Colorado Oil and Gas Conservation Commission Overview of Oil and Gas Development in

1. Colorado Oil and Gas Conservation Commission Overview of Oil and Gas Development in Colorado and COGCC Activities Presentation to San Miguel County January 14, 2005 Brian Macke – Director David Dillon – Supervising Engineer

2. STATE OF COLORADO

3. COLORADO OIL AND GAS CONSERVATION COMMISSION MISSION STATEMENT: • PROMOTE THE RESPONSIBLE DEVELOPMENT OF COLORADO’S OIL AND GAS NATURAL RESOURCES • Responsible development results in: • The efficient exploration and production of oil and gas resources in a manner consistent with the protection of public health, safety, and welfare • The prevention of waste • The protection of mineral owners’ correlative rights, and • The avoidance of adverse environmental impacts

4. COLORADO OIL & GAS CONSERVATION COMMISSION ORGANIZATION Executive Director R. George Director B. Macke COMMISSION Executive Asst. K. Zimmerman Deputy Director vacant Deputy Director Of Operations M. Bell Fiscal Manager W. Schultz Hearings Manager T. Beaver Information Manager T. Kerr Network Admin. IT Prof I J. Glossa Permit Supr. Phys Sci Tech III L. Pavelka Info. Processing Supervisor S. Tansey Engr. Supr. Prof Eng II D. Dillon NW Area Engr. Parachute Prof Eng I J. Adkins Engr. Supr. Prof Eng II E. DiMatteo Envir. Supr. Envir Prot Spec IV D. Baldwin Admin Asst Admin Asst III A. Gipson GIS Administrator Phy Sci Res/ Scientist II J. Milne Permit/Compl Tech Phys Sci Tech II E. Winick Imaging Sys Admin Admin Asst III M. Ramos South Area Engr. Prof Eng I L. Robbins NW Area Insp. Parachute Phys Sci Tech II J. Krabacher North Area Engr. Prof Eng I Denver D. Shelton Envir. Specialist Envir Prot Spec II L. Avis Data Entry Operator I L. Sevall Permit/Compl Tech Phys Sci Tech II D. Ahlstrand SE Inspector Trinidad Phys Sci Tech II J. Duran S. Wattenberg Weld Co. Insp. Phys Sci Tech II E. Binkley Envir. Specialist Envir Prot Spec II R. Ferguson Prod/Levy Analyst Data Spec I D. Fairlamb Records Admin. Admin Asst I M. Greenstein Surety Admin. Program Asst II M.Choury SW Inspector Durango Phys Sci Tech II M. Weems NE Inspector Sterling Phys Sci Tech II K. Lively Envir. Specialist Envir Prot Spec II B. Chesson Prod/Levy Analyst Data Spec I C. Rensel Records Admin. Admin Asst I D. Geimausaddle Version 79 –1/5/2005

5. OIL & GAS WELLS OF COLORADOSOURCE COGCC

9. RECENT COLORADO OIL AND GAS WELL PERMITS 8/11/04 RECENT COLORADO OIL AND GAS WELL PERMITS 01/11/05

10. RECENT SOUTHWESTERN COLORADO OIL AND GAS WELL PERMITS01-11-05

11. Colorado Oil and Gas 2004 Drilling Permits by CountyAs Of January 10, 2005 Source: COGCC

24. Commission Make Up Statutory Requirements: • Seven members appointed by the Governor, with the consent of the Senate. • Two members from west of the continental divide. • Other members from areas with a high level of oil and gas development • Two members are not employed by the oil and gas industry, and have experience in agriculture, land reclamation, environmental protection, or soil conservation.

25. Commission Make Up(Cont.) Statutory Requirements: • Five members have substantial experience in the oil and gas industry. • Two of the five members with oil and gas experience college degrees in petroleum geology or petroleum engineering. • No more than four members shall be from the same political party. Commission members are appointed for four year terms.

27. COGCC Field Inspection Program • The COGCC staff includes eight field engineers and inspectors and four environmental protection specialists who perform inspections of many types of oil and gas operations. • Six of the field engineers and inspectors staff remote field offices in the outlying areas where they reside. • COGCC field offices are located in Grand Junction, Parachute, Durango, Trinidad, Greeley, and Sterling.

30. Legal and Regulatory Issues • Colorado oil and gas development often occurs where the mineral estate has been split from the surface estate. • Each party (surface and mineral estate) has their own property rights associated with ownership. • Surface and mineral interests are created or transferred through private party contracts, including deeds and leases.

31. Legal and Regulatory Issues • Oil and gas companies who have purchased or leased the mineral rights are entitled to exercise their property rights. • Colorado law provides for access to the mineral estate by allowing mineral owners “reasonable use” of the surface estate.

32. Legal and Regulatory Issues The Colorado Oil and Gas Conservation Commission: • DID NOT create the legal relationships between surface and mineral estates and does not have the authority to alter them. • CANNOT interfere with the private party contracts that establish the surface and mineral owners’ rights.

33. Legal and Regulatory Issues The Colorado Oil and Gas Conservation Commission: • IS a state regulatory agency created by the Legislature to promote oil and gas development while protecting public health, safety, and welfare. • IS required by law to make and enforce rules to protect the environment and keep the public safe when drilling and development occurs. • IS NOT authorized to protect property values or a preferred quality of life.

34. COGCC Regulations Permit Requirements: • Oil and Gas Well Construction • Proper Oil and Gas Isolation and Groundwater Protection • Oil and Gas Well Location and Spacing Requirements • Bonding Requirements • Safety Setbacks from Homes, Public Roads, and Utilities

35. WELLBORE WATER WELL WATER LEVEL AQUIFER WATER LEVEL GAS ZONE

36. COGCC FINANCIAL ASSURANCE RULES • Surface Owner Protection: • The law provides for compensation from the surface owner protection bond only if crop losses or land damages are “unreasonable” based on what is needed to access the mineral estate. • To date, no surface owners have claimed compensation under a COGCC surface damage bond for unreasonable crop loss.

37. COGCC Environmental Response Fund • The COGCC makes efforts to maintain a • $1 Million emergency reserve in the Environmental Response Fund (ERF) • The ERF may be expended by the Commission to investigate, prevent, monitor, or mitigate conditions that cause, or threaten to cause, a significant adverse environmental impacts on air, water, soil or biological resource.

38. COGCC Regulations Drilling Requirements: • 30 Day Notice to Surface Owner and Local Governmental Designee • Required Good Faith Consultation with Surface Owner and Local Governmental Designee before building location. • Well Control Requirements.

39. COGCC Regulations Reclamation: • Site Preparation Requirements • Interim Reclamation Requirements • Final Reclamation Requirements • Noxious Weed Control

40. Example of Wellsite Reclamation on Crop Land

41. Example of Wellhead Immediately After Reclamation On Non- Crop Land

42. COGCC Regulations Other Rules: • Exploration and Production Waste Disposal • Well Plugging and Abandonment Rules • Noise Abatement Rules • Sanitary Facility Requirements • Non – Contrasting Painting Requirements • Safety Setbacks for Crude Oil Tanks, and Fired Vessels • Fire Prevention and Protection

43. Hazen and Sawyer2001 Study of Colorado Oil and Gas Regulations • Hazen and Sawyer, an independent environmental engineering consulting firm, was retained by the Colorado Department of Natural Resources to conduct a study designed to: • Investigate the impacts of significant rule changes following the passage of Senate Bill 94-177. • Compare Colorado’s Oil and Gas Rules and Regulations with those in Wyoming, New Mexico, and Utah.

44. Hazen and Sawyer2001 Study of Colorado Oil and Gas Regulations Findings • “Colorado has established rules and regulations regarding many issues that are not addressed… in other states.” Examples: • Financial Assurance for Surface Owner Protection • Flowline Regulations • Interim Reclamation • Setback and Other Rules For High Density Areas • Safety Rules

45. Hazen and Sawyer2001 Study of Colorado Oil and Gas Regulations Findings • “Colorado has established more surface owner rights and public involvement than other states.” Examples: • Notice and Consultation • Financial Assurance for Surface Owner Protection • Spill Notification • Public Input Regarding Public Health, Safety, and Welfare Issues Associated With Changes In Well Density

46. Colorado Oil and Gas Conservation Commission COGCC RulemakingEffective June 30, 2004

47. COGCC Rulemaking Effective June 30, 2004 Process to Address Complaints Received Prior to Application for Permit to Drill (APD) Approval • Rule 303 and 522 – Changes - The Director shall withhold the approval of any Application for Permit to Drill while a surface owner complaint is being investigated. - If a violation is found, enforcement would be pursued. - If no violation is found, COGCC staff would issue a letter to the complainant advising of the result of the investigation and advising that the complainant could work through the local government to request a COGCC hearing on the matter.

48. COGCC RulemakingSuspension of an APDFor Incorrect Information • Rule 303 – New Language - “PRIOR TO THE SPUDDING OF THE WELL, THE DIRECTOR SHALL SUSPEND AN APPROVED PERMIT-TO-DRILL… IF THE DIRECTOR HAS REASONABLE CAUSE TO BELIEVE THAT INFORMATION SUBMITTED ON THE PERMIT-TO-DRILL… WAS MATERIALLY INCORRECT.”

49. COGCC RulemakingRelease of Financial Assurance • Rule 909 – New Language - Financial assurance required by Rule 706. may be held by the Director until the required remediation of SOIL AND/OR ground water impacts is completed in accordance with the approved workplan, or until cleanup goals are met.

50. COGCC Local Governmental Designee (LGD) Program • The COGCC LGD Program has been in place since rulemaking in 1992. • The LGD Program rulemaking involved a stakeholder team that included CCI, CML, and the oil and gas industry. • The LGD is the local government office that designates itself to receive copies of well applications and other documents, and to participate in several COGCC processes.