American Oil and Gas Reporter - November 2022 - 70
IssuesUpdate: Colorado Oil & Gas Association
equivalent, it will pay $225 for each of its
wells, while the fee for operators producing
less than that is $125 for each of their
wells. The enterprise fund board is directed
to review revenue and expenses annually
and adjust operator fees accordingly.
In addition to the $10 million in revenue
from operators, Colorado projects it will
receive $10 million-$15 million a year
during the next decade under the Bipartisan
Infrastructure and Jobs Act of 2021. The
combined funding sources are expected
to bring in $100 million-$115 million
during the next five years, the commission
states. And the mill levy continues, in
part, to contribute funds to the orphan
well program, though the state has expressed
plans to consider reducing the
mill levy associated with funding the orphan
well program sometime in the future.
" With the new funding from operators
and the feds, Colorado ought to be able
to resolve what is a comparatively small
orphan well problem, " Haley assesses.
Financial Assurance
Conversely, Colorado now has what
Haley terms " the most expensive financial
assurance rules in the country. " The
revised financial assurance rules have
made " this latest rulemaking really difficult, "
he says.
Haley and Land concur that the new
financial assurance rules will burden the
economics of operating a small producing
company, which also threatens leaseholder
royalties. The concern, Land explains, is
that making it harder for smaller producers
to cover the higher bond costs, " runs the
risk of creating more orphan wells if
those operators are forced to walk away. "
The latest round of rulemaking has
seen a complete overhaul of COGCC's
Series 700 rules. Operators now must
file a company plan detailing, among
other things, production data, well status,
well-plugging data, a list of inactive wells
and an asset retirement plan.
The commission's informational requirements
in the Form 3 Financial Assurance
Plan include an operator's list of
inactive or low-producing wells, which
COGA says may prove especially problematic.
An operator must provide a
reason why each inactive well is shut in
and when it will return to production or
be slated for plugging.
" The commission's stated goal is to
make sure the operator has a plan to reopen
or retire those wells, " notes COGA
Director of Public Affairs Rich Coolidge.
70 THE AMERICAN OIL & GAS REPORTER
" It is looking for inactive wells and wells
that produce less than two boe/d or 10
Mcfe/d. Once they hit that threshold the
commission applies additional scrutiny
and regulatory requirements. We see the
state as viewing these low-producers as
a nonviable business model, but that is
just not true. "
According to a statement from the
commission, COGCC " regulates oil and
gas development and production to produce
the cleanest energy and to have operators
be responsible for the lifecycle of
a well. " Defining that life cycle is the
pivotal problem, Coolidge considers.
Sliding Scale
According to the COGCC, financial
assurance plans are divided into six options
generally based on average daily well
production:
· Operators with average annual well
production exceeding 60 boe/d or 90
Mcfe/d may file under Option 1.
· Operators producing less than that
amount but exceeding 15 boe/d or 90
Mcfe/d may file under Option 2.
· Operators exceeding 2 boe/d and
producing as much as 15 boe/d or exceeding
6 Mcfe/d and producing as much
as 22 Mcfe/d may file under Option 3.
· Option 4 is for those producing
less than 2 boe/d or 6 Mcfe/d or with no
production.
· Option 5 is for operators who claim
they cannot meet the financial assurance
requirements because of exceptional, unreasonable
or unnecessary circumstances.
· Option 6 may be pursued by operators
who are public companies with average
annual well production exceeding
40 boe/d or 60 Mcfe/d or private companies
having an average annual well production
rate exceeding 60 boe/d or 90
Mcfe/d. Option 6 operators post a minimum
of $40 million in financial security.
" Blanket " financial assurance for operators
in options 1 and 2 are based on a
sliding scale from $18,000 a well for Option
2 operators with 50 wells or fewer down to
$1,500/well for Option 1 operators with
more than 4,000 wells. For option 1 and 2
operators with low producing wells in
excess of 10% or 5% of their overall well
inventories, respectively, single well financial
assurance covering the full cost of plugging,
abandonment and reclamation is due for
each of their wells in excess of those percentage
thresholds. Similarly, Option 6 operators
must pay single well financial assurance
for any of their low-producing
wells exceeding 25% of their inventories.
Land predicts the new well bond rules
will not overburden Terra's balance sheet,
and says the company routinely plugs
uneconomic wells and shuts in low-producing
wells that are candidates for
workovers or restarts according to different
market conditions. However, he acknowledges,
other responsible and conscientious
Colorado operators still may face hardships
under the new structure.
" Companies must have leeway to make
those decisions without Colorado forcing
us to plug, " he emphasizes. " One of
COGA's roles is to ensure the commission
understands that so smaller operators are
not burdened to the point of being put
out of business. "
Severe Nonattainment
Air quality returned to the spotlight
this summer when word came down that
the U.S. Environmental Protection Agency
would downgrade Colorado's air quality
classification to severe nonattainment. In
addition to greatly increasing the pool of
emitters EPA classifies as major sources,
the downgrade means refiners by 2024
must begin supplying reformulated gasoline
as a step in reducing volatile organic
compounds, carbon monoxide and oxides
of nitrogen.
" The most immediate impact will be
on motorists, " Haley predicts. " We see it
as an additional $0.30-$0.50 a gallon. "
Unfortunately, he adds, Governor Jared
Polis eschewed the option to protect motorists
when the state chose not to seek a
179(B) waiver, as Polis' predecessor, John
Hickenlooper, did. If EPA accepted it,
Haley notes, the waiver could allow additional
time before EPA's air quality downgrade
by acknowledging the bulk of region's
emissions either are a product of coniferous
forests or originate from outside state lines.
" These federal requirements are tough, "
Haley characterizes. " If every person in
Colorado left today, we still may not meet
the federal standard for ozone simply based
on what is naturally occurring and what
blows in from California and China. "
Improved Air Quality
Refuting claims made by Boulder
County officials, COGA in September
released an updated study that showed
methane emissions along Colorado's Front
Range had been slashed 72% since 2015,
even as production has increased.
According to COGA, data from satellite
methane observations taken between May
American Oil and Gas Reporter - November 2022
Table of Contents for the Digital Edition of American Oil and Gas Reporter - November 2022
Contents
American Oil and Gas Reporter - November 2022 - Intro
American Oil and Gas Reporter - November 2022 - Cover1
American Oil and Gas Reporter - November 2022 - Cover2
American Oil and Gas Reporter - November 2022 - Contents
American Oil and Gas Reporter - November 2022 - 4
American Oil and Gas Reporter - November 2022 - 5
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American Oil and Gas Reporter - November 2022 - Cover3
American Oil and Gas Reporter - November 2022 - Cover4
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