Share
April 5, 2019 11:00 AM, EDT

Colorado Drillers Face Tougher Rules Under New Reforms

Jamie Schwaberow/Bloomberg News

Colorado’s Legislature passed a sweeping overhaul of the state’s oil and natural gas laws, giving local governments more power to regulate drilling in one of the nation’s top crude-producing regions.

The bill, which passed the state Senate by just three votes amid intense industry opposition, heads to the desk of Democratic Gov. Jared Polis, a long-standing proponent of tightening public health and safety standards around oil and gas development who helped develop the reforms. The law passed April 3 comes as Colorado pumps record volumes of crude, primarily from the Denver-Julesburg basin situated on the outskirts of Denver.

Colorado explorers moved higher after the bill’s passage as investors regarded the new standards as bringing regulatory certainty to the industry. Extraction Oil & Gas Inc. jumped 14% on April 4, while SRC Energy Inc. rose 8.2% and Highpoint Resources Corp. gained 6.7%.

Graph

Under the measure, the explorers could face new levels of oversight from local governments, which would be able to regulate the siting of surface infrastructure and impose other rules around drilling. The legislation also shifts the focus of the state’s energy regulator from fostering oil and gas development to protecting public health, safety and the environment.

The shale boom has vaulted Colorado to the nation’s No. 5 oil producer, ahead of Alaska and California in crude output. Drillers pumped 513,000 barrels a day in December, a record high. But proximity of oil and gas development to Denver’s suburbs has raised concerns about health and safety, especially after an Anadarko Petroleum Corp. gas line explosion in 2017 killed two people and leveled a home.

Graph

Pure-play drillers focused on the Denver-Julesburg basin could be affected most. Independent explorers such as Extraction and SRC control significant acreage in the basin, some of which overlaps with Denver suburbs. PDC Energy, which also has assets in Texas, is the third-largest lease-holder in the Wattenberg field near Denver.

New statewide environmental and health standards would affect all producers including Anadarko and Noble Energy Inc., which together control about 750,000 acres, and BP, which controls 275,000 acres in Colorado’s San Juan basin and last year moved its U.S. onshore headquarters to Denver.