATIONAL

PREEMPTION

There are three types of preemption:

1. Express Preemption. A federalor state law states, in clear terms,

4 City of Northglenn v. Ibarra, 62 P.3d 151 (Colo.2003).

http://66.161.141.176/cgi-bin/texis/web/caselaw/bvindex.html?dn=830+P.2d+1045&State=CO&sid=ju5l5k7rv0ousq6qrci281c2l3





that it is intended to take precedenceover laws and regulations adoptedby a lower legislative body (in other words, federal law trumps statestatutes; state statutes trump local

regulations);

2. Implied Preemption. Without thelaw expressly saying so, either:

a. it is clear that the higher legislature’s interest in the matter must dominate; or

b. the interest of the higher legislature and the lower legislatureare in such conflict that there is no

way to apply both laws5; and

3. Operational Preemption. Theapplication of the laws or regulationsof the lower legislature (local or state) “materially impedes or destroys” the interest of the higher legislative body (state or federal).

At the local level, “operationalpreemption” occurs when applying the

ordinances or regulations of the localgovernment materially impedes or destroys the interest of the state or federal government. The question thatlocal governments should askthemselves most frequently is this: Dothe “on the ground” effects of the locallaws or regulations conflict with theapplication of the state or federal law?

5

In other words, the higher legislature’s interestin a matter is “so patently dominant over a lower legislature’s interest in the matter or that their respective interests are so irreconcilably inconflict, as to eliminate by necessary implicationany prospect for a harmonious application of both regulatory schemes.” See Bd of CountyComm’rs v. Bowen/Edwards Associates, Inc.,830 P.2d 1045, 1058 (Colo. 1992).

Since the 1992 Colorado Supr emeCourt decisions in Bowen/Edwards6 andVoss7, it has been clear that state lawdoes not expressly or impliedly preventlocal governments from regulating oiland gas development or operations.However, local regulations will be

preempted if they conflict with statestatutes operationally. The test, again,is whether implementing a law thatprotects a local interest “materiallyimpedes or destroys” the state interest.

Colorado case law also states that noteven home rule municipalities, whichhave more local control than statutorycities and towns, may totally prohibit oiland gas drilling.

Finally, operational preemption will likelybe found where local regulations imposetechnical conditions under circumstances where no such conditionsare imposed under the state statutory or regulatory scheme or the localregulations are contrary to thoserequired by state law or regulation.8

6 Bd. of County Comm'rs v. Bowen/Edwards Assocs., Inc., 830 P.2d 1045, 1055 (Colo. 1992).

7 Voss v. Lundvall Brothers, Inc., 830 P.2d 1061

(Colo. 1992).

8 Town of Frederick v North AmericanResources Company, 60 P.3d 758 (Colo. App.2002); Board of County Commissioners of

The question that local governmentsshould ask themselves most

frequently is this: Do the “on theground” effects of the local lawsor regulations conflict with the

application of the stateor federal law?



REGULATION OF FEDERALLY-OWNED L AND There are three principles, each of which has been established in Colorado,that are important to understand if youhave federal land within your

jurisdiction:


1. The simple fact that land is owned bythe federal government9 or thatsomeone has a federal license or permit10 does not mean that it isimmune from state and localregulations.

2. The case law is clear that state lawand the police power (preservation of health, safety and welfare) extendover federal land within the state’sboundaries until preempted and onlyto the extent actually preempted byfederal law.11

IMPORTANT FEDERAL AND STATE L AWS There are many federal and state lawsthat regulate the oil and gas industry.Listed below are some of the moreimportant laws of which localgovernments should be aware when

drafting local regulations:

3. Where Congress has not, throughlegislation, stated its intent tooverride state power over publiclands, and the state has not given upits legislative power, federal officialslack the power to regulate contrary to

state law. 12

Oil and Gas Conservation Act,C.R.S. §§ 34-60-101 et seq.Gunnison County v. BDS International, LLC, 159

P.3d 773 (Colo. App. 2006). Colorado Oil and Gas

Conservation CommissionRegulations, 2 C.C.R. 404-1

9 Surplus Tracing Co. v. Cook, 281 U.S. 647(1930).

Air Pollution Prevention andControl (the “Clean Air Act”), 42U.S.C. §§ 7401 7671q.

10 Huron Portland Cement Co. v. Detroit, 362U.S. 440 (1960).

Clean Water Act, 33 U.S.C.

§§ 1251 to 138711

Texas Oil and Gas Corp. v. Phillips PetroleumCo., 277 F. Supp. 366 (D.Okla. 1967), aff’d, 406F.2d 1303 (10th Cir. 1969); Ventura county v.Gulf Oil Corp., 601 F.2d 1080, (9

thCirc. 1979),

aff’d, 445 U.S. 947 (1980); Hagood v. Heckers,513 P.2d 208 (Colo. 1973); State of Idaho ex rel

Andrus v. Click, 554 P.2d 969 (Idaho 1976).

ComprehensiveEnvironmental Response,Compensation, and Liability

Act (“CERCLA”), 42 U.S.C. §§9601 to 9675

Oil Pollution Act of 1990, 33U.S.C. §§ 2701

“Gunnison County has decided toadopt Performance BasedRegulations. With this type of regulation we acknowledge that:

Industry knows some aspects

of oil and gas operationsbetter than us

We, the local government,know the problems that canbe caused by oil and gasoperations. So, we list theproblems to avoid and askindustry to offer proposedsolutions. We can thendetermine if the proposedsolution is sufficient.”

David Baumgarten, GunnisonCounty Attorney

12 Colorado v. Toll, 268 U.S. 228 (1925).



STATUTORY AUTHORITY FOR LOCAL REGULATION OF OIL

AND GAS DEVELOPMENT

This section of the handbook provides asummary of the statutory authority for county and municipal land useregulation of oil and gas exploration,development and operation.

LOCAL GOVERNMENT L AND USE CONTROL

ENABLING ACT OF 1974

The Local Government Land UseControl Enabling Act (C.R.S. § 29-20-

101 et seq.) (the "Act"), adopted by thestate legislature in 1974 as H.B. 1034 asa companion bill to H.B. 1041 in thatyear (discussed below), gives broadauthority to local governments to plandevelopment within their respective

jurisdictions. The Act provides localgovernments with specific land usepowers that may be used to regulatecertain oil and gas activities within their

jurisdictions. The Act has been upheld

by the Colorado Supreme Court as aproper basis for independent regulationof oil and gas activities, so long as thelocal regulations are not operationallypreempted by the state Oil and GasConservation Act or by the rulesadopted by the Oil and GasConservation Commission (the“Commission”). See Bowen/Edwardsand Voss, discussed in the section onpreemption case law, below.

Specific powers within the list of enumerated powers provided in Section104 of the Act are the following:

Regulate development andactivities in hazardous areas;

Protect lands from activitieswhich would cause immediate or foreseeable material danger tosignificant wildlife habitat andwould endanger a wildlifespecies;

Preserve areas of historical or archeological importance;

Regulate, within its jurisdiction,the establishment of roads onpublic lands administered by the

federal government (such as newroads on BLM lands); Regulate the location of activities

and developments that mayresult in significant changes inpopulation density (for example,temporary living quarters or “mancamps”);

Provide for phased developmentof services and facilities (such asroads, water and sewer);

Regulate the use of land on thebasis of the impact thereof on thecommunity or surrounding areas(much as conditional use permitsdo); and

Otherwise plan for and regulatethe use of land so as to provideplanned and orderly use of landand protection of the environmentin a manner consistent withconstitutional rights.

A recent Colorado SupremeCourt case, Droste v. Board of County Commissioners of Countyof Pitkin, 159 P.3d 601 (Colo.2007), held that the Act could bethe basis for imposing temporarymoratoria.




Impact FeesSection 104.5 of the Act, added in 2001,gives local governments the authority toimpose impact fees as a condition of development. Impact fees may only be

imposed to defray the projected impactson capital facilities (such as roads andwater and waste water treatment plants)caused by proposed development. Inorder to impose an impact fee, localgovernments must quantify the impactsof proposed development on existingcapital facilities and establish the impactfee at a level no greater than necessaryto offset such impacts. Impact fees maynot be used to “catch up,” i.e., address

existing deficiencies in capital facilities.Some Colorado counties are nowimposing impact fees on a per-well or per-pad basis to address, among other things, impacts on roads.

Intergovernmental AgreementsSection 105 of the Act also authorizeslocal governments to enter intointergovernmental agreements for thepurpose of jointly exercising planning,

zoning, subdivision, building and relatedregulations. This section allows bothcounties and municipalities to planacross jurisdictional boundaries to jointlyplan for appropriate oil and gasdevelopment within the county.

Additional authority for intergovernmental cooperative planningand regulation is found at Art XIV, Sec.18(2)(a)of the Colorado Constitution andC.R.S. § 29-1-203.

AREAS AND ACTIVITIES OF STATE

INTEREST, C.R.S. § 24-65.1-101, ET SEQ. (“HB1041” )

In 1974, the state legislature adoptedHouse Bill 1041, the companion bill toH.B. 1034. HB 1041 permits localgovernments to regulate developmentthat would affect areas and activities of

state interest. Declaring that “theprotection of the utility, value and futureof all lands within the state…is a matter of public interest,” the legislatureidentified certain types of areas andcertain activities in which the state wasinterested and established criteria for the administration of those areas andactivities. Counties and municipalitiesare given the power to designate suchareas and activities within their

jurisdictions and to require that anydeveloper apply for and receive a permitprior to beginning development.

“In Rio Blanco County, this industry isthe cornerstone of our economy.Historically, we have maintainedstrong, positive relationships with our

producers. New development hasexpanded both the geographic areaand number of operators working hereat a rate exceeding the capacity of our infrastructure – primarily roads. Inorder that new activity would shareproportionally in meeting these needs,we concluded that impact fees on allnew development – residential,commercial and industrial –represented the fairest and most

equitable way to provide then neededinfrastructure.”

- Ken Parsons,Rio Blanco County Commissioner

H.B. 1041 encouraged counties andmunicipalities to designate such areasand activities within their jurisdiction andto administer them in accordance withthe statutory guidelines, and the




guidelines promulgated by the localgovernments in accordance with thestatutes. Within any area so designated,development requires an additionalpermit. Those areas available for

designation under the statute and whichare likely applicable to oil and gasoperations include:

Mineral resource areas; Natural hazard areas; Areas containing or having a

significant impact upon historical,natural, or archaeologicalresources of statewideimportance; and

Areas around key facilities,including airports; major facilitiesof a public utility; andinterchanges involving arterialhighways, in which developmentmay have a material effect uponthe key facility or the surroundingcommunity.

The criteria for administration of areas of state interest are found at C.R.S. § 24-

65.1-202. Of particular note is theprovision regarding mineral resourceareas at § 24-65.1-202(1)(a):

Mineral resource areasdesignated as areas of stateinterest shall be protected andadministered in such a manner as to permit the extraction andexploration of minerals therefrom,unless extraction and exploration

would cause significant danger topublic health and safety. If thelocal government having

jurisdiction, after weighingsufficient technical or other evidence, finds that the economicvalue of the minerals presenttherein is less than the value of

another existing or requesteduse, such other use should begiven preference; however, other uses which would not interferewith the extraction and

exploration of minerals may bepermitted in such areas of stateinterest.

An important limitation is found atSection 24-65.1-202(1)(d), C.R.S.,which provides that an area of oil andgas resource development “shall not bedesignated as an area of state interestunless the state oil and gasconservation commission identifies such

area for designation.”The protection of historical, natural andarchaeological resources is another important goal of the statute.Communities that rely on theseresources for tourist dollars and that areseeing an increase in oil and gasdevelopment, for example, may want toconsider designating such areas inorder to provide additional protection for them and for their economies.

Activi ties of State Interest. C.R.S. §24-65.1-203 lists activities of stateinterest that may be designated by localgovernments. The most relevant interms of oil and gas exploration anddevelopment may be the site selectionand development of “new communities,”defined as “the major revitalization of existing municipalities or the

…An area of oil and gas resourcedevelopment “shall not be designated asan area of state interest unless the state

oil and gas conservation commissionidentifies such area for designation.





establishment of urbanized growthcenters in unincorporated areas.” Thecriteria for administration of this activityof state interest, found at C.R.S. § 24-65.1-204, include:

When applicable, or as mayotherwise be provided by law, anew community design shall, at aminimum, provide for transportation, waste disposal,schools, and other governmentalservices in a manner that will notoverload facilities of existingcommunities of the region.Priority shall be given to the

development of total communitieswhich provide for commercial andindustrial activity, as well asresidences, and for internaltransportation and circulationpatterns.

“1041 Regulations,” as they are known,represent a powerful land use tool for local governments that wish to regulatedevelopment that could have significant

adverse effects on their communities.

COUNTY AND MUNICIPAL PLANNING AND

BUILDING CODE ENABLING STATUTES, C.R.S. §§ 30-28-101 ET SEQ., 30-28-201

ET SEQ., 31-23-201, ET SEQ., 31-23-301

ET SEQ.

In Colorado, land use planning has longbeen established as a matter of localconcern. See Town of Telluride v. SanMiguel Valley Corporation13, (“[W]erecognize that land use policytraditionally has been a localgovernment function in the state…”).

13 Town of Telluride v. San Miguel ValleyCorporation, 185 P.3d 161 (Colo. 2008).

The statutes that enable counties andstatutory cities and towns to adopt landuse plans, zone land, and enact buildingcodes, are found in the ColoradoRevised Statutes at Title 30, Article 28

for counties and Title 31, Article 23 for municipalities.

The county planning statutes, whichbegin at C.R.S. § 30-28-101, authorizethe creation of a planning commission,development of master plans (alsoknown as comprehensive plans), zoninglaws, and subdivision regulations. Thestatutes concerning building codes arefound at C.R.S. § 30-28-201 et seq.

The corresponding enabling statutes for municipalities are located at C.R.S. §§31-23-201 et seq. (planningcommission, master planning,subdivision) and 31-23-301 et seq. (zoning, building codes). Collectively,these statutes enable local governmentsto plan for and control developmentwithin their jurisdictions, and are thebasic method through which specificregulations and mitigation requirementsare imposed on all land use activity,including oil and gas operations.

Typically, fencing around well heads or tankbatteries consists of chain link and razor wire.This alternative fencing meets industry safetystandards and matches the character of theneighborhood. Courtesy of Todd Tucker, Town of Frederick.



extends to groundwater underneathproperties within the five-mile area thatfinds its way into streams in thewatershed.” While municipalities havethe right to enact these ordinances to

protect their watersheds, they must notconflict with state or federal statutessince to do so could mean they might bevoided for operational preemptionreasons. For further discussion of theuse of watershed protection ordinances,please see the Town of Palisade casestudy.

W ATERSHED PROTECTION, C.R.S. § 31-15-707(B)


C.R.S. § 31-15-707 gives municipalitiesthe power to “acquire waterworks,

gasworks, and gas distributionsystems.” Subsection (b) of the statuteenables municipalities to:

Construct or authorize theconstruction of such waterworkswithout their limits and, for thepurpose of maintaining andprotecting the same from injuryand the water from pollution, their

jurisdiction shall extend over the

territory occupied by such worksand all reservoirs, streams,trenches, pipes, and drains usedin and necessary for theconstruction, maintenance, andoperation of the same and over the stream or source from whichthe water is taken for five milesabove the point from which it istaken and to enact all ordinancesand regulations necessary to

carry the power conferred in thisparagraph (b) into effect.

In Town of Carbondale v. GSSProperties, LLC14, the Town argued andthe court agreed that C.R.S. § 31-15-707 gives municipalities the right toenact watershed protection ordinances.The court stated that the statute “givesmunicipalities jurisdiction over ‘thestream or source’ from which the water in their waterworks is taken ‘for fivemiles above the point from which it istaken.’ This jurisdiction necessarily

14 Town of Carbondale v. GSS Properties, LLC,

140 P.3d 53 (Colo. Ct. App. 2005),overruled onother grounds Town of Carbondale v. GSSProperties, LLC. 169 P.3d 675 (Colo. 2007).

“The Stakeholders of this planrecognize a heightened level of

commitment and responsibility isrequired if and when energydevelopment occurs in a watershed.The Watershed Plan explains thecommitment of the involved partiesto successfully resolve communityissues relating to potential energydevelopment in the watersheds of the Town of Palisade and the City of Grand Junction, Colorado.

The goals of the Plan are to: Prepare a final Plan using

public input and review Maintain a working

relationship with theStakeholders andcommunities;

Address and resolve issuesand concerns within thewatersheds; and

Facilitate an ongoing forum for

open, objective, and timelycommunications.”

- Watershed Plan for the Town of Palisadeand the City of Grand Junction, Colorado

A Collaborative Document of Watershed Stakeholders

2007




REGULATIONS, FEES AND MITIGATION STRATEGIES

INTRODUCTION: OPERATIONAL

PREEMPTION AND LOCAL REGULATION

As described above, the principal aspectof state and federal preemption asapplied to local regulation of oil and gasactivities is operational preemption, inwhich the local government mayregulate in an area unless the effect of that regulation would, in the words of theColorado Supreme Court in theBowen/Edwards case, “materially

impede or destroy the state interest” inthe regulatory area concerned. Asmuch as we might like a bright line rulethat says the state may regulate thetechnical aspects of oil and gasoperations and local governments mayregulate anything non-technical, or arule that divides the spheres of influenceas below-ground and above-ground,there does not appear to be any easydivision of authority.

Because of operational preemption inparticular, it is imperative that localgovernments know what federal andstate laws and regulations are in placethat affect the oil and gas industry. Withthat knowledge, they can then enactlaws that will not be preempted. Sowhat types of regulation are available?What are the areas to avoid or wherecaution is recommended? A good

starting point is to review the keyColorado appellate court decisions inthis area, which are summarized in the

Appendix under “Colorado PreemptionCase Law.” The fact is that the courtsdescribe operational preemption as anad-hoc, case-by-case determination.Much depends upon the degree to

which the local regulation can be seenas supplementing and supporting, rather than replacing or attempting to displace,the state regulation. In particular, localofficials are encouraged to read therecent decision by the Colorado Court of

Appeals that directly addressesoperational preemption: Board of County Commissioners of GunnisonCounty v. BDS International, LLC, 159P.3d 773 (Colo. App. 2006). Thisdecision is helpful in particular for its

description of categories of preempted,permitted, and potentially permitted localregulations. Find more information onthis case in Appendix C.

Based on the case law, and with thecaution that the COGCC has recentlyrevised its rules and thus changed thescope of state regulation, the followingare some categories that are generally

available for local regulation.

Laws that mirror state statutesare generally safe from anoperational preemptionchallenge. However, theColorado Court of Appeals hasheld that it is not permissible toadopt the COGCC fine scheduleand then attempt to enforce it, aslocal governments are notauthorized to undertake that statefunction;15

Several courts have upheldrequiring a special use permit,and it is the most common tool

15 Town of Frederick v. North Amer. Resources.Co., 60 P.3d 758 (Colo. App. 2002)



used to apply substantiverequirements at the county andmunicipal level;

Regulations addressing accessroads and the impact of oil and

gas operations on their maintenance are acceptable. Fire protection plans and

emergency responserequirements are acceptable.

Impact fee ordinances that allowthe local government to recoupthe funds it will expend mitigatingnegative impacts from oil and gasdevelopment are defensible.

The case law also gives us someguidance on what categories of regulation are more likely to be declaredto operationally conflict with the stateregulatory scheme. These areasrepeatedly come up in the cases:

The technical aspects of drillingand pumping are heavilyaddressed in state law; the casesoften call this area out as

unavailable for local regulationunder an operational preemptiontheory.

Setback requirements thatconflict with COGCC rules areproblematic. Because this kind of requirement is essentiallynumeric, it is easy to see howconflict with different distances inthe COGCC rules can causeproblems, as was true for the

Town in the Frederick case. Fines may not be inconsistent

with the COGCC fine schedule. Financial requirements (separate

from impact fees for non-preempted areas) should notconflict with the COGCC rulesgoverning financial security to

guarantee certain activities suchas site reclamation andremediation.

Noise abatement requirementscan not go beyond those required

by the state. (Town of Frederick) Visual resources requirements

should not conflict with thedetailed provisions on this subjectin the COGCC rules. (Town of Frederick)

It is recognized that noise and visualimpact, in particular, are areas in whichlocal officials are under great pressureto act. While not completely unavailable

as a topic for local regulation, it isrecommended that the COGCC rules onthese subjects be reviewed carefullybefore enacting a local requirement.

As noted above, the cases repeatedlystate that the true test of whether a localregulation will be operationallypreempted is only after it has beenwritten and measured against the staterequirements to see if in practice it

frustrates the state regulatory scheme.The Gunnison County decision isparticularly helpful in identifying theportions of the regulations at issue inthat case that were not on their facepreempted, as the challenger hadargued, but that instead would require afull evidentiary review. In so holding, theCourt of Appeals described these areasas of legitimate concern for localgovernments, and in which local

governments have statutory authority toregulate, the issue being whether theparticular regulation was operationallypreempted:

Protection of water quality (TheCourt of Appeals has held thatthis area is legitimate for local




regulation under the statewatershed protection statute,remanding for an evidentiaryhearing on preemption. Town of Carbondale v. GSS Properties,

140 P.3d 53 (Colo. App. 2005),discussed in the Appendix; Drainage and soil erosion; Requirement for an analysis of

existing wildlife and sensitivewildlife habitats and proposedmitigation efforts;

Protection of livestock; Geologic hazards and protection

of cultural resources; Wildfire protection (The

Gunnison County courtspecifically held that “…so longas the [County] fire protectionplan requirements are notcontrary to the requirements of state law, the County mayregulate in the area of fireprotection.” As with all other disputed areas, the key is toreview the COGCC rules on thetopic and write the local

regulation around those rules.), Recreation impacts.

The following two sections will describehow the impacts on local communitiesfrom oil and gas development may beaddressed through local ordinances andregulations that regulate the source of those impacts, or provide that the costsof those impacts may be shared with theindustry through other mitigation

strategies.

AVAILABLE REGULATORY TECHNIQUES

With the foregoing operationalpreemption framework in mind, thissection of the handbook will addressregulations that may be considered by

local governments in an effort toaddress the impacts of oil and gasexploration and development. We beginwith the simplest ordinances andprogress to increasingly detailed

regulations.

Supplemental Zoning Regulations Most local governments have adoptedzoning ordinances or regulations under the authority granted by the county andmunicipal planning and building codestatutes, described in the sectionentitled “Statutory Authority for LocalRegulation of Oil and GasDevelopment.” At their most basic,these regulations address such topicsas permitted uses in a zone district,height restrictions, and setbackrequirements. As a regulatoryframework, local governments oftenadopt supplemental regulations thatapply across the board in all zonedistricts. Examples of supplementalregulations include those that controlhome occupations, accessory uses,fences, solar devices, industrialperformance standards, and those thatregulate dust and glare.

Some communities have adoptedsupplemental regulations that apply tooil and gas exploration and production.Such regulations have included, for example:

To avoid operational preemptionissues local supplemental zoningregulations must not conflict with

state regulations, or in the words of the Court of Appeals in Town of

Frederick v. North AmericanResources, "go beyond” those

required by the state.




Setback requirements; Noise regulations; Visual impact mitigation

requirements; Fugitive dust regulations,

Lighting regulations.

To avoid operational preemption issueslocal supplemental zoning regulationsmust not conflict with state regulations,or in the words of the Court of Appealsin Town of Frederick v. North AmericanResources, "go beyond” those requiredby the state.

Special Use Permits

The overwhelming majority of countiesand municipalities that have adoptedany type of oil and gas regulation havechosen to implement those regulationsthrough special use permits. Alsoknown as conditional use permits or special review uses, special use permitsare typically required for uses that mayor may not work well depending on their specific location and the uses thatsurround it. An example of a use that

might require such a review might be ashooting range in an agricultural zonedistrict. This particular use may or maynot function well in the proposedlocation, depending upon the proximityof homes and/or animals that might beaffected.

The application for special use permitsby oil and gas exploration anddevelopment may require any of the

following:

Detailed site drawings that showthe location of structures, flowlines or pipelines, gatheringsystems, tanks, wells, pits, andassociated equipment;

Existing and proposed roads;

Bodies of water and floodplains; Utility lines and easements; Ditches, dams, reservoirs; Mines; Geologic features;

Existing and proposedtopography;

Wildlife habitat areas andmigration routes;

Copies of all required statepermits;

Copies of financial guarantees; An operation plan; An emergency response plan; A reclamation plan; Noise, odor and dust abatement

plans; Proposed measures to mitigate

visual impacts; Transportation plans; A waste disposal plan; Drainage and erosion control

plans; A weed management plan, A stormwater management plan

filed with the state.

The process for applying for andreceiving a special use permit variesdepending on the jurisdiction and mayrequire notice to neighbors and or apublic process. Generally speaking, theprocedure is typically divided into anadministrative review for minor facilitiesand a public hearing before the localgoverning body for major facilities.Notice of the application to adjoining

property owners may be required for both processes. The standard of reviewin these cases may include suitability,safety, and compatibility. For anexample of an administrative process,please see the Town of Frederick casestudy. Again, before adopting this typeof regulatory scheme, it is important to




be aware of federal and stateregulations to avoid preemption of thelocal regulations based on anoperational conflict.

1041 Regulations The state statutes that govern local1041 Regulations, C.R.S. § 24-65.1-101et seq., are quite detailed. They includeexplicit rules that limit the areas andactivities of state interest that may beregulated, as well as the criteria for theadministration of such regulations.Please refer to the discussion of 1041Regulations found earlier in thisHandbook. These regulations may be

adopted to protect historical, natural or archaeological resources and areasaround key facilities such as airportsand arterial highway interchanges.Caution: the statutes include an explicitprohibition against designating an area of oil and gas or geothermal resourcedevelopment as an area of state interestunless COGCC has identified the areafor designation. This prohibition doesnot apply if an activity of state interesthas been identified or if the area is partof another area of state interest.

1034 Regulations and Impact Fees The Local Government Land UseControl Enabling Act of 1974 givesbroad authority to local governments toplan development within their

jurisdictions and across jurisdictions.These powers are discussed in detailearlier in this Handbook. In addition toenabling local government ordinancesregulating development, 1034Regulations have been the basis for theadoption of temporary moratoria. SeeDroste v. Board of CountyCommissioners of County of Pitkin, 159P.3d 601 (Colo. 2007).

In 2001, the state legislature addedC.R.S. § 29-20-104.5, which authorizesand regulates the adoption of impact feeordinances by local governments.Impact fees may be imposed to fund

expenditures by local governments oncapital facilities needed to serve newdevelopment. These fees must be (1)legislatively adopted, (2) generallyapplicable to a broad class of propertyand (3) intended to defray the projectedimpacts on capital facilities (such asroads, and water and sewer plants andmains) caused by the proposeddevelopment. Because impact feesmay not be used to remedy a current

deficiency in capital facilities, studiesfixing the estimated cost of developmentare necessary. Impact fees are analternative method of sharing the cost of mitigating the impacts of oil and gasexploration and production with theindustry.

Watershed Protection Ordinances C.R.S. §31-15-707(b) givesmunicipalities the power to “acquirewaterworks, gasworks, and gasdistribution systems.” Subsection (b) of the statute enables municipalities toprotect those infrastructures and theassociated water and bodies of water from pollution. It extends the jurisdictionof the municipality over the territory

“Communities facing potential energydevelopment activity should firstprotect their water. State and federal

agencies may adopt and implementwater quality standards butmunicipalities are the last line of defense in protecting drinking water.”

-Tim Sarmo, Manager,Town of Palisade




occupied by the infrastructure “and allreservoirs, streams, trenches, pipes, anddrains used in and necessary for theconstruction, maintenance, andoperation of the infrastructure “and over

the stream or source from which thewater is taken for five miles above thepoint from which it is taken.” Finally, itauthorizes the governing body of eachmunicipality to enact all ordinances andregulations necessary to carry the power conferred by paragraph (b) into effect.

In Town of Carbondale v. GSSProperties, LLC, decided by theColorado Court of Appeals in 2006, theTown argued and the court agreed thatC.R.S. § 31-15-707 gives municipalitiesthe right to enact watershed protectionordinances. That statute, the courtstated, “gives municipalities jurisdictionover ‘the stream or source’ from whichthe water in their waterworks is taken‘for five miles above the point fromwhich it is taken.’ This jurisdictionnecessarily extends to groundwater underneath properties within the five-mile area that finds its way into streamsin the watershed.”

Several local governments in Coloradohave enacted watershed protectionordinances. These ordinances can beused to ensure that water quality is notdamaged as a result of oil and gasactivity. Keep in mind, however, thatthese ordinances must not conflict withstate or federal statutes since to do socould mean they might be operationally

preempted. For further discussion of the use of watershed protectionordinances, please see the Town of Palisade case study found in thishandbook, which describes the jointwatershed protection plan adopted bythe Town and the City of GrandJunction.

OPERATIONAL CONFLICTS SPECIAL

EXCEPTION

Whatever approach is taken in an effortto regulate oil and gas exploration and

development, it is recommended thatlocal governments include provisions for a special exception to the regulationsbased on an operational conflict. Sucha provision can be used to prevent localgovernment regulations from actuallyconflicting in operation with therequirements of the Oil and GasConservation Act or other state or federal acts that address the activitybeing regulated by the local

government, or their implementingregulations. In practice, the localgovernment then has an opportunity toconduct its own “mini-evaluation” of itsregulation to determine if it will conflictwith the state scheme, with an actualoperation in mind. This essentiallyanticipates the kind of ad-hocevidentiary review that the courtdecisions tell us must often beundertaken to determine operational

preemption. The goal of the adoptionand use of such a procedure in the localregulation is to reduce the number of times a challenge will be brought to theregulations. Links to examples of thislanguage found in local regulations canbe found in the Appendix.

MITIGATION STRATEGIES

Research has revealed a wide range of

impacts that may be felt in thoselocations in which the oil and gasindustry operates. The list includesnoise, dust, odors, visual impacts,damage to roads and bridges,affordable housing shortages, need for increased water and sewer capacity,and effects on recreation areas and




wildlife habitat. This section of thehandbook will examine each of theseimpacts in turn and will providesuggestions for regulating or otherwisemitigating the impact.

Dust Many local governments already haveregulations that address dust concernsduring the development of residentialsubdivisions and business parks. If notalready broad enough to cover theinstallation of oil and gas facilities, theseordinances can be amended to includethis type of installation. Please note,however, that the Commission adopted

additional provisions at Rule 805(b) thatrequire operators to control fugitive dustby employing practices such as speedreduction, regular road maintenance,and restriction of construction duringhigh wind days. Dust control duringconstruction is limited to sites greater than 5 acres in size in attainment areas(see Clean Air Act discussion in the

Appendix, for a discussion of attainmentareas) and 1 acre in size in non-attainment areas. In thosecircumstances, the operator is requiredto use all available and practicalmethods which are technologicallyfeasible and economically reasonable tominimize fugitive dust. In developingdust control policies, local governmentsshould take these directives from theCommission into account in order toavoid preemption. Simply adding aprovision that air contaminant emissionsmust be in compliance with the permitand control provisions of the Colorado

Air Quality Control Program or with theCOGCC Rules may give the localgovernment enforcement power.

Housing Providing housing for the influx of oiland gas workers is a major impact oncommunities in oil and gas developmentareas. Fields are expected to be

worked for anywhere from the next 10 to30 years. Forward-thinkingcommunities may want to consider howto diversify their economic bases duringthe next three decades to be able toabsorb the homes that may be vacatedwhen the oil and gas is depleted. Suchdiversification may allow oil and gasworkers who have become permanentmembers of the community to remainand may attract new employees to the

community.

Photo courtesy of Ed Kosmicki

Some of the housing provided duringthis period of intense start up work will,of course, be temporary. What cancounties and municipalities do toregulate this temporary housing?




Temporary housing zone districts One idea that has been enactedalready is the temporary housingzone district. The main purposeof such a zone district is to permit

easy re-development when thetemporary boom is over. Regulation of temporary living

quarters Temporary living quarters, alsoknown as “TLQs” or “mancamps,” have had numerousimpacts on nearby towns,including the requirement for additional police patrol andintervention. These impacts are

perhaps best addressed throughcollaboration with the industry todevelop “rules of the camp” thatwill help reduce unwantedsecondary effects. The need for additional facilities such as jails,to the extent it is quantifiable,may be included in an impact feeper wellhead or other measurement.

Noise

Like dust, many local governments havenoise regulations. These tend to begeneral restrictions against any loudnoise, especially at night. Somecommunities have specific restrictionson construction noise. Theseordinances can be amended to includeoil and gas construction and facilityoperation. Methods of mitigating noisethat might be included in such aregulation may include requiring thefollowing:

Acoustically insulating housing or covers enclosing any motor or engine;

Screening of the site or noiseemitting equipment by fence or landscaping; solid wall;

A solid wall or fence of acoustically insulating material

surrounding all or part of thefacility; The exhaust from all engines,

motors, coolers and other mechanized equipment bevented upward in a directionaway from the closest existingresidence or platted subdivision;

The use of electric motors for artificial lift installations;

A noise management plan

specifying the calendar periodand/or hours of maximum noiseand the type, frequency, andlevel of noise to be emitted; and

Any other technically feasible andcost effective noise mitigationmeasures required by the localgovernment.

Again, bear in mind that Rule 802 of the Commission’s regulations

address the level of noise deemedacceptable according to the facility’sproximity to various zone districtsand that it provides for where thenoise level is measured. Under theTown of Frederick case, noiserequirements beyond the statelimitations were held to bepreempted.

Photo courtesy of Todd Tucker, Town of Frederick




Odors

Regulations that address odorsgenerally say that odors should notextend beyond the property line of the

business emitting the odor. The Rulessay that oil and gas facilities are to beoperated so as to avoid being anuisance or hazard to public health,safety, welfare or the environment. Rule805 requires compliance withRegulation No. 2 of CDPHE’s Air QualityControl Division and includes specificmeasures for production equipment andoperations, which, if followed, willprevent a citation for violation of this

rule. The Rule further requires greencompletion practices for oil and gaswells under certain conditions. Localgovernments interested in regulatingodors from oil and gas facilities shouldconsult the Regulations in order to avoidconflicts with those rules. San MiguelCounty, for example, requires thatapplicants provide a copy of an odor abatement plan to prevent impacts onthis and adjacent properties.

Roads

Road infrastructure sustains some of theheaviest and most costly impacts fromoil and gas development. As notedabove, this is an area in which thecourts have recognized greater authorityfor local governments, it being a moretraditional land use topic, and littlerelated to the technical aspects of drilling and operation. Localgovernments may adopt a variety of regulations to address these impacts:

A regulation may be adopted thatlimits vehicle weight on certainclasses of roads;

Permits could be required for oversized or overweight vehicles;

A regulation could require thatexisting roads be used whenever possible to minimize land

disturbance; A regulation may require that

roads be constructed andmaintained in compliance withthe local government’s standardsfor road and bridge construction,as necessary to accommodatethe traffic and equipment relatedto the oil and gas operation;

An impact fee might require theapplicant to bear its proportionate

cost of road and bridgeimprovements, repairs andmaintenance;

A regulation could limit thenumber of trucks to a site toavoid damage to roads causedby heavy vehicle use, weather conditions or water saturation.

Photo courtesy of Brian Ray, Craig Daily Press




Visual Impacts

Visual impacts are generally of twotypes: development that blocks scenicviews that are important to the

community, or development that fails toblend appropriately with its surroundingsthereby causing a decrease in an area’snatural beauty. Many localgovernments have already adoptedscenic view corridor regulations andsome have adopted regulations that limitheight and require certain color schemes to help prevent negative visualimpact from development. Other mitigation strategies may include the

following requirements:

Limiting the size of structures tothat necessary to satisfy presentand future functionalrequirements;

Feathering and thinning of edgesof vegetation when clearing treesand other vegetation for construction of facilities;

Aligning access roads to follow

existing grades; Minimizing cuts and fills and

shaping them to appear asnatural forms;

Painting facilities in uniform,noncontrasting, nonreflectivecolor tones and/or matchingfacilities to land, not sky, slightlydarker than adjacent landscape;

Establishing berms, groundcovers, shrubs and trees;

Directing exterior lighting either toward the ground or the surfaceof the building; prohibiting highintensity sodium vapor lighting;using lighting as needed only;shielding lighting to prevent directvisibility of light bulbs from off-site.

This tank battery was painted to improve theaesthetics and advertise the golf course where itis located. Courtesy of Todd Tucker, Town of Frederick.

When considering adopting suchregulations, please be aware of recentchanges to Rule 804 which requires allproduction facilities observable from apublic highway to be painted with colorsslightly darker in tone to the colors of thesurrounding landscape by September 1,2010.

Water and Sewer

The water and sewer infrastructurerequirements of oil and gas expansion inthe state have placed significantburdens on local communities. In somecircumstances, however, localgovernments have worked with theindustry to meet these basic services.Package sewage plants are onealternative to running expensive sewer lines and expanding treatment plants.However, like any other type of

development, these businesses may berequired to pay their incremental shareof the burden they place on the serviceprovider. Plant investment fees are atype of impact fee. Section 29-20-104.5, C.R.S., gives local governmentsthe authority to impose impact fees as acondition of development. Impact fees




may only be imposed according to aschedule that is (1) legislativelyadopted; (2) generally applicable to abroad class of property; and (3)intended to defray the projected impacts

on capital facilities (such as roads andwater and waste water treatment plants)caused by proposed development. Inorder to impose an impact fee, localgovernments must quantify the impactsof proposed development on existingcapital facilities and establish the impactfee at a level no greater than necessaryto offset such impacts. Impact fees maynot be used to as a way for the localgovernment to “catch up,” i.e., address

existing deficiencies in capital facilities.Water Quality

As discussed in the section onRegulatory Techniques, some localgovernments have adopted watershedprotection regulations. Theseregulations can protect the community’swater source as far as five miles fromthe point at which the water is takenand, significantly, can also protectgroundwater. While some localgovernments have limited their water quality regulations to requiringapplicants to comply with the listed stateand federal water quality laws andregulations (which, importantly, givesthe local government enforcementrights), others have adoptedcomprehensive watershed protectionplans, which require:

Communication and coordinationwith local communities, dispersalof information via an interactivewebsite, quarterly electronicnewsletters and public meetingbriefings;

Risk analysis addressing possiblesurface water contamination due toconstruction, sedimentation, wellproduction and transportation, andcontamination associated with

spills or releases; and possiblegroundwater contamination relatedto surface spills or releases,drilling, construction andproduction and subsurface releaseof contaminants;

Third party water studies andmonitoring over the course of thedevelopment process;

Best management practices for

risk mitigation to protectwatersheds, including:

o clustered development wellpad spacing

o collaborative stormwater management plans

o subcontractor educationo emergency response planso dust controlo closed loop drilling systemso cementing/casing programso green fracturingo fracture tracingo disposal of produced water

in ways other than on-siterecovery pits





Wildlife

State law requires that the COGCCadopt laws that work to protect wildlifehabitat and migration corridors. During

the 2008 COGCC rulemaking process,significant discussion was hadconcerning the regulations that wereproposed for the protection of wildlife.These regulations appear at the newSection 1200 of the Rules. Mitigationstrategies intended to protect wildlifemay be as simple as including a

prohibition against causing significantdegradation of wildlife or wildlife habitat,requiring a wildlife and wildlife habitatanalysis in conjunction with theColorado Division of Wildlife and the

U.S. Fish and Wildlife Service, or requiring that drilling and constructionactivities be avoided during critical useperiods. Local governments should beaware of state and federal regulations(such as the Endangered Species Act),in order to avoid operational conflicts.

USE OF CONSULTANTS OR SPECIALIZED STAFF TO ADVISE REGARDING INDUSTRY

PRACTICES IN THE FIELD AND MITIGATION STRATEGIES

It should be clear that oil and gas exploration, development and production activities arehighly specialized. Many local governments in Colorado are completely unfamiliar with themechanics of how the industry goes about these activities, leaving them without first handknowledge of how to best implement local regulations. Similarly, the range of impacts andthe available regulatory techniques are new to many Colorado local governments.

In this environment it could be useful and cost effective for a local government to augmentits local planning staff with the use of a consultant or specialized staff member with expertisein this area. The scope of work could be limited to facilitating dialogue with the industry andassistance in drafting local regulations. Among other things, such a consultant could:

Facilitate communication with industry representatives in a positive andknowledgeable way.

Assist in distinguishing between impacts of concern to local governments and thosewhich are not.

Assist in key operational issues, and suggest alternative regulatory techniques whichwill be successful in achieving local governments’ needs without unduly burdeningthe industry. For example, specialized knowledge about the power levels and designof motors used at the wellhead is not knowledge which is commonly possessed by acounty or municipal planning department. However, that knowledge is particularlyhelpful in designing wellhead noise regulations which achieve their goals withoutunduly impairing the industry's ability to develop the resource.

Assist in ensuring that a local government's regulations are not operationallypreempted by state or federal rules or legislation.

While most Colorado local governments would agree that it is important to use consultantssparingly, a specialized consultant in this area can often be much more cost effective to thelocal government than the cost of (1) defending regulations which are not as “fine-tuned" asthey otherwise could be, or (2) not positioning the local government to recover costs andmitigate the impacts the industry will have on the community.





CASE STUDIES

Many local governments in Colorado

regulate oil and gas through their landuse regulations. This makes sensesince land use regulation is a localconcern and local governments are bestable to understand and regulate in thisarena. This introduction is a descriptionof the process many local governmentsfollow to regulate oil and gasdevelopment. It is not meant to capturethe intricacies of the local permittingprocess, which can vary from jurisdiction

to jurisdiction.

It is recommended to adopt a permitprocess for locally regulating oil and gasdevelopment. Having such a processwill help your local government to better monitor the location of oil and gasfacilities and, at a minimum, ensure thatoil and gas developers have the proper state and federal approvals to operate.

Although the Colorado Oil and Gas

Conservation Commission ("COGCC")is required to notify local governmentsthrough its application for permit to drillprocess, that does not always occur 16.Therefore, the local permitting processmay provide the only opportunity for local governments to influence oil andgas development within their community.

16One way to improve communication with the

COGCC and industry is to assign a staff member as the COGCC Local Designee. Suchperson should be the primary contact person for the local government concerning oil and gasactivity. With a Local Designee, the localgovernment should receive additionalinformation from the COGCC and establishpreferences on how communication between theindustry, the COGCC and the local governmentshould occur.


In general, local governments require oiland gas companies to obtain a permitprior to beginning development of theresource. Depending on the type of facility proposed, this tends to be an administrative or special use review17 process (described more fully in eachcommunity's land use regulations). Thetypes of facilities are sometimesgenerally described as either "minor" or "major" with the distinction for reviewpurposes often between administrativereview (minor) and special use permitreview (major). An example of a minor facility is an individual well head. Amajor facility could include a site with acompressor station serving multiplewells, a location with multiple wastewater detention ponds, a water injectionstation, storage yards or gas treatmentfacilities.

17The process is alternatively called a use by

special review, conditional use review, oil andgas permit review, and many others. Theprocesses are generally the same, involving aspecific application, notice and public hearing.



For a major facility, and depending onthe location, the local government mayrequire the applicant to submit reports or studies indicating how it will mitigatecertain foreseeable impacts. Those

studies or reports generally address,among many topics: Weed control; Stormwater runoff; Traffic management; Noise; Wildlife habitat; Visual mitigation plans.

The types of reports required dependon the location and type of activity.

In satisfaction of these reportrequests, some local governmentsaccept the reports prepared for theCOGCC, the Department of Wildlife,the Bureau of Land Management or Forest Service. During this process,the land use review departmentand/or the persons responsible for

approving the facility may thenimpose conditions based on theresult of the different reports or studies. This process generallytakes a few months.

For a more detailed review of theavailable land use regulatory tools, seethe chapter entitled "Regulations, Feesand Mitigation Strategies.”

The following case studies describe howa few local governments in Colorado aredealing with existing or potential oil andgas development. These case studiesare provided as a guide for issues your

local community might consider whenadopting or amending regulationspertaining to oil and gas development.The "Recommendations" at the end of each section can also serve as talkingpoints when considering how to managean adverse impact.




Adopt Comprehensive Oil and Gas Regulations BeforeDevelopment Begins

Issue The County did not have oil and gas regulations and parties expressedinterest in developing oil and gas resources.

Resolution Adopt new land use regulations applying to oil and gas activities in theCounty.

Facts

Saguache County is located in central Colorado. It is primarily anagricultural community but also relies heavily on tourism. In 2006, acompany interested in seismic testing for potential oil and gas developmentapproached the County about its local permitting process. The County didnot have land use or other regulations pertaining to oil and gasdevelopment. That same year, the BLM began leasing portions of theCounty to an oil and gas developer. In order to stay ahead of thedevelopment, the County began work on drafting local oil and gasregulations.

Procedure In order to learn how others were regulating oil and gas development,Saguache County contacted several local governments in the state thatare considered leaders in the field of developing, defending and enforcinglocal oil and gas regulations. Two of the counties contacted were La PlataCounty and Gunnison County. Besides being leaders, Gunnison and LaPlata are regionally closer to Saguache which made meeting with staff fromthe other counties easier and more efficient than if Saguache had called onWeld County for recommendations. At this point, Saguache County couldhave adopted any other local government's oil and gas regulations as itsown. However, the County wanted to develop it own regulations that wouldaddress the needs and desires of its own community.

In addition, Saguache also researched local practices and regulations inother states with oil and gas activity. This helped provide Saguache withthe information necessary to discuss the regulations with its citizens.Ultimately, the County spent significant time in stakeholder meetingsworking to mesh all of these regulations together so that, in the end, theCounty adopted regulations reflecting its local preferences and influences.

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http://www.saguachecounty.net/depts/oilgas/




Regulations Saguache County's new regulations address two types of facilities: minor and major facilities. For both types, the applicant must attend a pre-application meeting where the County describes the procedures, the

submittal requirements and development standards. For both types of facilities, the County requires the applicant to provide: i) an emergencyresponse plan; ii) a noxious weed plan; iii) visual and sound mitigationplans; iv) a roadway impact analysis; v) a waste management plan; and vi)a water quality impact assessment. In addition to these submittalrequirements, the County adopted performance standards, well pad densityguidelines, and visual impact mitigation guidelines.

Addi tional Information Of note, Saguache County adopted an "Operational Conflicts Special

Exceptions" provision into its new regulations. It is recommended that localgovernments consider adopting such a provision when drafting newregulations. The operational conflicts provision allows local governmentsto amend the requirements in a permit when it is determined that there isan operational conflict between the local regulations or permit requirementsand the COGCC rules and/or the Colorado Oil and Gas Conservation Act.

Result There has been no permit issued by Saguache County as of the publicationof this handbook.

Recommendations Learn from other in-state local governments.

Learn from out-of-state local governments.

Be proactive and adopt regulations before significant developmentbegins.

Include an operational conflicts provision in your regulations.

Saguache County Oil and Gas Website (including regulations)http://www.saguachecounty.net/depts/oilgas/






Adopt Temporary Employee Housing Regulations

IssueThe County did not allow for temporary employee housing on well pad

sites.

Resolution Adopt new regulations that permit temporary employee housing withdifferent levels of County review depending on the number of employeesbeing housed.

FactsGarfield County is located on the western slope of Colorado with portions

of the County included in the Piceance Basin. It experienced and continuesto experience significant oil and gas drilling activity. Drilling a well requiresa significant number of employees to monitor and facilitate the activityevery hour of every day until the well is complete. This generally consistsof two sets of employees who each work twelve hour shifts. Every well padrequires some amount of on-site employee housing. Generally, thosestaying on site are the essential employees. In addition, most of the wellpad locations in the County are remote. To limit trips by exhausted non-essential employees and to provide ready access to the well pads in thoseremote locations companies seek additional onsite or near site temporaryemployee housing.

ProcedureThe County contacted the Colorado Attorney General's office anddiscovered the COGCC did not regulate temporary housing for oil and gasdevelopment staff. The County then worked with the industry and others toresearch the different types of temporary housing used by the oil and gasindustry. The County determined that there would be three levels of on-sitetemporary employee housing. Almost 90% of the on-site housing was for eight or fewer essential employees. The remaining two levels of housingconsisted of 1) between nine and twenty-four employees and 2) twenty-five

or more employees.

RegulationsThe County adopted a three tier system for the different levels of temporaryemployee housing. When a company seeks to house eight or fewer employees on site, the County does not require any type of land use or building permit or review.

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When there are between nineand twenty-four employees beinghoused, the County requires anadministrative land use permit.

This is a basic permit with limitedreview.

Finally, if there are twenty-five or more employees being housed,the County requires a special usepermit. The Board of CountyCommissioners must approve theuse before a permit will beissued. This is an intensivereview process.

Garfield County TLQ Regulations Rio Blanco TLQ Regulations

Taken from Garfield County Energy Advisory Board“Community Guide to Understanding Natural Gas Development”

Addi tional InformationThe Colorado Division of Housing now requires a seal that all temporaryhousing is approved for the use so requested. In addition, if a county doesnot have its own building department, all temporary housing must be

inspected by the Division to verify that such housing meets the standardsof the State Housing Board.

ResultThe County's regulations took effect in September 2008. As of the timeresearch for this guide was conducted, results of the Garfield Countyregulations were not available.

Recommendations

Work with industry to understand what you are regulating. If your county or local government expects significant oil and gas

development, start developing your temporary housing regulationsnow.

Require and, if possible during inspections, ensure that alltemporary employee housing is approved by the State Division of Housing.


http://www.garfield-county.com/Index.aspx?page=570

http://www.co.rio-blanco.co.us/development/pdf/RBC%20EXHIBIT%20ATLQRegulations,6%5B1%5D%5B1%5D.21.07FINAL.pdf


http://dola.colorado.gov/cdh/index.html

http://dola.colorado.gov/cdh/index.html






Consider Impact Fees

Issue Deteriorating roadways

Resolution Adopt a per well impact fee of $17,700 to offset future capital requirementsfor roads, law enforcement, and administrative facilities caused by oil andgas development.

Facts Rio Blanco County is located in northwestern Colorado. It has a populationof almost 6,000 residents, is over 3,000 square miles and owns and

manages 961 linear miles of roads, most of which are dirt surface roads.The fastest growing business within Rio Blanco is oil and gas developmenton BLM lands in the Piceance Creek Basin. Rio Blanco's roads provide theprimary access point for that development. Although Rio Blanco is rich innatural resources, to access the gas in the Piceance Creek Basin fromwithin the County, companies must drill to depths of between 7,000 and9,000 feet. The greater the depth required to reach the gas requires agreater drilling period and, in turn significantly increases the number of tripsby certain types of heavy-haul vehicles.

Rio Blanco’s roads are deteriorating due to the rapid increase in oil and gas

development and the use of its roads by an increasing number of heavyhaul vehicles. This increase in oil and gas development has also broughtan increase in population impacting capital facilities including Rio Blanco’sadministrative and jail facilities. In 2006, Rio Blanco commissioned aconsulting firm to study the idea of imposing impact fees for required futureimprovements to roadways, expansion of police and jail facilities, and theconstruction of new administrative facilities.18 Because the roadwayportion of the impact fee is the highest for oil and gas development, it is thetopic discussed here.

18 For a review of the County's other portions of the impact fee, please visit the Rio Blanco Countywebsite. www.co.rio-blanco.co.us

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http://www.co.rio-blanco.co.us/






Procedure Colorado allows local governments to charge impact fees as a condition of issuing a development permit so long as the fee is: i) legislatively adopted;ii) applicable to a broad class of property; and iii) intended to defray the

projected impacts on capital facilities caused by the proposeddevelopment.19 Rio Blanco adopted a resolution imposing an impact feethat applied to all new development in the County, including residentialdevelopment, commercial development and oil and gas development,based on a consulting report justifying the amount. The impact feecharged to oil and gas developers primarily serves to offset future costs of improving roadway infrastructure.

The amount of impact to a road is determined on what is known as an"ESAL". An ESAL is the equivalent of a single axle load's impact to theroad. Cars and pickups have extremely low ESAL numbers whereasheavy haul vehicles have much higher ESAL numbers because of weight,and their relatively greater impact to the road. Because the portion of thePiceance Basin in Rio Blanco is remote and the depth of the average wellis significant, well sites require numerous visits from heavy haul vehicleswith high ESAL numbers. In fact, Rio Blanco's consulting report calculatedthat the average number of trips required of heavy haul vehicles to drill andmaintain the average well site in the County, considering the forecastedaverage well life of 40 years, was approximately 2,700. Ultimately, thisresulted in an impact fee of $17,700 per well.20

Rio Blanco charges the impact fee to oil and gas development on a onetime per well basis. The fee is assessed against the company when the

permit is issued. This is not an ongoing fee and the funds generatedshould only apply to future capital improvements.

Regulations It is of note that for many years Rio Blanco did not have a permit processfor oil and gas development despite the existence of significant oil and gasactivity. Rio Blanco realized that it could not track well location basedsolely on the COGCC permit process and needed a local way to coordinatewell locations and therefore adopted the land use permit process. It isprimarily an administrative review process with little additional submittal

requirements. Rio Blanco charges a $250 permit fee to review the permitapplication.

19C.R.S. § 29-20-104.5.

20 This amounts to approximately 1% of the total cost to drill a well. The impact fee is not ongoing andtherefore over the life of a well, the impact fee becomes a substantially lower percentage of the total costrequired to drill and maintain a well compared to the well's profitability.



Addi tional Information Alternatives Considered: Instead of adopting the impact fee, Rio Blancoalso considered changing one of its roads to a toll road in order to offsetroadway maintenance costs. This concept was determined to be unviable

because it would cause additional traffic congestion and problemsmonitoring and collecting from vehicles due to the numerous access pointsalong the road.

ResultRio Blanco began collecting the impact fee in 2008 and has thus far notexperienced any problems. The main issue was getting the industry torecognize that Rio Blanco had adopted a permitting process where onehad not previously existed. Most of the operators are now aware of boththe process and of the impact fee, and have complied.

Recommendations Before adopting impact fees or other oil and gas regulations, present

and consider alternatives and ask for public buy in.

Discuss the need for impact fees with the industry and explain howsuch fees will be beneficial to the industry's operations; i.e. better roads make it easier for vehicles to get to job sites.

Adopt impact fees for all new development and not just oil and gasactivity.

At a minimum, consider adopting thorough oil and gas regulations to helpthe local government monitor oil and gas development activity in the area.

Rio Blanco Impact Fees


http://www.co.rio-blanco.co.us/development/





Negot iate With the Industry

Issue Oil and gas development proposed in over two-thirds of the Town's

watershed.

ResolutionNegotiate a watershed management plan with the company proposing theactivity to get assistance with testing water, monitoring existing watershedregulations and requiring best management practices for all oil and gasdevelopment within the watershed.

Facts

Palisade is located just off I-70 at the base of Grand Mesa, in an area thatis considered a high desert climate. It is well-known for its production of peaches and more recently for its thriving wine making business.

Palisade is 1.1 square miles with no oil and gas activity. Its watershed is21 square miles located in the Piceance Basin and is made up of primarilyBLM and privately owned land. Genesis Gas and Oil, LLC ("Genesis")owned the lease rights to drill for natural gas on 15 square miles within thewatershed. Because Genesis leased the mineral rights in over two-thirdsof Palisade's watershed, there was concern about Palisade’s ability toprotect its water source.

Prior to the BLM approving the leases, Palisade protested all oil and gasdevelopment within the watershed. The BLM did not prohibit all developmentbut Palisade was successful in persuading the BLM to require Genesis tosubmit a community based water plan as a stipulation to its leases.

Procedure Palisade’s Watershed Agreement serves as the community based water plan required as a stipulation in the BLM lease. The agreement wasnegotiated between Palisade, Genesis and other stakeholders in the area,

including Grand Junction and Mesa County. The agreement is not legallyenforceable but acts like a memorandum of understanding. While havingan enforceable agreement would be better, one of Palisade's primarypurposes in entering into the agreement was to give its citizens anopportunity to provide input. In addition, the agreement allowed Palisadeto voice its concerns with both the company and the BLM. Through thatnegotiation process, Palisade was able to prevent development activity ona portion of the company's lease area that was critical for water protection.

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The agreement states that the company will comply with Palisade'swatershed regulations and will provide a quarterly water quality monitoringreport. In addition, as attachments to the agreement, Palisade and thecompany negotiated an emergency response plan and a stormwater

management plan. Each of those plans pertains specifically to monitoringactivity within the watershed and also requires the company to follow bestmanagement practices when developing the area.

Regulations Palisade adopted watershed regulations in 1997, prohibiting certain activityin the watershed without first obtaining a permit. Oil and gas activities arecovered by the regulations. This is a land use regulatory process that isextra-territorial in nature because Palisade has not annexed the watershedinto its borders. This process is authorized by C.R.S. 31-15-707(1)(b).

The watershed regulations require applicants to submit an environmentalassessment that considers the activity's impact on water resources,vegetation, soils, drainage, wastewater treatment and the water supply inrelation to the geographic location of the activity proposed.

Applicants must also provide: i) a re-vegetation, soil erosion control andwater quality monitoring plan, ii) a grading plan, and iii) such other information as Palisade requires depending on the location and type of proposed activity.

All of this information, while helpful, does not help Palisade enforce the

Regulations once the activity is approved. Because the company's activitywill cover 15 square miles within the watershed, monitoring compliancewith the regulations will be difficult. To some extent, Palisade must rely onthe company and its subcontractors to follow best management practices.

Result Extensive development in the watershed has not begun. Certain oil andgas activities are taking place and Palisade has been fortunate to receiveassistance in monitoring those activities from citizens recreating in thewatershed area. In fact, Palisade received word from a citizen that adetention pond may have been leaking, then investigated and notified thecompany of the issue. Immediate action was taken, the leak was halted,and there was no impact to the Town's water. In addition, the company hasthus far provided the quarterly water quality monitoring reports promised inthe agreement.




Recommendations

Know your community's rights when dealing with other governmentalentities and participate in the process.

Make your concerns known to other government entities, the public

and especially the industry.

Bring all of the interested parties to the table to negotiate potentialimpacts before drilling or other activity begins.

Watershed Plan for Palisade and Grand Junction and Agreement withGenesis Gas and Oil, LLC


http://genesispalisadecdp.org/History.htm







Adoption of an Administ rative Review Process for Oil andNatural Gas Wells

Issue The Town had a Special Use Process that required a public hearing prior toapproval and drilling oil and natural gas wells. This tended to lengthen theprocess without changing the outcome for the applicant. Since surface useagreements determined well locations in relation to planned or existingsurface development plans and since the state preempts localgovernments from regulating significant aspects of locating oil and naturalgas wells, the Town determined that an administrative process wouldsimplify the approval of new oil and natural gas wells. In addition, toenhance the public's knowledge of the oil and gas industry, educationalmaterial was developed to assist in understanding the installation andmaintenance requirements of oil and natural gas wells and ancillaryfacilities.

Resolution Adopt land use regulations that allow for an administrative review for newoil and natural gas activities in certain circumstances. Develop educationalmaterials to assist the public in understanding the industry and how it mayaffect them.

Facts

The Town is located north of Denver in southwest Weld County, Coloradoand in the heart of the Wattenberg formation, a mineral rich subsurfacestrata located in northeastern Colorado. The Wattenberg field is one of thelargest and most reliable oil and natural gas reservoirs in the nation. Thisresults in a significant number of wells being drilled annually to meet thedemand of the Front Range and mid-western United States.

Between the years 2000 and 2007, the Town grew from a population of 2,476 residents to an estimated 7,997 residents and extended its municipalboundary to cover 13 square miles. In December of 2007, the Town had340 wells located within its municipal boundary (about 1/3 of all wells within

Weld County). By the third quarter of 2008, an additional 30 wells wereinstalled with another 28 wells pending approval (an increase of nearly20%). Each well requires a 200 foot building setback by town regulationswhich can result in 0.72 acres of land area set aside for each oil andnatural gas well, unless twined with other wells (excluding service roads,tank battery and burner setbacks, and land area encumbered by serviceand collector lines).

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Due to rapid development in both the oil and gas and housing industries,conflicts occasionally occurred with regard to the available land area andthe various land uses or interests. In addition, the installation of wells postsurface development occasionally became contentious and politicized the

approval process.

To minimize conflicts, the Town requires developers, surface owners, andthe industry operator or mineral interest to enter into a surface useagreement (SUA) prior to developing the surface of the site. Consequently,many of the well locations are predetermined prior to making application tothe Town, based on the surface owner's verses the industry or operator needs, and Colorado Oil and Gas Conservation Commission (COGCC) or Town requirements. In some instances, these wells are drilled prior tosurface development (residential or commercial development). In other instances, the wells will be drilled after development and urbanization of

the site. Since the Town is preempted by the COGCC from denying wellsites and the well site locations are usually predetermined in an SUA, thepublic hearing process unnecessarily lengthened the approval process. Tosimplify the approval process the Town instituted an administrative processthat could be applied in certain circumstances. As part of the process, theTown requires the operator to be proactive and responsive to neighbor concerns by providing notice prior to drilling and an operator contact toanswer questions or address concerns. To educate the public regardingthe resources of the area, new wells, and the Town's involvement in theapproval process, the Town developed an educational brochure.

Procedure The Special Use process requires a pre-application conference for discussion of the submittal and development requirements prior toapplication. Due to site circumstances, different approaches may berequired prior to and during drilling to minimize conflicts with thesurrounding property owners and resources related to the site. In someinstances, this may also result in an on-site meeting prior to application tothe Town. Please also note that, by designating Town staff as the State'sLocal Designee, the operator is required to contact the Town prior toapplication with the State, which can assist in addressing site specificcircumstances prior to approval of the well site by the COGCC.

Prior to application, the process requires a neighborhood meeting withadjacent property owners. This allows residents with questions or concerns to contact Town or Industry operator prior to the Town'sconsideration of the permit application. Upon application, staff conducts asite visit and analysis and reviews the application in accordance with thecriteria established in the code. This minimizes conflicts and disturbances




to existing and adjacent uses, resources, and habitat. Provided therequest conforms to the code requirements and there are no significantconcerns raised by the neighboring property owners or found on site, theapplication can be approved, or approved subject to conditions by

designated Town Staff. If concerns can't be resolved at the staff level, theapplication can be taken to the Board of Trustees for further consideration.Lastly, prior to drilling, the process requires notice to all adjacent propertyowners with an Operator contact to address questions, concerns or complaints during the drilling process.

Approximately 28 wells have been approved through the administrativeprocess since its adoption in 2007. As of October 2008, only onecomplaint has been received regarding a new well site in an urbanizedarea compared to ten complaints for a similar well site approved throughthe previous public hearing Special Use Process. The Town's educational

brochure available as a handout, PDF, or on our web site "Living with Oiland Natural Gas Development in the Town of Frederick," has also beenpopular with the community.

RegulationsThe Town has procedures for Special Use Review and in certaincircumstances Administrative approvals may be granted for new oil andgas wells. The application cost is $1,000. The minimum submittalrequirements include a site plan mapping the well location, access,proximity to improvements and habitat, site features, geologic hazards. In

addition, the applicant may be required to provide a fencing plan, anemergency response plan, a weed management plan, visual and soundmitigation plans; reclamation plans, a waste management plan, stormwater management plans, and secure access or building permits prior toconstruction.

The Town also conducts annual inspections of the well sites to verifycompliance with Town regulations and minimize attractive nuisances suchas trespass, weeds, vandalism, and fencing.

Addi tional Information The Town worked with industry and the COGCC to develop publicinformation, outreach and education. This information can be found at theTown of Frederick website or by calling the Town's Planning Department at303-833-2388 for an electronic or hard copy.


http://www.frederickco.gov/frederick.aspx?id=2500




Result

Approximately 30 wells have been approved through the administrativeprocess since its adoption in 2007, with 28 more in process. As of October 2008, only one complaint had been received regarding a new well in an

urbanized area compared to ten complaints for a similar drill site approvedand drilled through the Special Use Process in late 2007.

Recommendations

Be proactive with the public and industry / operator.

Adopt regulations that address the needs of the local governmentwhile balancing the interests at stake.

Work with the industry and developers to co-locate and combine well and

tank battery pad sites and reduce spacing between wells to minimizeconsumption of surface lands.

Excerpt from the Town of Frederick’s “Living With Oil and Gas”

Installing a well from start to finish will take as long as five or six weeks. However, if there

are multiple well sites to be drilled, then the length of time the rig is on site may be longer.

In addition:

Depending on the location, an access road may be constructed.

A three-acre area surrounding the drill site will be fenced off.

Excavation equipment will be moved to the site to prepare for drilling. Drilling rig and necessary equipment will move in, and the location will be built (placed).

Surface casing is set in the uppermost part of the hole in order to protect fresh water

zones and formations.

Drilling (which continues 24 hours per day) lasts six to eight days, depending on the

depth of the well.

When drilling is finalized, steel casing is lowered into the hole and cemented into place.

Drilling rig and equipment are moved off location, and the completion operation begins.

This requires a smaller rig used to fracture or “frac” the well, temporary water tanks and

pump equipment. This operation is usually completed within 24 – 48 hours.

Oil, water and gas flow to the surface through the wellhead and into a buried steel

flowline to the production facilities.

Production facilities, including oil and water storage tanks, a separator and a gas

metering system, are installed on the surface.






ROLE OF THE COLORADO OIL AND GAS CONSERVATIONCOMMISSION

The Colorado Oil and Gas ConservationCommission ("COGCC") is an agency of the State of Colorado. In 2008, theCOGCC became newsworthy becauseof its Herculean effort to revise its oiland gas regulations. This effort shouldbe compared to the time and effort alocal government spends reviewing andrevising its zoning or land use code but

on a statewide level. It was incrediblytime consuming because of the largenumber of stakeholders seeking to havetheir voices heard on many complex andimportant issues in an industry with vastfinancial resources.

The COGCC is comprised of a board of nine people who are entrusted with thepower to regulate oil and gasdevelopment in the state including rule

making to carry out this authority. By lawone of the board members must be alocal government official. The boardadopts regulations, sets policy andconducts hearings, while the staff implements such regulations andpolicies on a daily basis and make mostpermitting decisions.

The mission of the COGCC is topromote the responsible development of

Colorado's oil and gas naturalresources. Responsible developmentresults in:

The efficient exploration andproduction of oil and gasresources in a manner consistentwith the protection of publichealth, safety and welfare

The prevention of waste The protection of mineral owners'

correlative rights The prevention and mitigation of

adverse environmental impacts

The COGCC seeks to serve, solicitparticipation from, and maintain workingrelationships with all those having an

interest in Colorado's oil and gas naturalresources.

The COGCC currently permits or otherwise approves wells, pits,centralized exploration and productionwaste management facilities, andproduction facilities that service multiplewells. The COGCC’s regulatoryprograms include:

Permitting and tracking oil and

gas wells Permitting the pits that often

accompany such wells Approving certain other oil and

gas facilities Ensuring that operators comply

with various development andoperational requirements thataddress safety, aesthetics, noisecontrol, and waste management

Overseeing interim and final

reclamation Requiring remediation of

contamination Investigating complaints.

Most permitting decisions are made bystaff, but certain parties may appealthem to the commission. When a




decision is appealed, the commissionconducts a hearing to decide whether the permit should be issued and under what conditions.

It is during this process that localgovernments can become involved. If the oil and gas activity takes placewithin your community, the COGCC ischarged with providing notice to your Local Government Designee (the LocalGovernment Designee is the primarycontact person for your community).Upon contact, the local government maycomment on the application and makerecommendations to the COGCC

regarding the activity that is to occur. If your community does not participate, itmay lose an important opportunity tomake an impact before the activitybegins. In fact, a local government mustprovide the COGCC with written noticeof its Local Government Designee.Unless such notice is provided, then thevarious rights of the Local GovernmentDesignee do not apply.

These are just a few of the COGCC'sfunctions. It is important for any localgovernment to get to know the COGCCrules and understand the localgovernment's rights under the rules. Itis then imperative for the localgovernment to participate in theCOGCC process to the extent possible.By using the COGCC process and thenworking with the industry, the localgovernment will work more efficiently toprotect the health and safety of itscitizens.

Special rights of local governmentsunder the COGCC regulations:

The right to participate in thedevelopment of comprehensive

drilling plans (Rule 216); Special notice of permit

applications and locationassessments, permit andassessment decisions, and thecommencement of heavyequipment operations (Rule305);

The right to extend thecomment period on certainapplications from 20 to 30 days

(Rule 305); Consultation with operators

regarding the location of roads,production facilities, and wellsites (Rule 306);

The right to request CDPHEconsultation regarding publichealth, safety, welfare, andenvironmental concerns (Rule306);

The right to request a variancefrom the COGCC’s regulations(Rule 503);

The right to request acommission hearing on theapproval of a drilling permit or location assessment (Rule 503);

The right to request a localpublic forum in connection withan application for increased welldensity (Rule 508);





The Commission believes that the resulting final rules responsibly address the recentincrease in oil and gas development, implement the 2007 legislation, and update the prior rules where appropriate. It also believes that these rules will ensure the protection of thepublic health, safety and welfare, including the environment and wildlife resources, while

also fostering the responsible, balanced development, production, and utilization of oil andgas resources. C.R.S. § 34-60-102(1)(b). These rules will, among other things:

Provide additional protection for public health and the environment through several newmeasures. These measures include requirements that operators maintain an inventoryof chemicals kept onsite for use downhole, restrict operations in areas near drinkingwater sources, install emission control devices on certain equipment located near homes, schools, and other occupied buildings, and implement additional stormwater management measures. See Rules 205, 317B, 805, and 1002;

Minimize adverse impacts on wildlife resources by requiring operators to work withCDOW regarding site-specific mitigation for sensitive wildlife habitat (mostly located in

Western Colorado) and to avoid the most critical habitat areas where technically andeconomically feasible. See Rules 1201-1205;

Provide for consultation with the CDPHE and CDOW in appropriate circumstances.These consultations will result in recommendations to the COGCC Director onappropriate conditions of approval to protect public health, the environment, andwildlife. For wildlife conditions, the Director’s decision will be subject to surface owner consent. See Rules 306, 1202;

Provide for timely efficient permitting through measures such as limiting the duration of CDPHE and CDOW consultation and public comment, expediting approvals under certain circumstances, and Commission review if permitting decisions are not timelyissued. The rules also omit earlier proposals to develop an expansive new applicationform and require wildlife surveys. See Rules 216, 303, 305, 306, and 1201;

Encourage landscape level planning through operator-initiated Comprehensive DrillingPlans, which will facilitate early and collaborative review and in certain circumstancesaggregate and expedite regulatory approvals. While such Plans will be optional, therules contain incentives for their use. See Rule 216;

Provide for enhanced transparency by notifying surface owners, the owners of nearbysurface property, local governments, the CDPHE and CDOW, and the public of permitapplications and providing them with a minimum 20-day period to submit comments tothe Director. See Rule 305; and

Avoid a one-size-fits-all approach by tailoring numerous rules to the individualcircumstances of the location or region. This includes rules concerning therequirements for compliance checklists, permit applications, notice, drinking water protection, odor control, and wildlife habitat protection. See Rules 206, 303, 305, 317B,318A, 318B, 805, and 1202-1205.

-Statement of Basis, Specific Statutory Authority, and Purpose,Dec. 11, 2008 Rules



COGCC Resources and Links

Web home page http://cogcc.state.co.us/ for final amended rules and more

Local government data http://cogcc.state.co.us/Infosys/lgd/searchform.cfm (Find approved and pending permits by local government, the Local GovernmentalDesignees, and more)

GIS Online – maps http://cogcc.state.co.us/infosys/Maps/gismain.cfm

“This was the most extensive rulemaking hearing in the Commission’s history. Alltold, the Commission held twenty-two days of hearings, with some the days lastingalmost twelve hours. The Commission heard approximately twelve hours of publiccomment by approximately two hundred people. It heard from approximately onehundred sixty party and staff witnesses and heard approximately seventy-five hoursof testimony, cross, examination, and answers to Commissioner questions on twelvedays of hearings. The Commission also considered more than thirty legal motionsand conducted nine days of initial and final deliberations totaling more than seventyadditional hours. Throughout the hearing, the Commission listened to all of thewitnesses, questioned aspects of witnesses’ written testimony, directed its staff towork with parties, and asked clarifying questions as necessary. The Commission

repeatedly extended the rulemaking hearing in order to hear additional testimonyand argument and conduct additional deliberations. It also directed and approvednumerous changes to the draft rules that reflect input from the parties.”

-Statement of Basis, Specific Statutory Authority, and Purpose, Dec. 11, 2008 Rules


http://cogcc.state.co.us/

http://cogcc.state.co.us/Infosys/lgd/searchform.cfm


http://cogcc.state.co.us/infosys/Maps/gismain.cfm

http://cogcc.state.co.us/infosys/Maps/gismain.cfm






WORKING WITH THE INDUSTRY

Collaborative Oil & Gas Development in Colorado

Written by Robert Spencer, Wattenberg Landman, Anadarko Petroleum Corporation, 2009

Introduction

As one of the largest natural gasproducers in Colorado, Kerr-McGeeOnshore Oil and Gas, LP, a whollyowned subsidiary of AnadarkoPetroleum Corporation (KMG) is proud

to be working with the Department of Local Affairs of the State of Colorado oneducating and informing localgovernments on the issues and realitiesthat local governments and industry facewhen oil and gas development reachestheir jurisdictional boundaries. Thisopportunity has opened the door to anextended discussion regarding naturalgas and oil production in our localColorado communities.

As the global demand for energyresources has grown, our state andnation have become more focused onfinding and producing natural gas andoil within our borders, and the RockyMountain Region is blessed with anabundant supply. The Wattenberg field,which runs along the Front Range of Northeast Colorado, is the eighth-largestproducing natural gas field in our nation.

Local governments and the generalpublic are very interested in how we aredeveloping these local resources, whileminimizing impact on the surface. This

interest was evidenced by theoverwhelming reception KMG(Anadarko Petroleum) received duringthe workshop covering natural gas andoil development in the Wattenberg field

at last year’s American Planning Association’s (APA) Annual ColoradoChapter Conference in Breckenridge.

KMG and the Wattenberg field havegarnered attention from other areas of Colorado for many reasons. TheWattenberg field is home to Weld,Larimer, Boulder, Adams andBroomfield Counties and over twenty-three local municipalities as depicted on

the attached map, all of which are invarious stages of aggressivecommercial, residential and municipalinfrastructure development. Within theWattenberg field, KMG has access toapproximately 550,000 net acres andoperates roughly 4,000 wells whichproduce an average of 280 million cubicfeet of natural gas equivalent per day(MMCfe/d). That’s enough energy eachday to supply approximately 1.5 million

average American homes, and much of this clean-burning natural gas isdelivered to local homes andbusinesses along the Front Range.



Above please note the diversity of land use and the proximity of local munic ipali ties wi th in theWattenberg field.

With burgeoning communities andcontinued urban development in theFront Range and across Colorado, our goal for our participation in thisDepartment of Local Affairs handbook isto educate and inform professionalplanners, and local government staff and elected officials about howcollaborative land use and surfacedevelopment can successfully coexist.

The Wattenberg field provides anexcellent case study for this discussiondue to the mixture of oil and gas and

urban development. Throughout thefour decade development of theWattenberg field, KMG has cultivatedpositive working relationships with localgovernments. As development of theseareas has intensified, the nature of these relationships has evolved intocohesive partnerships that seek tobalance and defend all parties’ coreinterests. These interests are typicallypreservation of the surface whilesimultaneously producing natural gasand oil.




Colorado Oil and GasCommission Final AmendedRules (12/17/2008)

Throughout 2008 the Colorado Oil andGas Conservation Commission(COGCC) was charged with amendingthe existing rules and regulations. Theysucceeded in adopting a newlyamended set of rules as of December 17, 2008. The new rules will take effect

April 1, 2009 on non-federal lands andMay 1, 2009 on federal lands. Asignificant amount of changes havebeen made to the new amended rules,

changes that seek to balance oil andgas development and other prioritiesincluding the environment, wildlife andpublic health, safety and welfare.

One of the more notable changes in therules involves oil and gas permitting andthe introduction of ComprehensiveDrilling Plans. Comprehensive DrillingPlans (CDP(s)) are intended to identifyforeseeable oil and gas activities in a

defined geographic area, facilitatediscussions about potential impacts, andidentify measures to minimize adverseimpacts to public health, safety, welfare,and the environment, including wildliferesources. A CDP will typically cover allplanned future oil and gas activitieswithin a defined geographic area for asingle operator and provides the forumsto facilitate the essential discussionsnecessary to oil and gas development.

As a part of the CDP each operator isrequired to invite the ColoradoDepartment of Public Health andEnvironment (CDPHE), the ColoradoDivision of Wildlife (CDOW), the localgovernment designee(s) and all surfaceowners to participate in the developmentof the CDP proposed by an operator.

This invitation for agency and landowner participation ultimately facilitates theidentification of potential impacts andthe development of conditions of

approval for each CDP resulting in theminimization of adverse impactsaffecting any interested parties to theCDP. (RULE 216 AMENDED COGCCRULES AND REGULATIONS)

Although CDPs are now being pursuedby many of Colorado’s oil and gasoperators due to the high level of oil andgas development that is planned in ruralareas statewide, they remain voluntary

because CDPs are not practicable for allgeographic areas within Colorado co-existing with oil and gas development.The Wattenberg field, the featured oiland gas field for this article, is in an areawith high density commercial, residentialand municipal development. The areasin which KMG develops for oil and gaswithin the Wattenberg field are highlysubdivided and would likely make thecreation of a CDP impracticable due tothe complexity and number of interestedparties involved.

When an oil and gas operator voluntarilyforegoes the CDP process due to thecomplexity and impracticability of creating a CDP, the oil and gas operator will still be required to file with theCOGCC a Permit to Drill (COGCC Form2) and an Oil and Gas Location

Assessment (COGCC Form 2A). Witheach of these filings the CDPHE, theCDOW, the local governmentaldesignee(s) and the surface owners(s)will receive notice and will be affordedan opportunity to consult with the oil andgas operator as set forth in theamended COGCC rules andregulations. Although the standard




notice and consultation required by theCOGCC may be enough for some localgovernments, to maintain maximuminvolvement in oil and gas development,a county or municipality, as an

alternative to a CDP, can regulate oiland gas operators by means of the Use-by-Special Review process popularlyadopted by Weld County and many of the local municipal governments inColorado’s Front Range communities.(RULES 303, 305, 306 AMENDEDCOGCC RULES AND REGULATIONS)

County and MunicipalGovernment Use by Special

Review

Use by Special Review

KMG and its predecessors havecontinually been developing strongrelationships with Weld County andmunicipal governments within theWattenberg field since March 20, 1970,when the Wattenberg field was officiallydiscovered as having commercial

production of oil and gas. Moreover,KMG has over 8 years of experienceworking with Weld County and municipalgovernments on Use by Special Reviewapplications. KMG received its first of many Use by Special Review approvalsfrom the Town of Frederick, Colorado inJuly of 2000.

Throughout these eight years, KMG hasbecome very familiar with what is of

most interest to professional planners,county/municipal government staff,elected officials and local residents.KMG has found that by deferringspecific issues already addressed by theamended COGCC oil and gas rules,county and municipal governments canthen focus their resources on

establishing proactive enforceable Useby Special Review regulations thattarget the issues that are of mostconcern to local residents, including:construction traffic and routing, noise

mitigation, dust mitigation, weed control,stormwater drainage, safety and spillprevention, fire protection, projecttiming, proof of mineral ownership byoperator to conduct operations, surfaceowners agreement (if applicable) andthe approved COGCC permits to drill.

An additional observation by KMG over the years has been the evolution of theUse by Special Review regulations

adopted by the county and municipalgovernments. In the infancy andadolescence of the Use-by-SpecialReview regulations, emphasis wasplaced on conducting two publichearings before the county or municipalPlanning Commission and governingboard to effectuate approval on a Useby Special Review application. Thisprocess has proven to be timeconsuming, inefficient and wasteful of local government resources. While themajority of local government

jurisdictions adhere to the public hearingprocess, a minority of local government

jurisdictions have recently adopted anadministrative approval processcircumventing the public hearingprocess, and in the alternative municipalgovernments have required the oil andgas operator to hold aneighborhood/community meetingaffording residents a non-political,informal forum for voicing concerns,comments and questions directly to theoil and gas operator. KMG and themunicipal governments participating inthe administrative Use by SpecialReview approval process haveoverwhelmingly deemed this change





successful while achieving the goal of minimizing oil and gas impacts andpreservation of the surface.

As discussed earlier, the COGCC

recently underwent an extensiveprocess by which they amendedColorado’s oil and gas rules. It isimportant when deliberating and settinglocal policy/drafting local regulationsrelated to oil and gas development thatcommunity leaders and plannersexempt oil and gas operators from theUse by Special Review process if aCDP is being created with COGCC andmunicipal government consultation and

comment. It is also important thatcommunity leaders and planners keep inmind that federal and/or state laws maypreempt local regulations, which is atopic also discussed in this handbook.(the amended rules can be found on theCOGCC’s website.

Johnstown, CO Use by SpecialReview Application & Regulations

As appendices to this section of thehandbook please find a KMG Use bySpecial Review Application for the GrayWells located within the Town of Johnstown. Additionally, please find afull copy of the Johnstown regulationsthat pertain to oil and gas development.These items are real, recent products of coordination between KMG, Johnstowntown planners and elected officials.They represent what both the localmunicipalities and oil and gascompanies should mutually request andexpect from each other during the Useby Special Review process for oil andgas operations.

What is most notable in this example isthat it addresses the most common

questions and concerns that planningprofessionals, elected officials andcitizens have regarding oil and gasdevelopment in their area. Thesequestions typically include but are not

limited to, construction traffic androuting, noise mitigation, dust mitigation,weed control, stormwater drainage,safety and spill prevention, fireprotection, project timing, proof of mineral ownership by operator toconduct operations, surface owners’agreement (if applicable) and theapproved COGCC permits to drill. Alsonote in this example that residential andcommercial development are

approximately ½ mile from the abovereferenced wellsite location. As a resultof this distance, noise mitigation was anon-issue, but was carefully evaluatedby KMG before foregoing noisemitigation measures. Each Use bySpecial Review application is unique.Variations in surface location andproximity to commercial, residential andmunicipal development tend to be of more interest as oil and gas surfaceoperations reduce their proximity to thedeveloped areas.

Conclusion

As a responsible operator, KMG strivesto work collaboratively with local surfaceowners, governmental and regulatoryagencies to develop the vital domesticenergy resources available in theWattenberg field, alongside local farms,ranches, residential communities,wildlife and other development alongColorado’s growing Front Range. Tolearn more about Anadarko, visitwww.anadarko.com.

Written by Robert Spencer, WattenbergLandman

http://www.anadarko.com/

http://www.anadarko.com/



APPENDICES




APPENDIX A FREQUENTLY ASKED QUESTIONS

1. WHERE CAN I FIND THE RECENTLY ADOPTED COLORADO OIL AND G ASCONSERVATION COMMISSION RULES?

The Colorado Oil and Gas Conservation Commission adopted the revised ruleson December 17, 2008. All information regarding the rule making procedures,the final rules and their various effective dates can be found at the COGCCwebsite. http://cogcc.state.co.us/ The rules can also be found at 2 ColoradoCode of Regulations § 404-1.

2. WHICH COMMUNITIES ARE CONSIDERED LEADERS IN REGULATING OIL AND

GAS?

There are many communities who could be considered leaders in regulating oiland gas. We would recommend reviewing the regulations of communities listedelsewhere in the Appendix, and check the DOLA website for updated links tolocal government regulations and programs.

3. WHERE CAN I FIND INFORMATION ABOUT NATURAL RESOURCE EXTRACTION

INDUSTRIES?

There are several websites that contain basic information about the oil and gasindustry. Please review the following:

Natural Resources Law Center – Intermountain Oil and Gas Best ManagementPractices Website (this website contains extensive resources and links)

Colorado Oil and Gas Association – links to studies and information about theindustry.http://www.coga.org/mc/page.do?sitePageId=60091&orgId=cog a

Center for the American West – publications about energy conservation.http://www.centerwest.org/publications/index.php

La Plata County Energy Councilhttp://www.energycouncil.org/gasfacts/cogcc.htm


http://www.oilandgasbmps.org/


http://www.coga.org/mc/page.do?sitePageId=60091&orgId=coga


http://www.centerwest.org/publications/index.php

http://www.energycouncil.org/gasfacts/cogcc.htm

http://www.energycouncil.org/gasfacts/cogcc.htm

http://www.centerwest.org/publications/index.php






4. WHAT ARE THE ECONOMIC IMPACTS TO THE STATE FROM THE OIL AND GAS

INDUSTRY?

Colorado Energy Research Institute Oil and Gas Impact Analysishttp://www.ceri-mines.org/CERIOil&Gas.pdf

5. WHAT ARE THE AVERAGE COSTS TO INSTALL AN OIL OR GAS WELL ?

It depends on many factors. A review of local industry financial reports mayprovide guidance. For a study on the costs to drill a natural gas well go to:http://pangea.stanford.edu/ERE/pdf/IGAstandard/SGW/2006/augustin.pdf

6. WHAT ARE "TLQS"?

TLQ stands for Temporary Living Quarters. These are temporary housing unitsused by the oil and gas industry to house workers in the field.

7. WHERE CAN I FIND INFORMATION ABOUT WORKING WITH CONSULTANTS?

http://dola.colorado.gov/dlg/osg/docs/rfqrfp.pdf

SOURCES OF ADDITIONAL INFORMATION

Colorado Oil and Gas Conservation Commissionhttp://oil-gas.state.co.us

Colorado Department of Natural Resourceshttp://dnr.state.co.us

Colorado Division of Wildlifehttp://wildlife.state.co.us

Colorado Department of Public Health and Environmenthttp://www.cdphe.state.co.us

Colorado Department of Local Affairshttp://dola.colorado.gov

State of Coloradohttp://www.colorado.gov


http://www.ceri-mines.org/CERIOil&Gas.pdf

http://pangea.stanford.edu/ERE/pdf/IGAstandard/SGW/2006/augustin.pdf




http://oil-gas.state.co.us/

http://dnr.state.co.us/

http://wildlife.state.co.us/

http://www.cdphe.state.co.us/

http://dola.colorado.gov/

http://www.colorado.gov/

http://www.colorado.gov/

http://dola.colorado.gov/

http://www.cdphe.state.co.us/

http://wildlife.state.co.us/

http://dnr.state.co.us/

http://oil-gas.state.co.us/



http://www.ceri-mines.org/CERIOil&Gas.pdf



Bureau of Land Management - Coloradohttp://www.blm.gov/co/st/en.html

United States Forest Servicehttp://www.fs.fed.us

Living With Oil and Natural Gas in the Town of Frederickhttp://www.frederickco.gov/frederick.aspx?id=2500

Garfield County Oil and Gas Department Websitehttp://www.garfield-county.com/index.aspx?page=570

La Plata County Natural Resources – Oil and Gas Websitehttp://www.co.laplata.co.us/

LINKS TO S AMPLE COMMUNITIES WITH REGULATIONS

Saguache Countyhttp://www.saguachecounty.net/

Rio Blanco Countyhttp://www.co.rio-blanco.co.us/development/

La Plata Countyhttp://www.co.laplata.co.us/departments_and_elected_officials/planning/natural_r esources_oil_gas

Archuleta Countyhttp://www.archuletacounty.org/Planning/files/landuse/Section_9_MiningMay2006.pdf

Gunnison Countyhttp://www.gunnisoncounty.org/planning_regulations_guidelines.html

Mesa Countyhttp://www.mesacounty.us/planning/land_dev_code.aspx

Garfield Countyhttp://www.garfield-county.com/Index.aspx?page=561

Town of Frederickhttp://www.frederickco.gov/frederick.aspx?id=936

Town of Palisade Watershed Planhttp://genesispalisadecdp.org/History.htm


http://www.blm.gov/co/st/en.html

http://www.fs.fed.us/


http://www.garfield-county.com/index.aspx?page=570


http://www.co.laplata.co.us/departments_and_elected_officials/planning/natural_resources_oil_gas

http://www.saguachecounty.net/





http://www.archuletacounty.org/Planning/files/landuse/Section_9_MiningMay2006.pdf


http://www.gunnisoncounty.org/planning_regulations_guidelines.html

http://www.mesacounty.us/planning/land_dev_code.aspx







http://www.mesacounty.us/planning/land_dev_code.aspx

http://www.gunnisoncounty.org/planning_regulations_guidelines.html






http://www.saguachecounty.net/




http://www.fs.fed.us/

http://www.blm.gov/co/st/en.html




APPENDIX B STATE AND FEDERAL REGULATIONSGOVERNING OIL AND GAS DEVELOPMENT

INTRODUCTION: OPERATIONALPREEMPTION

When creating local regulations for oiland gas operations, it is important to beaware of the areas in which Congress,the Colorado state legislature, andfederal and state agencies, including theColorado Oil and Gas ConservationCommission, have enacted laws andregulations. Understanding the

standards set in these laws andregulations is important in order to avoid“operational preemption” of localregulations.

Preemption is a doctrine adopted by theUnited States Supreme Court that holdsthat certain matters are of such anational character that federal lawspreempt - or take precedence over – conflicting state laws. Similarly, state

law can preempt local regulations if thematter being regulated is a matter of exclusive, or at least mixed, stateinterest. As expressed by the ColoradoSupreme Court, "the purpose of thepreemption doctrine is to establish apriority between potentially conflictinglaws enacted by various levels of government." Bd. of County Comm'rs v.Bowen/Edwards Assocs., Inc., 830 P.2d1045, 1055 (Colo. 1992).

At the local level, “operationalpreemption” occurs when the applicationof the ordinances or regulations of thelocal government materially impede or destroy the interest of the state or federal government. The question thatlocal governments should ask

themselves most frequently is: Do the“on the ground” effects of the localordinances or regulations conflict withthe application of the state or federalstatute?

This section of the handbook isdesigned to provide the reader with asummary of those federal and state lawsand regulations of which localgovernment officials should be aware inorder to avoid obvious conflicts andoperational preemption.

STATE STATUTES AND REGULATIONS

GOVERNING OIL AND G AS

EXPLORATION AND DEVELOPMENT

Oil and Gas Conservation Act, C.R.S.§§ 34-60-101 et seq.

The Oil and Gas Conservation Act (the

“Act”) declares that it is in the publicinterest to:

Foster responsible, balanceddevelopment, production andutilization of the natural resourcesof oil and gas in the State of Colorado in a manner consistentwith protection of public health,safety, and welfare, includingprotection of the environment and

wildlife resources; Avoid waste in the production

and utilization of oil and gas; Protect the rights of owners and

producers in a common source or pool of oil and gas; and

Balance oil and gas developmentwith the protection, preservation,







enhancement and managementof wildlife and their environment.

Colorado Oil and Gas Commission.The Act creates the Colorado Oil and

Gas Conservation Commission, which ischarged with enforcing the Act. SinceJuly 2007, the Commission hasconsisted of nine voting members,seven of which are appointed by theGovernor. Of these seven:

At least two must be from theWestern Slope;

Three members must be from theoil and gas industry;

One member must have

substantial experience or trainingin environmental/wildlifeprotection;

One member must have formaltraining or substantial experiencein soil conservation or reclamation; and

One member must be activelyengaged in agriculturalproduction and also be a royaltyowner.

The final two voting members arethe executive directors of theColorado Department of PublicHealth and Environment(“CDPHE”) and the ColoradoDepartment of NaturalResources.

Powers of the Commission. TheCommission keeps track of theownership of oil and gas wells in the

state and generally overseesproduction, sales, purchases,acquisition, storage, transportation, andrefining and processing of oil and gas inthe state. The Act includes sectionsgoverning drilling units and poolinginterests, agreements for developmentand unit operations, and payment of

proceeds. Importantly, the Commissionis charged with creating regulationsconsistent with the Act.

Reasonable Accommodation. Oil and

gas operations begun after September 1, 2007 must comply with the new“reasonable accommodation” statutefound at C.R.S. § 34-60-127. Thisstatute requires an operator toaccommodate surface owners “byminimizing intrusion upon and damageto the surface of the land.” This means“selecting alternative locations for wells,roads, pipelines, or production facilities”or employing alternative means of

operation that prevent, reduce or mitigate the impacts of oil and gasoperations on the surface, where suchalternatives are “technologically sound,economically practicable, andreasonably available to the operator.”This statute expressly does not affectthe authority of local and countygovernments to regulate land userelated to oil and gas operations.Instead it serves as an independentbasis for protection of surface owners’rights.

Habitat Stewardship. In 2007, thestate legislature enacted another newsection of the Act in which it charged theCommission to “administer [the Act] soas to minimize adverse impacts towildlife resources affected by oil and gasoperations.” See C.R.S. § 34-60-127.In addition to its other duties, theCommission is now required to:

Establish a consultationprocedure with the WildlifeCommission and the Division of Wildlife on decision-making thatimpacts wildlife resources;





Provide for Commissionconsultation and consent fromthe affected surface owner onpermit-specific conditions for wildlife habitat protection;

Implement best managementpractices to conserve wildliferesources; and

Create rules to establishstandards for minimizing adverseimpacts to wildlife resourcesaffected by oil and gas operationsand to ensure proper reclamationof wildlife habitat both during and

following operations. The rulesare to encourage operators toutilize comprehensive drillingplans and geographic areaanalysis strategies to provide for

orderly development of oil andgas fields and minimize surfacedisturbance and fragmentation inimportant wildlife habitat byincorporating best managementpractices.

This section does not affect theauthority of local and countygovernments to regulate land userelated to oil and gas operations.

Colorado Oil and Gas Conservation Commission Regulations, 2 C.C.R. 404-1

The regulations created by the Colorado Oil and Gas Commission (“COGCC”) pursuantto the authority granted to it by the Act are found at 2 Colorado Code of Regulations

404-1 (the “Rules

21

”). They can be found on the COGCC website under Final AmendedRules. The following is a brief overview of the major elements included in the Rules,with particular attention paid to those areas in which local governments have previouslyenacted or may wish to consider enacting regulations. This overview is intended to alertlocal government officials to the areas in which the state has enacted regulations in aneffort to avoid operational preemption. Local governments may be especially interestedin Rule 214, which permits them to individually designate a Local GovernmentDesignee; and Rule 305, which allows them to comment on any Application for Permit-to-Drill (Form 2) or Oil and Gas Location Assessment (Form 2a) except for activitiesoccurring on federal or Indian lands. After consideration, these comments may beadopted as conditions of approval for either Form 2 or Form 2a. The reader isencouraged to consult the Rules themselves for further detail.

21 These summaries are based on the final Rules adopted by the COGCC in 2008. We expect legalchallenges to the Rules and therefore recommend consulting with your legal representative to determinethe legal status of the Rules.





Series 200, General Rules. After a lengthy definitions section, the Rules begin with aseries of general rules, including the following sections that have particular importancefor local governments:

Rule 205. Access to Records. New Subsections. The books, records,

inventories and copies of the reports required by the Commission (including, for example, gas meter calibration and chemical inventories) must be kept on file andavailable for inspection by the Commission for a period of five years. (Please see theRule for details.)

Rule 206. Reports. The Commission requires those companies connected to oiland gas operations to file periodic reports or checklists containing information requiredby the Commission or the COGCC Director (the “Director”). In Garfield, Mesa and RioBlanco Counties, this includes a Pollution Prevention Checklist. (Please see the Rulefor details.)

Rule 208. Corrective Action. The Commission must require correction of any

condition that is causing or is likely to cause waste or pollution and must require theplugging and abandonment of any well no longer used or useful in accordance with areasonable plan.

Rule 210. Signs and Markers. Operators are required to mark each well in aconspicuous place from the time of initial drilling until final abandonment, in accordancewith the rules found in this section. All tanks with a capacity equal to or greater than ten(10) barrels must be labeled.

Rule 214. Local Governmental Designee. Each local government (includingcounties, home rule or statutory cities, towns, territorial charter cities or cities and

counties, or any Title 32 special district) may designate one of its offices to receive, onits behalf, copies of all documents required to be filed with the local governmentaldesignee pursuant to the Rules. This Rule requires that the local government providethe Commission with contact information for the office designated. The designee thenhas the responsibility to ensure that any documents provided to it are properlydistributed to appropriate persons and offices of the local government.

Rule 216. Comprehensive Drilling Plans. New Section. Operators areencouraged to submit Comprehensive Drilling Plans (“CDPs”), which are intended tofacilitate discussions about potential impacts and identify measures to minimize adverseimpacts. Operators may submit a proposed CDP that describes the operator’s

foreseeable oil and gas development activities in a specified geographic area within ageologic basin. The CDP is a customized plan based on the specific location describedtherein. The CDP can operate as an approved variance from the Rules. Information tobe provided includes proposed oil and gas locations, including all access roads andgathering systems, drainages and stream crossings, plus existing and proposedbuildings, roads, utility lines, pipelines, mines, oil or gas wells, water wells, and Divisionof Wildlife’s Natural Diversity Information Source riparian data set. Operators mustinvite the CDPHE and the Division of Wildlife to participate in the development of a CDP




and are encouraged to invite the local government designee and surface owners toparticipate. The Director must “provide the list of conditions of approval [for the CDP] tothe local government designee and encourage the local government to utilize the resultsin its approval of activities.” An accepted CDP is valid for five years.

Series 300, Drilling, Development, Producing and Abandonment. Of particular notein this series are the following:

Rule 302. COGCC Form 1. Registration for Oil and Gas Operations. Anyoneconducting operations subject to the Act must register with the COGCC.

Rule 303. Requirements for Form 2, Application for Permit-to-Drill, Deepen, Re-enter or Recomplete, and Operate; Form 2A, Oil and Gas Location Assessment. Beforecommencing operations for the drilling or reentry of any well, an Application for aPermit-to-Drill (“APD”) must be filed with and approved by the Director. For any new oiland gas location, except gathering lines or those locations covered by a ComprehensiveDrilling Plan, an Oil and Gas Location Assessment must be filed. Items that may be

required for the APD include photographs, equipment list, scaled vicinity drawing,topographic maps showing surface waters, riparian areas and roads, land usedesignation, construction layout drawing and location cross section plot, proposedwellbore trajectory with bottom-hole locations, mitigation activities and presumptiveconditions of approval. Please note that the Permit-to-Drill is “binding with respect toany operationally conflicting local government permit or land use approval process.”Please see the Rule for specific details.

Rule 305. Notice, Comment, Approval. Revised. This rule was completelyrevised. The Local Government Designee, the surface owner or any owner whoreceives notice, may now provide comment on any APD or Oil and Gas Location

Assessment prior to approval. Those comments may be incorporated as conditions intothe approved permit to drill so long as the conditions are "technically and economicallyfeasible". Upon issuance of the Permit-to-Drill or approval of the Oil and Gas Location

Assessment, the Commission must provide notice to those providing comment of theDirector's decision to include or exclude requested conditions. Those providingcomment and the operator may then object to the inclusion or exclusion of certainconditions and request suspension of the Permit-to-Drill or approved Oil and GasLocation Assessment as well as a hearing. Please see the Rule for specific details.

Rule 306. Consultation. Revised. Operators are required to consult in goodfaith with surface owners prior to starting operations with heavy equipment on their land.

Local governments that have identified a Local Government Designee and that haveindicated to the Director a desire to consult must be given an opportunity to engage inconsultation concerning an APD (Form 2) or an Oil and Gas Location Assessment,Form 2A, regarding the location of roads, production facilities and well sites prior tocommencing operations with heavy equipment.





Under certain circumstances, an operator must also consult with the Division of Wildlifeand//or CDPHE. Please see the Rule for additional details concerning each of theseconsultation requirements.

Rule 317B. Public Water System Protection. New. If the proposed project is in

an area identified on COGCC’s Public Water System Surface Water Supply Area Map(located on its website as an appendix to the Rules), oil and gas operations mustcomply with additional restrictions when located within three defined "buffer zones".The three zones are the "Internal Buffer", the "Intermediate Buffer" and the "ExternalBuffer". The buffer zone is measured based on the surface location and "shall not applyto subsurface boreholes and equipment or materials contained therein." The InternalBuffer prohibits all drilling, completion, production and storage operations within 300feet of any Surface Water Supply Area or Classified Water Supply Segments unless theoperator obtains a variance. When operations occur within the Intermediate Buffer or External Buffer, the Rule requires operators to comply with certain additionalperformance standards. These performance standards and additional measuringtesting requirements also apply to existing oil and gas operations present within thesebuffer zones. Please see the Rule for specific details regarding these performancestandards and which water sources are protected.

Rule 318. Location of Wells. Wells 2500 feet or greater in depth must be located at least 600 feet from any lease line22 and at least 1200 feet from any other producible23 or drilling oil or gas well when drilling to the same common source of supply. Wells witha depth less than 2500 feet must be located at least 200 feet from any lease line and atleast 300 feet from any other producible oil or gas well or drilling well in that source of supply, unless an exception has been granted. The Rule contains specific distancerequirements when drilling near a mine.

Rule 318A, Greater Wattenberg Area Special Well Location, Spacing and UnitDesignation Rule. In the Greater Wattenberg Area, or GWA, which is located primarilyin Weld County, the COGCC has provided for drilling within described surface drillinglocations (“GWA windows”). Please see the Rule for further details.

Rule 319. Abandonment. The COGCC has established specific rulesconcerning the plugging of abandoned oil and gas wells and for shut-in and temporaryabandonment of wells. Please refer to the Rule for details.

Rule 321. Directional Drilling. If an operator intends to drill directionally, thedetails must be included in the application for Permit-to-Drill. This Rule describes the

information required for the application and further requires the submission of a DrillingCompletion Report within 30 days after drilling has been completed.

22 Definition: the boundary of an existing oil and gas lease.

23 A well from which oil or gas could still be removed.




Rule 323. Open Pit Storage of Oil or Hydrocarbon Substances. Except for emergencies, storage of oil or other produced liquid hydrocarbon substances in earthenpits is considered waste and not permitted.

Rule 324A. Pollution. This Rule provides that the “operator shall take

precautions to prevent significant adverse environmental impacts to air, water, soil, or biological resources to the extent necessary to protect public health, safety, welfare,including the environment and wildlife resources taking into consideration cost-effectiveness and technical feasibility to prevent the unauthorized discharge or disposalof oil, gas, exploration and production waste, chemical substances, trash discardedequipment or other oil field waste.” Pollution standards for water are provided byreference to the standards of the state Water Quality Control Commission. For air pollution, the Rule references the laws, regulations and permits of the Air QualityControl Commission, as well as “any other local or federal agency with authority for regulating air quality associated with such activities.” Please refer to the Rule for specific details.

Rule 325. Underground Disposal of Water. Written authorization from theDirector is required for the underground disposal of water or any other fluids into aClass II well, or any well regulated by the Commission. The Director may refuseauthorization when the Director has “reasonable cause to believe that the proposeddisposal well could result in a significant adverse impact on the environment or publichealth, safety and welfare.” The Rule describes the information required in theapplication.

Rule 333. Seismic Operations. This Rule requires an approved form for performing shothole drilling or recording operations. It requires consultation with thesurface owner, imposes setback requirements and includes guidelines for drilling and

plugging. Financial assurance is required, and when seismic operations are completethe land must be reclaimed.

Series 400, Unit Operations, Enhanced Recovery Projects, and Storage of LiquidHydrocarbons. The Rules in this series require written authorization from theCommission prior to beginning enhanced recovery operations24, cycling25 or cyclingoperations, and operations for the storage of gaseous or liquid hydrocarbons.

Series 500, Rules of Practice and Procedure. The Rules in this series govern allproceedings other than those initiated by the Commission and administrative variancerequests. They provide that relevant local governments may request a hearing on an

Oil and Gas Location Assessment, Form 2A. If an application seeks more than one wellsite per 40 acres, a public hearing is required. The technical requirements that serve as

24“Enhanced recovery” refers to any injection of natural gas, water, or other fluids into an oil or gas

reservoir to increase pressure or slow pressure drop in order to increase the recovery of oil or other hydrocarbons from the reservoir.

25 “Cycling” is another type of enhanced-recovery process used to maintain pressure in a gas reservoir.



the basis for approval or denial of the application concern preventing waste, avoidingthe drilling of unnecessary wells, and protecting the rights of parties involved in oil andgas production. Of particular interest to local governments are two new rules added in2008:

Rule 513. Geographic Area Plans. New. This provision permits theCommission, after consulting with the Colorado Division of Wildlife, CDPHE and LocalGovernment Designees, to adopt basin-specific rules to address “unique geologic or hydrologic features.” When adopting basin-specific rules, the Commission mustconsider "local government comprehensive plans or other local government long-rangeplanning tools."

Series 600, Safety Regulations. Topics covered in this series include setbacks fromdevelopment, specific safety rules for crude oil and condensate tanks, fire preventionand protection, air and gas compressors, hydrogen sulfide gas, and coalbed methanewells (The Commission adopted new Rule 608 with safety regulations that applyspecifically to coalbed methane wells).

Rule 603. Drilling and Well Servicing Operations and High Density Area Rules.This Rule explains the setback requirements across the state and in high density areas.Generally, at the time of initial drilling of the well, the wellhead must be located 150 feetor 1 ½ times the height of the derrick, whichever is greater, from any building unit, publicroad, major above-ground utility line or railroad. A well must be a minimum of 150 feetfrom the surface property line.

High density areas are determined at the time the well is permitted, calculating thenumber of building units within a 1000-foot radius from the wellhead or productionfacility. Thirty-six building units within that radius, or 18 building units within any semi-

circle of the 1000-foot radius, constitute a high density area. Platted building units maybe counted toward the requirement if 50% of the platted units have building units under construction or already constructed. In high density areas, wellheads shall be no lessthan 350 feet from any building unit, educational facility, assembly building, hospital,nursing home, board and care facility or jail. Please refer to the Rule for further detailedinformation.

Series 700, Financial Assurance and Environmental Response Fund . The Rules inthis series are intended to “ensure the performance of certain obligations imposed bythe Act” and includes Rules explaining the use of the Environmental Response Fund toaddress issues related to orphaned wells and other authorized environmental activities.

Rules 703 through 708, plus 711 and 712, specify the amount of the financial assuranceto be provided based on the type of activity. Rule 710 provides that the Oil and GasConservation and Environmental Response Fund must be maintained in an amount notto exceed $4 million, with an adequate balance in the fund to address environmentalresponse needs.




Series 800, Aesthetic and Noise Control Regulations . The Rules in this seriesregulate noise, lighting, visual impacts, odors and dust. Of particular note in this seriesare the following:

Rule 801. Introduction. This Rule explains that any local government can apply to

the Commission for a determination that the Rules in this section shall not apply to oiland gas activities within the local government’s boundaries based on a showing by thelocal government that “because of conditions existing therein” the enforcement of theseRules is not necessary within its boundaries for the protection of public health, safetyand welfare.

Rule 804. Visual Impact Mitigation. This Rule requires all production facilities tobe painted in a color that is slightly darker than the surrounding landscape bySeptember 1, 2010.

Rule 805. Odors and Dust. New This Rule prohibits oil and gas facilities from"being operated in such a manner that odors and dust do not constitute a nuisance or

hazard to public welfare." The Rule places specific limitations on condensate tanks,crude oil and produced water tanks, glycol dehydrators, pits and pneumatic devices.The Rule requires "green completion practices" for certain well completions based onthe pressure, formation productivity and other wellbore conditions unless such practicesare not technically or economically feasible. Operators will also be required to "employpractices for control of fugitive dust caused by their operations."

Series 900, E&P Waste Management. This series addresses the management of exploration and production (“E&P”) waste, including procedures for pit management,reporting requirements, spill/release prevention, response and reporting, managementof centralized E&P waste management facilities (including rules for groundwater

monitoring), and site investigation, remediation and closure. Table 910-1, included inthis section, contains specific allowable concentrations and levels of contaminants for soils and ground water. Please refer to the Rules in this section for more specificinformation.

Series 1000, Reclamation Regulations. This series requires that the surface of theland “be restored as nearly as practicable to its condition at the commencement of thedrilling operations.” The regulations in this section concerning site preparation andstabilization, interim reclamation, and final reclamation are not to be enforced by theCommission if the operator has entered into an agreement with the surface owner regarding topsoil protection and reclamation of the land and has convinced the Director

or the Commission that compliance with these Rules is “not necessary to protect thepublic health, safety and welfare, including prevention of significant environmentalimpacts and adverse impacts to wildlife resources….” Some of the prevention andreclamation activities included in this section are: fencing, soil removal and segregation,minimization of surface disturbance, use of access roads, stormwater management,interim reclamation, pit closures, restoration and revegetation, and weed control. Of particular note, Rule 1002 now requires "Best Management Practices" based on sitespecific conditions to control stormwater runoff and minimize erosion. Please refer to




the Rules in this section for more detailed information regarding reclamation activitiesrequired by the Commission.

Series 1100, Pipeline Regulations. This series concerns the regulation of pipelines,including materials, design, cover, excavation of trenches, maintenance, repair, marking

and emergency response.Series 1200, Protection of Wildlife Resources . New. Added in 2008, the Rules inthis series describe the Commission’s process for consulting with the Colorado Divisionof Wildlife, attempt to avoid adverse impacts on wildlife, minimize and mitigate adverseimpacts that cannot be avoided, and are intended to consider the “cost-effectivenessand technical feasibility of measures for the minimization of surface disturbance andfragmentation of wildlife habitat.” Required measures include mosquito control toprevent the spread of West Nile Virus to wildlife, the installation of bear proof dumpsters, and disinfection of equipment used in other water bodies and wetlands inthe past 30 days.

Rule 1202. Identification of wildlife species. This Rule requires operators tosurvey, map and report the occurrence of all wildlife species identified by theCommission as being within the vicinity of the proposed oil and gas location, includingsurveys of lands within specified radii for particular threatened or endangered speciesand wetlands.

Rule 1203. Transportation planning. Operators are required to plantransportation networks to minimize the number of oil and gas roads in order tominimize impacts on wildlife and are encouraged to use common roads and accesspoints whenever possible.

Rule 1208, Timing limitation areas, restricts oil and gas activities in certainlocations at certain times for periods up to three months in order to protect certainspecies in the state. Please consult the Rule for detailed information.

Rule 1209, Restricted surface occupancy areas, restricts oil and gas activitieswithin certain distances of certain identified habitats in order to protect various specieswithin the state. Please consult the Rule for detailed information.

FEDERAL STATUTES AND REGULATIONS GOVERNING OIL AND G AS EXPLORATION

AND DEVELOPMENT

Because local regulations may be preempted or affected by federal as well as statelaws, it is important to be aware of the major federal acts that regulate the oil and gasindustry. This section describes briefly four major pieces of federal legislation of whichlocal governments should be aware: the Clean Air Act, the Clean Water Act, theComprehensive Environmental Response, Compensation and Liability Act (“CERCLA”),and the Oil Pollution Act of 1990.





Air Pol lution Prevention and Control (the “ Clean Air Act” ), 42 U.S.C. §§ 7401 to7671q.

The Environmental Protection Agency is charged with the administration of the Clean Air Act, which closely regulates emissions from oil and gas facilities. The Clean Air Act

regulates pollutants emitted into the air by both stationary and mobile sources. Emissionsare categorized by type, volume, whether they are in attainment or non-attainment areasand whether they are near populated areas or wilderness areas. The four types of stationary sources are: (i) major stationary sources, (ii) minor stationary sources, (iii)major sources of hazardous air pollutants ("HAPs"), and (iv) area sources.26

While the Clean Air Act aggregates sources of HAPs “if they are located within acontiguous area and under common control” for determining status as a major source,oil and gas wells and pipeline facilities (with its associated equipment) are specificallyexempted from such aggregation.

However, the EPA Administrator may establish an area source category for oil and gasproduction wells located in any metropolitan statistical area or consolidated metropolitanstatistical area with a population in excess of 1 million if the Administrator determinesthat emissions of HAPs from such wells present more than a negligible risk of adverseeffects to public health. CAA § 112(n)(4)(B).

The EPA sets the National Ambient Air Quality Standards (NAAQS), but states withapproved State Implementation Plans (“SIPs”) are permitted to establish procedures toattain and maintain the standards. Colorado has an approved SIP. See 40 C.F.R.§52.320 for the state regulations that constitute Colorado’s SIP. If it appears the air quality standard will be exceeded, the state must impose additional regulations onexisting sources and new or modified sources can be required to apply for state

construction permits in which the application must explain how the emissions from thenew source will not exceed allowable limits. In ozone non-attainment areas, emissionsfrom new sources may be offset by reducing emissions from existing sources.

Problems with non-attainment for ozone standards along Colorado’s Front Range ledthe state to enter into an Early Action Compact (“EAC”) with the EPA in December

26 Major stationary sources, are as those which emit or have the potential to emit 100 tons or more per

year of “criteria” pollutants (sulfur dioxide (“SOX”), particulate matter, carbon monoxide, ozone, nitrogendioxide (“NOX”) and lead. [NOTE: These six pollutants are the common air pollutants monitored by theEPA for National Ambient Air Quality Standards];

Minor stationary sources are those that emit under 100 tons per year of the criteria pollutants;Major sources of hazardous air po llutants are those stationary sources that emit or have the potentialto emit considering controls, in the aggregate, 10 tons per year or more of any HAP or 25 tons per year or more of any combination of HAPs. HAPs are listed in §112 of the Act and are those pollutants whichpresent, or may present, through inhalation or other routes of exposure, a threat of adverse human healtheffects or adverse environmental effects.

Area sources are any stationary source of HAPs that are not a major source.



2002. The EAC permits deferral of a non-attainment status and its attendant stricter regulations while the state works to develop a plan to reduce these emissions. Parts of Weld and Larimer Counties are included in the EAC. The EAC includes increasedregulation of oil and gas exploration and production facilities. These facilities are nowallowed to emit just 25% of the pollutants that would emit from an uncontrolled

atmospheric storage tank during the summer ozone season.

Section 169A of the Clean Air Act addresses impairment of visibility. This section is of particular importance to those areas in the state that may affect certain protectednational parks and wilderness areas. Section 169B addresses visibility issues.

The Air Pollution Control Division of the Colorado Department of Public Health andEnvironment administers air permits in Colorado pursuant to Title V of the Clean Air Act.Major stationary sources and major sources of hazardous air pollutants are required to obtainTitle V permits, which practically means that they are generally only required at larger oil andgas facilities. Title V permits contain monitoring, record keeping and reporting requirements.

Section 116 of the Clean Air Act reserves to the states the right to adopt more stringentstandards than those found in the Act. State statutes, which follow the federalregulatory scheme, are located in the Colorado Revised Statutes at Title 25, Article 7.State regulations concerning air pollution are found at 5 C.C.R. §§ 1001 -1 through -23.

Clean Water Act, 33 U.S.C. §§ 1251 to 1387

The Clean Water Act, which is part of the Federal Water Pollution Control Act, regulatesthe discharge of pollutants into the waters of the United States, further defined asnavigable waters (interstate waters, intrastate waters used in commerce, their tributariesand adjacent wetlands). The Clean Water Act includes provisions that regulate:

The discharge of pollutants from point sources and stormwater (Section 402); The discharge of dredged and fill material into the waters of the United States

(Section 404 Dredge and Fill Permits issued by the U.S. Army Corps of Engineers)

The Oil Pollution Prevention regulation was created under the authority of the CleanWater Act in 2002. The rule addresses requirements for Spill Prevention Control andCountermeasure Plans (“SPCC”) and is found in title 40 of the Code of FederalRegulations, Part 112. The SPCC rule applies to owners or operators of facilities thatdrill, produce, gather, store, use, process, refine, transfer, distribute, or consume oil and

oil products and which, due to their location, could reasonably be expected to have adischarge of oil in quantities that could prove harmful to the waters of the United States.

The rule includes requirements for oil spill prevention, preparedness, and response toprevent oil discharges to navigable waters and adjoining shorelines and requires specificfacilities prepare, amend, and implement SPCC Plans. The Plans must include: (i)discharge prevention measures; (ii) discharge or drainage controls such as secondarycontainment around containers and other structures; (iii) countermeasures for discharge




discovery, response and cleanup; and (iv) methods of disposal of recovered materials. Thegeneral requirements for the plan are found at 40 C.R.S. § 112.7 and measures that applyto onshore facilities (excluding production facilities) are located at § 112.8.

Comprehensive Environmental Response, Compensation, and Liability Act

(“ CERCLA” ), 42 U.S.C. §§ 9601 to 9675

The Comprehensive Environmental Response, Compensation, and Liability Act(“CERCLA”) applies to releases or threatened releases of “hazardous substances” asdefined by CERCLA and requires that releases of these substances be reported if theyexceed the reportable quantity.

Importantly, CERCLA includes a provision that excludes petroleum products from itscoverage. The “petroleum exclusion,” as it is known, excludes “petroleum, includingcrude oil or any fraction thereof which is not otherwise specifically listed or designatedas a hazardous substance under [the definition of hazardous substance].” Significantly,the statute specifically states that “the term does not include natural gas, natural gas

liquids, liquefied natural gas, or synthetic gas usable for fuel,” and therefore excludedfrom coverage. 42 U.S.C. § 9601(14)(2006).

Also included within CERCLA’s petroleum exclusion are those petroleum products thatcontain hazardous substances, so long as such hazardous substances are an integralpart of the petroleum product. For example, benzene, toluene, and xylene, which arelisted as hazardous substances under CERCLA, are also commonly found in gasoline.But because gasoline is included in the exclusion, so are these substances. There arelimits, however. Hazardous substances will be excluded to the extent normally found inpetroleum products. Thus, the petroleum exclusion will not extend to substances foundin used oil that are not normally found in petroleum products or to such substances if

they are found at levels exceeding those normally found in petroleum.

Oil Pollution Act of 1990, 33 U.S.C. §§ 2701

Another federal law of which local governments should be aware in order to avoidpossible operational preemption of their local regulations is the Oil Pollution Act of 1990(the “OPA”). The OPA is primarily designed to outline the parameters of lawsuits for discharges of oil into the navigable waters or adjoining shorelines of the United States.(Navigable waters, recalling from the discussion of the Clean Water Act, above, includeinterstate waters, intrastate waters used in commerce, their tributaries and adjacentwetlands.) The OPA provides that those parties responsible for such discharge will be

responsible for removal costs and damages as specified in Section 2702 (b) of theOPA. It also provides for uses to which the Oil Spill Liability Trust Fund may be put.The Act’s definition of oil includes “petroleum, fuel, oil, sludge, oil refuse, and oil mixedwith wastes other than dredged spoil, but does not include any substance which isspecifically listed or designated as a hazardous substance under [CERCLA] and whichis subject to the provisions of that Act.” 33 U.S.C. § 2701(23).





APPENDIX C COLORADO PREEMPTION CASE LAW

Preemption is a doctrine adopted by the

United State Supreme Court that holdsthat certain matters are of such anational character that federal lawspreempt - or take precedence over – conflicting state laws. Similarly, statelaw can preempt local regulations if thematter being regulated is a matter of exclusive, or at least mixed, stateinterest. As expressed by the ColoradoSupreme Court, "the purpose of thepreemption doctrine is to establish apriority between potentially conflictinglaws enacted by various levels of government." Bd. of County Comm'rs v.Bowen/Edwards Assocs., Inc., 830 P.2d1045, 1055 (Colo. 1992).

In determining the priority betweenconflicting state and local laws,regulated matters fall into three primarycategories: (i) matters of state interest;(ii) matters of local interest; and (iii)matters of mixed state and localconcern. Colorado case law states thatwhen a matter is primarily of stateinterest, the state legislature maylegislate in area, but local governmentsmay not unless authorized to do so bystate statute. When the matter isprimarily of local interest, such as landuse regulation, the local interest willgenerally control. When the matter is aquestion of mixed interest, that is, bothstate and local, the court will examinethe issue on a case by case basis todetermine which law, state or local,should control. City of Northglenn v.Ibarra, 62 P.3d 151 (Colo. 2003).

A three-part analysis is applied when

the matter is of both state and localinterest27:

1. Does the express language of thestate statute indicate that thestate intended that only it shouldlegislate in this area?

2. Does the state statute impliedlyevince a legislative intent tooccupy a given field completelyby reason of a dominant state

interest?

3. Does the operational effect of thelocal ordinance conflict with theapplication of the state statute?

A “yes” answer to any of thesequestions means that the localregulations are preempted and the statestatute will control.

There are three types of preemption:

Express, in which a federal or statelaw states in clear and unequivocalterms the legislature’s intent that thislaw shall take precedence over lawsand regulations adopted by lower legislative bodies (i.e., state statutesin the case of federal laws or localordinances in the case of a statestatute);

Implied, in which the higher legislature’s interest in a matter is

27 Town of Carbondale v. GSS Properties, LLC,

140 P.3d 53 (Colo. Ct. App. 2005),overruled onother grounds Town of Carbondale v. GSSProperties, LLC. 169 P.3d 675 (Colo. 2007).







“so patently dominant over a lower legislature’s interest in the matter or that their respective interests are soirreconcilably in conflict, as toeliminate by necessary implication

any prospect for a harmoniousapplication of both regulatoryschemes” (Bd of County Comm’rs v.Bowen/Edwards Associates, Inc.,830 P.2d 1045, 1058 (Colo. 1992);and

Operational, in which the applicationof the statutes or regulations of thelower legislative body (local or state)materially impedes or destroys theinterest of the higher legislative body(state or federal).

SUMMARY

Since the Colorado Supreme Courtdecisions in Bowen/Edwards and Voss in 1992, it has been clear that state lawdoes not expressly or impliedly prevent

local governments from regulating oiland gas development or operationswithin their jurisdictions. However, localregulations will be preempted if theyconflict with state statutes operationally.

The test, again, is whether theimplementation of a law protecting alocal interest materially impedes or destroys the state interest. Coloradocase law also states that home rulemunicipalities, while granted additionallocal control by Article XX of theColorado Constitution, may not totallyprohibit oil and gas drilling within their boundaries. Finally, operationalpreemption will likely be found where

local regulations impose technicalconditions under circumstances whereno such conditions are imposed under the state statutory or regulatory schemeor the requirements imposed arecontrary to those required by state lawor regulation. The following sixappellate court cases illustrate theseprinciples (see next page):

Since the Colorado Supreme Court decisions in Bowen/Edwards and Voss in 1992, ithas been clear that state law does not expressly or impliedly prevent localgovernments from regulating oil and gas development or operations within their

jurisdictions. However, local regulations will be preempted if they conflict with statestatutes operationally. The test, again, is whether the implementation of a lawprotecting a local interest materially impedes or destroys the state interest.




C ASE L AW

In this case, Bowen/Edwards Associates, a company engaged in oiland gas exploration and development inLa Plata County, challenged thecounty’s land use regulations thatpertained to oil and gas development,arguing that the Oil and GasConservation Act (the “Act”) completelypreempted the County’s land useauthority over all aspects of oil and gasdevelopment. The Colorado SupremeCourt reviewed the Act and found noclear and unequivocal statement of legislative intent to prohibit a countyfrom exercising its traditional land-useauthority over areas in which oil and gasdevelopment was or might take place(thus, no express preemption). Nor didthe Court find that the state’s interest inoil and gas activities was so patentlydominant over a county’s interest in landuse control or that their respectiveinterests were so “irreconcilably inconflict, as to eliminate by necessaryimplication any prospect for aharmonious application of bothregulatory schemes.” (No impliedpreemption.) However, the court left thedoor open for possible operationalpreemption, stating:

[s]tate preemption by reason of operational conflict can arisewhere the effectuation of a localinterest would materially impededor destroy the state interest.…Under such circumstances,local regulations may be partiallyor totally preempted to the extent

that they conflict with theachievement of the state interest.

With respect to whether the Countycould impose different standards thanwere found in the Act, the Courtexplained:

We hasten to add that there maybe instances where the county'sregulatory scheme conflicts inoperation with the state statutoryor regulatory scheme. For example, the operational effect of the county regulations might beto impose technical conditions onthe drilling or pumping of wellsunder circumstances where nosuch conditions are imposedunder the state statutory or regulatory scheme, or to imposesafety regulations or landrestoration requirements contraryto those required by state law or regulation. To the extent thatsuch operational conflicts mightexist, the county regulations mustyield to the state interest. Anydetermination that there exists anoperational conflict between thecounty regulations and the statestatute or regulatory scheme,however, must be resolved on anad-hoc basis under a fullydeveloped evidentiary record.

The Court reversed the court of appealsdecision, which had found that the Acttotally preempted the County’s land-useauthority over all aspects of oil and gas

Board of County Commissioners v. Bowen/Edwards ,830 P.2d 1045 (Colo. 1992)




development. Because the recordbefore the district court had not beendeveloped sufficiently to determine

whether an operational conflict mightexist, the case was returned to thedistrict court for further proceedings.

In Voss, decided the same day asBowen/Edwards, the Colorado SupremeCourt held that the City of Greeley’sattempt to completely ban oil and gasdevelopment within the City waspreempted by the state’s interest in“efficient development and production of oil and gas in a manner preventative of waste and protective of the correlativerights of common-source owners andproducers to a fair share of productionprofits.” The court, reiterating itsBowen/Edwards preemption analysis,found that while the Act does not totallypreempt a home rule city’s exercise of land use authority over oil and gas

development and operations, thestatewide interest in the efficientdevelopment and production of oil andgas resources prevents a home-rule cityfrom totally banning the drilling of oil,gas, or hydrocarbon wells within the city.

The court also held that if the city,instead of instituting a complete ban ondrilling within the city, enacted land useregulations concerning oil and gasdevelopment and operations and thoseregulations did not frustrate, but rather could be harmonized with the state’sinterest, then the city’s regulationsshould be given effect.

In 1994, Frederick enacted an ordinanceprohibiting oil and gas wells within thetown unless the operator (“NARCO”)first applied for and received a specialuse permit. The ordinance includedspecific provisions for well location andsetbacks, noise mitigation, visual impactand aesthetics regulation. Theordinance imposed a fine for its violationand authorized the town attorney toseek an injunction against or removal of any unlawful facility.

The Court of Appeals, following theBowen/Edwards and Voss decisions,

found no express or implied preemptionof the local ordinance, and agreed thatlocal governments could regulate oil andgas development and operations withintheir jurisdictions, so long as nooperational conflict existed between the

Act and the local regulations.

NARCO argued that Bowen/Edwards should be interpreted as saying that thestate’s interest "requires uniformregulation of drilling" and similar activities. The Court of Appealsdisagreed and found rather that it wasonly the technical aspects of drilling that

Voss v. Lundvall Brothers, Inc., 830 P.2d 1061 (Colo. 1992).

Town of Frederick v. North American Resources Co., 60 P.3d 758(Colo. App. 2002)




required uniform regulation: “The phrase‘technical aspects’ suggests that thereare ‘nontechnical aspects’ that may yetbe subject to local regulation.”

Affirming the decision of the trial court,the Court found:

The ordinance provision imposingsetback requirements for thelocation of wells conflicted withCOGCC Rule 603(a) and (b),which requires lesser setbacks innon-high-density areas;

The noise abatement provisionsconflicted with COGCC Rule 802

in that they permitted the Town torequire noise abatementmeasures beyond those requiredby the state.

The ordinance regulating thevisual impact of oil and gasoperations included mandatoryrequirements that conflicted withthe detailed requirements in

COGCC Rules 318, 803, 804,1002 and 1003.

To the extent that the ordinanceincorporated the COGCC’spenalty schedule, then gave the

Town the authority to assesspenalties in addition to thoseprovided for the COGCC, theordinance conflicted with theCOGCC’s rules because thestatute [C.R.S. § 34-60-106(15)]“demonstrates that the General

Assembly did not contemplatethat local governments couldassess fees for violations of COGCC rules.”

Each of these conflicting provisions wasfound to be preempted based uponoperational conflict. Note: the Town didnot raise at the district court level that ithad independent police power to adoptthe ordinance regulating these activities.Because this issue was not raised in thedistrict court, the Court of Appeals failedto address Town's argument.

This case involved a challenge by theBoards of County Commissioners of LaPlata, Archuleta, Las Animas, Routt,and San Miguel counties to anamendment to COGCC Rule 303(a).The amendment stated that:

"The permit-to-drill shall bebinding with respect to anyconflicting local governmentalpermit or land use approvalprocess."

The Boards argued that the COGCCimproperly expanded the operational

conflict standard articulated inBowen/Edwards by providing that Rule303(a) prevailed whenever there is any conflicting local governmental permit or land use approval process. The courtagreed. While the rulemaking recordindicated that it was the COGCC’s intentto “reduce uncertainty arising from localgovernments’ enactment of oil and gasregulations in the exercise of their landuse authority” by informing operators of the status of existing case law, theamendment contradicted current caselaw and therefore exceeded COGCC’s

Board of County Commissioners of La Plata County v. COGCC, 81P.3d 1119 (Colo. App. 2003).





statutory authority. The Court, at 1125,stated:

The words "any conflicting" in therule have much broader meaning

than "operationally conflicting," asdiscussed in Bowen/Edwards andVoss v. Lundvall Bros., supra.The word "any" means "all." See,e.g., Austin v. Weld County, 702P.2d 293 (Colo. App. 1985).Thus, on its face amended Rule303(a) would preempt localgovernment actions beyondthose that materially impede or destroy the state interest and

would give oil and gas operatorslicense to disregard local landuse regulation. This result erodesthe delicate balance betweenlocal interests and state interests

set forth by Bowen/Edwards.Therefore, because the amendedrule conflicts withBowen/Edwards, we must set itaside.

Because the amended rule expandedthe operational conflict standard it washeld to be invalid. This holding wasextended in the Gunnison County case,described below.

GSS Properties, LLC ("GSS")purchased fifty-five acres located abovethe Town of Carbondale's ("Town")

Nettle Creek water plant. GSS thenbegan construction and earthmovingactivities and began using herbicidesand other chemicals for weederadication. The Town sued GSSalleging that GSS had allowed dirt tospill into the creek that eventuallycaused ruptures of the Town's water main in violation of the Town'swatershed protection ordinance. GSSasserted that the Town's ordinance was

preempted by state law. The districtcourt precluded this defense becauseGSS did not assert it in its initial answer.

The Court of Appeals addressed C.R.S.§ 31-15-707(1)(b)28 in considering thescope of control of watershed protection

ordinances, in relation to other statelaws. While holding that the statuteunquestionably gives municipalitieswater pollution authority, the courtremanded the case for a determinationwhether an operational conflict existedbetween the ordinance and severalstate statutes, including the ColoradoWater Quality Control Act, the ColoradoDrinking Water Quality Act, thePesticide Applicators’ Act, the

preemption provisions of C.R.S. Title 35, Agriculture, and statutes concerning thenuisance liability of agriculturaloperations. Ultimately, the Supreme

28 Previously discussed in the State Statutes andRegulations section.

Town of Carbondale v. GSS Properties, LLC, 140 P.3d 53 (Colo. App. 2005) overruled on other grounds Town of Carbondale v. GSSProperties, LLC, 169 P.3d 675 (Colo. 2007).

http://66.161.141.176/cgi-bin/texis/web/caselaw/bvindex.html?dn=702+P.2d+293&State=CO&sid=gtl43d4lsbo0itah19c7qn9v71







Court sided with the trial court and ruledthat because GSS failed to properlyraise the preemption defense, it waivedits right to assert it at a later time. TheSupreme Court denied certiorari, and

thus did not address whether thewatershed protection ordinanceimproperly conflicted with the listed

statutes. While of interest, the casedoes not shed much light on the degreeto which watershed protectionordinances will be held to operationallyconflict with state law on oil and gas

operations, as those facts were notpresent in the case.

In BDS International, Gunnison Countyfiled an action seeking injunctive relief toprevent BDS from maintaining or drillingwells on federal property withinGunnison County and declaratory relief seeking a court order requiring that BDScomply with the County’s TemporaryRegulations for Oil and Gas Operations.The company argued that, under asame-subject analysis, “if a state statuteor regulation concerns a particular aspect of oil and gas operations, anycounty regulations in that area areautomatically preempted under

operational conflicts preemption.” Atpage 779 of the opinion, the court foundthat Bowen/Edwards and Town of Frederick do not support thatconclusion, stating:

As noted, a statute will preempt aregulation where the effectuationof a local interest wouldmaterially impede or destroy thestate interest. Bowen/Edwards,

supra. Therefore, a county maynot impose technical conditionson the drilling or pumping of wellsunder circumstances where nosuch conditions are imposed bystate law or regulation.Bowen/Edwards, supra. Inaddition, a county may not

impose fines that are inconsistentwith those imposed by theCOGCC. Town of Frederick,supra.

Id. This portion of the opinion isimportant in making clear that simplybecause the state has a regulation on agiven subject, that does not mean thatthe subject is therefore “off limits” tolocal regulation. In fact, the court held

just the opposite in saying that a list of issues (water quality, soil erosion,wildlife, vegetation, livestock, cultural

and historic resources, geologichazards, wildfire protection, andrecreation impacts) were not preemptedon their face even though the COGCChad regulations in the same area;instead remanding for an evidentiaryhearing. However, the court did holdthat several County regulations werefacially invalid because theyoperationally conflicted with statestatute. This preempted regulations

included provisions concerning impactmitigation costs29, financial

29The County’s regulations at Section 1-107L

read as follows: “The Operator shall bear theproportionate cost of mitigating the impactscaused by the Oil and Gas Operation.”

Board of County Commissioners of Gunnison County v. BDSInternational, LLC, 159 P.3d 773 (Colo. App. 2006).



requirements and access to records.The Court remanded the case becausefacts were needed to determine whether other County regulations wereoperationally preempted.

In addition, the court rejected theargument that the County may notimplement any regulations concerningoil and gas operations on federal lands.

Reviewing federal laws regulating theuse and disposition of federal lands, thecourt found that these statutes do notexpressly or impliedly preempt localregulation of federal lands. The court

did not discuss whether the County'sregulations were operationallypreempted by federal laws since thatissue was not raised.




APPENDIX D UNIQUE LEGAL ISSUES FOR LOCALGOVERNMENTS REGULATING OIL AND GASDEVELOPMENT ON FEDERAL LAND

Whether and to what extent local lawsare applicable on federal lands is thesubject of much case law. This sectionwill briefly outline the unique issuesaffecting local regulation of oil and gasdevelopment on federal land. Pleaseconsult your legal counsel for more indepth analysis of federal preemptioncase law.

Where Congress does not purport tooverride state power over publiclands, and there is no cession,federal official lacks power toregulate contrary to state law.Colorado v. Toll, 268 U.S. 228(1925).

These general principles have been

established in Colorado in City &County of Denver v. Bergland, 517F.Supp. 155 (D.Colo. 1981), aff’d inpart, rev’d in part, 695 F.2d 465 (10th Cir. 1982).

GENERAL PRINCIPLES

Federal ownership, alone, does notwithdraw lands from the jurisdictionof the state. Surplus Tracing Co. v.Cook, 281 U.S. 647 (1930). Nor does the mere possession of afederal license or permit immunize apermittee from the operation of localregulations. Huron Portland Cement

Co. v. Detroit, 362 U.S. 440 (1960).

FEDERAL PREEMPTION ANALYSIS

As with state law, what Congressionalaction constitutes preemption of local

rules is the primary issue. The keyprinciples laid down with respect to thisquestion are the following: The case law is clear that state law

and state police power extend over the federal public domain within itsboundaries until preempted and onlyto the extent actually preempted byfederal law. Texas Oil and GasCorp. v. Phillips Petroleum Co., 277F. Supp. 366 (D.Okla. 1967), aff’d, 406 F.2d 1303 (10th Cir. 1969);

Ventura county v. Gulf Oil Corp., 601F.2d 1080, (9th Circ. 1979), aff’d, 445U.S. 947 (1980); Hagood v. Heckers,513 P.2d 208 (Colo. 1973); State of Idaho ex rel Andrus v. Click, 554P.2d 969 (Idaho 1976).

When there is a direct conflictbetween state and federallegislation, federal legislationpreempts under the SupremacyClause of the United StatesConstitution. Hagood, supra.

[Note that a state regulation maybe more stringent and yet notconflicting. Only when a rightgranted by the federalgovernment is impossible(rather than more difficult) toexercise by reason of a state or local regulation would they be inconflict.] Click, supra.




Federal legislation will also bedeemed to preempt if such was theintent of Congress. This intent isevident when:

o

Congress has specifically statedthat it preempts local rules; or

o There is such a pervasive andcomprehensive scheme of federal regulation thatpreemption follows in order tofulfill the federal statutorypurpose: Hagood, supra; or

o If the nature of the subjectmatter is such that it dictates

preemption, e.g. exclusivity isrequired to achieve nationaluniformity; Click, supra; or

o The state law stands as anobstacle to achieving statedobjectives of Congress: Click,supra; Jones v. Rath PackingCo., 430 U.S. 519, 97 (1977).

In making determinations as to

whether a preemption has occurredunder one of the foregoingprinciples, the following rules of interpretation will be applied:

o Federal incursions upon thehistoric police powers of thestate are not to be foundwithout good cause. Ventura,supra; Rice v. Sante Fe

superseded by the Federal Actunless that was the clear andmanifest purpose of Congress.'" Jones, supra.

o

Local regulations should applywhen they present nosignificant threat to anyidentifiable federal policy or interest; Ventura; Texas Oil,supra.

o The proper approach is toattempt to reconcile the Stateand Congressional statutoryschemes. Conflicting lawsshould be preempted byCongressional acts only to theextent necessary to protect thegoals of the federal legislation.Merrill Lynch, Pierce, Fenner and Smith, Inc. v. Ware, 414U.S. 117 (1973).

o "In determining whether stateregulation has been preemptedby federal action, the intent tosupersede the exercise by the

State of its police power as tomatters not covered by thefederal legislation is not to beinferred from the mere fact thatCongress has seen fit tooccupy a limited field. In other words, such intent is not to beimplied unless the act of Congress fairly interpreted is inactual conflict with the law of

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