Colorado oil, gas producers hinge their hopes on Hick

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The incoming administration of Gov.-elect John Hickenlooper is likely to see increased pressure from the oil and gas industry to lift environmental regulations that critics say have hurt the Southern Colorado economy.

Together, House bills 1298 and 1341 were designed to protect the environment and wildlife, restrict energy exploration near drinking water, and increase testing and reporting requirements. Gov. Bill Ritter supported the regulations, which went into effect in 2008.

Critics say the new rules choked off natural-gas drilling at a time when the industry was sensitive to broader market forces, and contributed to an exodus of energy jobs from Colorado.

“A combination of the 2008 rules and the economic downturn took a toll on the industry,” said Colorado Oil and Gas Association President Tisha Schuller.

Job losses have continued as companies scale back operations in preparation for regulations yet to be enacted. One of the most controversial measures would levy a seasonal ban on drilling.

Las Animas County, and the city of Trinidad in particular, has historically been one of the state’s largest markets for natural-gas drilling. The region has been crushed by regulation, low energy prices, an economic downturn and energy discoveries outside of the state.

Brett Fowler, who manages Trinidad-based drilling services company Western Well Service, said his company has dropped from 45 employees down to 15.

“(The regulations) have devastated our business. It’s put a halt to drilling, and the companies we work for have put everything on hold to see how it plays out,” he said. “The economy and low energy prices have a little to do with it, but you put the regulations on top of that and it has just destroyed the industry down here.”

Las Animas County Administrator Bill Cordova confirmed this trend. He said the two major energy explorers and producers in Trinidad, Pioneer Natural Resources and XTO Energy, have either reassigned workers to other states or stopped drilling.

Pioneer is down from 565 employees to 400 in Trinidad. Most of the workers were shifted to jobs outside of Colorado where drilling activity is more robust. Pioneer has held its workforce steady at 50, but is not drilling at the moment. Both companies are hopeful to begin drilling again in 2011, but neither has committed to anything concrete.

According to Schuller, the oil and gas industry supports 190,000 jobs in Colorado and accounts for 90 percent of the state’s mineral taxes. Colorado Legislative Council economist Jason Schrock forecasts the state will see $150 million in excise taxes on natural resources this year. That’s down from more than $300 million in 2008, but up from less than $50 million last year.

The natural-gas industry is especially upset by the regulations because its drilling has a less-significant impact on the environment than oil drilling.

“Every basin in Colorado is different and one size fits all is never the answer,” said Pioneer Natural Resources Vice President Tom Sheffield. “Regulations should be made basin by basin.”

Hickenlooper has trumpeted his private-sector experience as evidence that he intends to bring a more business-friendly approach to the executive office, and there is hope that his administration will reassess the regulations.

Hickenlooper visited the Trinidad drilling fields during his campaign, and in reference to the regulations, openly voiced his displeasure with environmentalists going “overboard.” This was one of the few moments of contentiousness between Hickenlooper and Ritter in an otherwise quiet Democratic gubernatorial campaign.

“We believe Hickenlooper … will seek input on industry issues of concern, looking for ways to ensure the protection of the environment and continued development,” Sheffield said. “By seeking compromise solutions that address both the environment and enhanced development, we hope to see a more objective, fact-based approach to decision-making.”

For now, both sides are presenting a tight-lipped but open-to-compromise face in order to avoid spoiling the debate before the new administration takes office in January.

“We look forward to working with the new administration, his cabinet, and both houses of the Colorado State Legislature to help keep Colorado a low-tax, high-prosperity, and business-friendly state,” Schuller said.

Hickenlooper spokesman Eric Brown would only address the issue in broad terms.

“It makes sense to engage industry, the conservation community and other stakeholders in identifying conflicts and resolving them in a collaborative way,” he said. “We believe the Colorado Oil and Gas Commission process can accommodate changes that reflect different conditions, needs and priorities.”

There are a number of changes the oil and gas industry would like to see the new administration and commission work together on.

For starters, Sheffield said the COGCC board needs a knowledgeable industry technician to advance the scientific understanding of the commission.

He also recommended providing incentives to companies that pursue innovative environmental supplements to drilling, and formalizing the complaint process to ensure that all claims against the industry are properly reviewed.

“Make science the basis for rules and COGCC policies,” Sheffield said. “We should only proceed on modifying policies, rules and laws for complaints based on sound data.”

Dan Grossman, who serves as the natural resources advisor on Hickenlooper’s transition team, did not return a phone call for comment.

Industry executives say there’s reason to be optimistic.

“After two years of effort, the industry and COGCC have worked together to resolve many of the issues, complexities, and inefficiencies of the rules,” Schuler said. “We will continue to do so in order to achieve a climate of business certainty to increase investment in Colorado.”

Businesses across the state will be depending on it.