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Date: February-05-2001


"How Far Can They Go?"

Kenneth A. Wonstolen, Esq.
Sr. Vice President & General Counsel
Colorado Oil & Gas Association


I. Oil & Gas Activities Do Not Fit the Mold of Local Control

The conflict between local land use regulation and the state interest in oil and gas development activities is fundamental. If one thinks about the basic questions involved in land use control, it is clear that oil and gas, due to its unique nature, does not fit the mold for local regulation.

Local regulation of oil and gas development must recognize that such operations occur in a very different context from that of other surface uses. Surface operations for oil and gas are incidental to and necessary for the development of the underlying mineral estate, access to which is guaranteed by the common law of property. The oil and gas owner must be able to develop the resource where it occurs, from the overlying surface. Unlike other surface developers, no alternative land uses are possible. Denying access, or making it prohibitively expensive, is equivalent to condemnation of the property. Denial of all economic use of property is a per se taking.


II. The Court speaks; is harmony possible?

The history of industry litigation against overbearing local control dates back to a least the 1980’s. In the case of Oborne v. Douglas County, the operator, assisted by the Independent Petroleum Association of Mountain States, sued to prevent the county from imposing a series of technical regulations on its well construction and operation. The district court found in favor of the operator, and, on appeal, the Colorado Court of Appeals held that the field of oil and gas regulation was occupied to the exclusion of local controls.

In the early 1990’s, two additional lawsuits by operators against local oil and gas ordinances worked their way towards the Supreme Court. One arose from the adoption by the City of Greeley of a ban against drilling in the city limits. The Supreme Court affirmed the lower court rulings that the drilling ban was invalid, but it declined to find total preemption of local regulation and reinterpreted the Oborne case as a conflict of regulation decision. The Court suggested that local regulation of oil and gas might be sustained so long as it did not frustrate the dominant state interest in development of the resource.

In a companion decision issued on the same day as Voss, the Court elaborated on the nature of permissible local regulation. Certain technical matters were specified by the Court to "require uniform state regulation".

Outside these enumerated areas, the Court held out the hope that local regulation could "be designed to harmonize oil and gas" activities with land use plans and the state’s interest in development.

Accordingly, it seems clear that local governments may not: prohibit drilling or use zoning to control well location; adopt regulations that conflict with COGCC regulations; or, adopt regulations in technical areas reserved to the COGCC (even if currently unregulated) if the local ordinance would frustrate the state interest in development. Nor, by statute, may local governments enforce COGCC regulations, impose local inspection fees for matters subject to COGCC oversight, or impose local "occupational privilege" taxes on wells and their associated production facilities. This legal framework, in conjunction with the comprehensive reach of the COGCC regulations adopted during the 1990’s, raises the question of whether the field of oil and gas regulation has indeed been effectively occupied by state regulation to the exclusion of local regulation.


III. The COGCC seeks to accommodate local concerns.

Although the court decisions appear to have left little real scope for local control over oil and gas, the COGCC has adopted numerous rules and procedures to accommodate local governments and to incorporate local citizen concerns in its decisions. First, the COGCC requires that local government "designees" receive advance notice of drilling applications and an invitation to participate in an onsite consultation (with the surface owner) regarding the wellsite location, type and placement of roads and production facilities, and timing of operations. Local governments may request a ten day delay in the issuance of a drilling permit in order to consider local impacts and comment to the COGCC.

Second, a set of special "high density area" regulations were adopted to address local concerns about operations in or near residential or commercial areas, or adjacent to certain public facilities. These special rules impose increased setback requirements and a range of additional safety precautions on operators.

Third, local governments are given the right to intervene in virtually every COGCC proceeding in order to raise issues of "public health, safety and welfare". This right has taken on particular significance in the context of the COGCC rule for local government and public involvement in drilling density matters, whereby county intervention automatically invokes a bifurcation of the proceedings into a "downhole" technical hearing, followed by a "public issues" hearing. This results in delaying the drilling of any new wells found necessary from a resource recovery standpoint until public concerns have been addressed. Conditions of approval, including development plans, onsite inspections, "APD’s" having to go to hearing, and directional drilling requirements may be imposed on the operator.

Experience in these areas, especially drilling density matters, raises the issue of whether these COGCC efforts to provide a forum for local concerns, however well-intentioned, have been effective. It can certainly be argued that the COGCC has simply provided an opening for "NIMBY’ism" and surface owner objections – cloaked in the mantle of public welfare – to influence Commission decisions. It must also be asked whether the members of the Commission are qualified to make decisions on the wide range of "public" concerns being raised. Finally, taking on these contentious issues has exposed the COGCC to considerable media criticism and politicization.


IV. The controversy heats up.

Despite the COGCC’s attempts to be responsive to local concerns, whether expressed directly by citizens groups or through their local elected officials, it has come under increasing attack. Two attempts have been made to enact bills that would impose strict "conflict of interest" standards on the COGCC or to reduce the number of seats requiring industry expertise. This legislation would prohibit Commission service by anyone employed by, or with a financial interest in, the oil and gas industry. Commissioners are already covered by ethical standards that require disclosure of any personal involvement or interest in any particular matter brought before the COGCC. The bill proposals would effectively preclude service by anyone other than academics, industry refugees and retirees, all without any direct investment in oil and gas companies.

Evidently, opponents of oil and gas development believe that a COGCC comprised of members not active in the industry would be more sympathetic to claims of excessive surface owner burdens and environmental impacts – the Act be damned. The legal principle that the COGCC, as a state agency, is a creature of statute and limited authority has become politically incorrect. Of note is the fact that the recently announced legislative initiative by the Department of Natural Resources does not involve the COGCC in any of its elements, including with respect to surface owner compensation. It will be interesting to see whether this DNR approach will divert political heat away from the Commission.

Meanwhile, local governments are again becoming more assertive in their own attempts to exercise control over oil and gas activities. Several municipalities have declared drilling moratoria while they consider and adopt new permit ordinances. Pressure from surface developers anxious to delay drilling of any new wells while they, themselves, proceed through local approval procedures for subdivisions, may be responsible for these moratoria. To the extent that this is the case, it is a very problematic development for industry, and one that COGA plans to address aggressively.


V. What does the future portend? Let’s get real.

It is clear that local opposition to resource development, whether directly from citizens or reflected through their elected officials is not confined to drilling for oil and gas. All segments of the energy supply chain – producers, processors, pipelines and power generators – are experiencing the same difficulty. PSCo estimates that it will need 1,933 additional megawatts of new generating capacity over the next six years. Thirteen new power plants, all gas-fired, are under construction or in the planning stages. Nationally, over 90% of some 250,000 megawatts of new generation capacity is gas-fired. Supplying these powerplants, as well as the millions of new residential heating customers, will be an immense undertaking for the domestic natural gas industry under the best of circumstances. Having to deal with NIMBY’s and BANANA’s may well make meeting the challenge impossible.

The new, politically correct "stakeholder" involvement process is a recipe for delay or outright rejection of energy development at every stage of the supply chain. As stated by the city planner for Silverthorne, Colorado, "everybody wants power, but nobody wants it where they can see it". This admission highlights the fatal defect inherent in local control over projects essential to the general welfare. There is no local constituency for major resource development projects. Therefore, local politicians respond to the vocal opposition, at least if they want to be re-elected. This is a version of the classic "free rider" problem in economics, a manifestation of the "effortless society".

Several responses will be necessary to address this problem. First, the oil and gas industry, along with its partners in the energy supply chain, must devote substantial resources to public education. How many consumers complaining about high gasoline prices know that not a single new refinery has been built in the United States in over twenty years – and understand the relationship? Gasoline does not come from the pump, heat does not come from the thermostat, and electricity does not come from a switch on the wall.

Second, the industry must also devote substantial resources to being good corporate citizens. Long before proposing a significant new drilling program or energy facility, company representative must build a foundation of knowledge, good will, and, hopefully, support among community groups and elected officials, both local and in the statehouse. Local media relations must also be cultivated. And, of course, promises must be kept. Projects must be constructed and operated responsibly, safely and with environmental sensitivity. These goals must be real commitments and not just words in a corporate mission statement.

Unfortunately, all this effort may not be enough, given the depth of anti-corporate fervor among certain activist groups. Industry efforts towards public education and community relations will always be dismissed by some as cynical and self-serving. It will take a concerted effort by state and national opinion leaders, including responsible elected officials, to turn the tide away from parochial interest to the true public interest in secure, reliable domestic energy supplies. The recent spate of excellent news stories on the causes of the current high prices of gasoline, fuel oil, natural gas and electricity is encouraging in this regard. On the other hand, the demagoguery being demonstrated on the campaign trail is not a good sign. The jury is out on America’s energy future.

Ken Wonstolen is the Senior Vice President and General Counsel for the Colorado Oil & Gas Association, a trade group organized to promote the responsible development and utilization of the state’s natural gas and oil resources. COGA works at the local, state, regional and national level on the entire range of public policy issues facing the domestic petroleum industry.

Ken can be reached at:

Colorado Oil & Gas Association
1776 Lincoln Street, Suite 1008
Denver, CO 80203


Author: Kenneth A. Wonstolen, Esq.





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