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HomeMy WebLinkAboutCOUNCIL - AGENDA ITEM - 09/17/2019 - OIL AND GAS OPERATIONS-OVERVIEW AND OPTIONSDATE: STAFF: September 17, 2019 Cassie Archuleta, Environmental Sustainability Manager Jeff Mihelich, Deputy City Manager Kelly Smith, Senior City Planner WORK SESSION ITEM City Council SUBJECT FOR DISCUSSION Oil and Gas Operations - Overview and Options. EXECUTIVE SUMMARY The purpose of this item is to describe staff’s current actions managing impacts of oil and gas development in City limits, describe the land use authority granted by new state legislation (Senate Bill 19-181), and discuss potential regulatory options. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED Which option would Council like to pursue for oil and gas development? • Option #1: Continue current efforts; reevaluate in a year • Option #2: Develop new regulatory framework now; consider moratorium BACKGROUND / DISCUSSION The City of Fort Collins has an active oil field in the northeast part of the City that was first discovered in 1924 and continues to produce oil. As is common with older, once remote, oil and gas developments around the state, urban growth has encroached upon the field. In the past decade, advances in oil and gas development technologies have led to increased production in the state, and an evolving regulatory environment. Most recently, the State adopted Senate Bill 19-181 (SB181), which allows for more local government authority in oil and gas regulation. One of the Council priorities, as adopted on July 2, 2019 per Resolution 2019-076, states: • Mitigate impacts of oil and gas encroachment into Growth Management Area o Understand current and potential surface impacts of oil and gas production within the growth management area and consider strategies to mitigate those impacts. Evaluate the impact and needed/desired changes as a result of Senate Bill 19-181 through a robust public engagement process Related to this priority, background on oil and gas operations and current regulatory status is provided here. This is followed by potential options for next steps related to evaluating and exercising new local government authority as granted through SB181. Background on Oil and Gas Operations Oil and gas development in northeast Fort Collins occurs in a small oil field. Currently, there is one operator and 10 active wells within city limits, and no new wells have been drilled since 1992. These wells are associated with a geological formation called the Muddy Sandstone, where the oil is characterized as "dead oil," meaning it has low volatility (very little gas) and requires water injection to bring the oil to the surface. Well depth varies between around 4,800 and 5,600 feet and produce a product that has been characterized as about 97% water, 3% oil, and no salable gas. While there is relatively little oil and gas activity within city limits, there is continuing urban land development interest, and interest in developing additional oil and gas resources at existing wells. Specifically, the lone oil and September 17, 2019 Page 2 gas operator (Prospect Energy) has proposed converting non-producing wells into producing wells near a new residential development. New production at existing wells would likely target a different geological formation (the Codell), which may have a different mix of water, oil and gas. On a larger scale, eastern Colorado has experienced an oil and gas development boom since around 2008, largely due to advancements in horizontal drilling and hydraulic fracturing techniques in a formation called the Wattenberg field. Currently, Weld County is the top producer of both oil and gas in Colorado, with 21,032 active wells. Well depths average 8,000-10,000 feet, and most new wells are horizontally drilled, which means they can extend up to 2 miles horizontally through a formation from a single well pad location. Emissions related to these wells have been demonstrated to contribute to ozone non-attainment issues in Fort Collins. State Regulations Oil and gas operations in Colorado are regulated by the Colorado Oil and Gas Conservation Commission (COGCC), while the Air Quality Control Commission (AQCC) regulates air pollution impacts associated with operations. On April 16, 2019, the State adopted Senate Bill 19-181 (SB181), which impacted the scope of local authority for oil and gas development. Key elements of SB181 include: • A mission change for the COGCC, which elevates public health, safety and environmental concerns over mineral development interests • Increased local authority to reasonably regulate the siting of oil and gas locations to minimize adverse impacts to public safety, health, welfare and the environment • Increased local authority to reasonably regulate land use and surface impacts, inspect oil and gas facilities; impose fines for leaks, spills and emissions; and impose fees to cover costs of permitting, regulation, monitoring and inspection. Adoption of SB181 has triggered new rulemaking activity for the COGCC, which will proceed into 2020. Staff is actively monitoring these rulemakings, and the nature and extent of new rules is still uncertain. County Regulations Larimer County has formed an oil and gas task force to explore a comprehensive set of regulations that supplement State regulations. Meetings began in June 2019, and the County expects a draft of proposed regulations by October 2019. This would be followed by a public process, prior to consideration of adoption. (<https://www.larimer.org/planning/oil-and-gas-task-force/task-force>) Local Agreements, Regulations and Programs Prior to adoption of SB181, local authority was limited by the COGCC. In 2013, Fort Collins adopted a voter- initiated 5-year ban on hydraulic fracturing, but this was overturned by the Colorado Supreme Court in 2016, in part, because it was preempted by State law. Ways that the City currently regulates oil and gas operations include: • An Operator Agreement between the City and Prospect Energy was implemented in 2013 and structured to renew in 5-year increments (last renewed in 2018). This agreement goes above and beyond State and Federal requirements for air sampling and other Best Management Practices (BMPs) for new wells drilled within City limits. • The City’s Land Use Code, which includes setback requirements for new development around existing wells and other oil and gas infrastructure (called reciprocal setbacks). These rules were updated in 2018. Conversely, the COGCC regulations include setbacks for proximity of new wells to existing development. The City also provides input to the COGCC through the COGCCs Local Governmental Designee (LGD) program. Counties, municipalities and special districts designate one representative to serve as the main point of contact with the COGCC. The program provides several benefits, including: • Free training to local designees September 17, 2019 Page 3 • A point of contact between the local government and COGCC • Notification from COGCC of comment periods for permits and approvals • Notification from operators on applications and operations • Consultation and comment opportunities Near-term Development Interest As noted above, Prospect Energy is the only oil and gas operator within City limits, with 10 wells in northeast Fort Collins considered “active”; which means they are either currently producing an oil and gas product, or capable of producing. Of these active wells, three produce oil, five are used to inject water to bring oil to the surface, and two are considered “shut-in” or drilled and capable of producing, but not currently in use. Of these wells, four active wells and one inactive well are in the proposed Country Club Reserve residential development, which is in the final stages of City approval. Considerations for housing setbacks from existing wells, per 2013 Land Use Code requirements (plan submission pre-dated 2018 Land Use Code updates), include: • 350-foot reciprocal setback (proximity of new homes to existing O&G infrastructure) for the three active wells. These wells are not currently producing oil or gas and have minimal infrastructure, including access roads and small sheds. • 150-foot reciprocal setback for the inactive, or plugged and abandoned, well. Plugged and abandoned wells are considered reclaimed or restored to natural conditions by the COGCC and are not typically visible on the surface. In 2018, Prospect Energy submitted a permit application to “re-complete” one well on this property. This process would involve converting a non-producing “shut-in” well, where the well-head is housed in a shed-like structure, to a producing well. This would include hydraulically fracturing a new formation (1-2 day process), and subsequent installation of a pump jack or plunger lifts on site to bring oil and gas product to the surface. The COGCC is currently reviewing completeness requirements for this permit application before releasing for public comment. In anticipation of the permit release, staff convened with the operator and landowner in August 2019 to discuss concerns and mitigation opportunities related to converting this non-producing well to a producing well. Results of the meeting included: • The landowner expressed interest in minimizing surface impacts and sharing the burden of accommodating existing and future oil and gas operations. • The operator expressed interest in working cooperatively with the City and the landowner, while preserving access to mineral rights. • The operator and landowner discussed ways to minimize land use impacts, including use of existing pipelines rather than on-site storage or flaring. • The operator and the landowner agreed to work on a Surface Use Agreement • Preliminary interest was expressed in exploring the financial trade-offs of compensating the operator to plug and abandon wells. Staff will follow up by providing comments to the COGCC regarding any final agreements reached, and any additional local interests. Current Efforts Council priorities, per Resolution 2019-076, include a reduction or elimination of surface impacts in the Growth Management Area (GMA) and evaluation of implications of SB181. Per this direction, current efforts include: • Exploring updates to the Operator Agreement - Staff will coordinate with the operator to explore potential updates to this agreement to remove requirements that were 1-time or no longer relevant, update BMP requirements, and consider new requirements for facility and operation expansions at existing wells. September 17, 2019 Page 4 • Emergency Management Planning - The City’s Office of Emergency Management (OEM) is working with the operator and Poudre Fire Authority (PFA) to update emergency and spill response plans, and to set up regular coordination and training opportunities. • County Regulations - The City is actively monitoring the development of draft regulations for the County and has expressed interest in potentially developing standards for City owned properties outside the GMA (e.g., Soapstone Prairie), unincorporated areas of the GMA, and properties along the outside perimeter of the GMA boundary. • Regional Regulations - The City is staying informed on regulations being developed by other Front Range communities by regularly participating in roundtable discussions with local governments. • State Regulations - The City is actively monitoring a series of rulemakings by the COGCC that will better define local authority and gaps to be filled through local requirements. Current Land Use Code for New Oil and Gas Development Apart from buffer and setback standards, the Land Use Code contains few oil and gas specific procedures or standards. In fact, oil and gas extraction is not listed as an allowed use in any zone district. Prior to 2019, the City’s application of its land use authority was limited by the COGCC’s authority. With adoption of SB181, the City would process an application for a new oil and gas well by means of the Addition of Permitted Use (“APU”) process to allow the use on a particular property. Presuming the use request were allowed, approval of a Project Development Plan (PDP) and Final Plan would also be required. It should be noted that the existing Operator Agreement may limit application of the Land Use Code to Prospect Energy’s oil and gas activities. OPTIONS FOR COUNCIL CONSIDERATION Option #1: Continue current efforts, reevaluate in a year Staff would continue with current efforts and application of Land Use Code standards as described above. Following adoption of final rules by State and County, staff would determine regulatory gaps, BMPs, and opportunities for increased standards and return to Council approximately one year from now for further discussion. Option #2: Develop new regulatory framework now; consider moratorium Develop regulations to fill gaps and expand standards for new and existing wells. This would require a robust outreach process that engages the public, stakeholders and technical experts to adopt consistent requirements applied across all oil and gas development. These standards could replace the Operator Agreement after it expires in 2023 and would give the City the most autonomy in managing land use and surface impacts. If desired, this option could include a moratorium on new oil and gas permits with operators other than Prospect Energy until the regulatory framework is adopted (6-12 months). Potential elements within the framework could include, but are not limited to: • Zoning restrictions; • Setback requirements for new wells; • Alternative site analysis; • Impact and maintenance fines and fees; • Tiered development review process based on development type; • Environmental protection standards beyond State requirements; • Additional monitoring, testing and reporting requirements for air, water, odor; and • Local permit requirement. September 17, 2019 Page 5 Comparison of Options OPTION PROS CONS #1: CONTINUE CURRENT EFFORTS • Operator Agreement remains in effect until 2023 • Allows time to align with State, County and other jurisdictions • Evaluation criteria for land use compatibility. Would use Addition of Permitted Use (APU) process. While new oil and gas development is not anticipated, current efforts do not give new operators clear guidance on City standards for oil and gas development #2: NEW REGULATORY FRAMEWORK • Could address full authority of SB181 • Could apply to all operators and replace existing Operator Agreement • Provides greatest clarity of standards to operators • COGCC rulemakings will conclude in spring 2020; will not know regulatory gaps and full authority until then • Unsure of legal challenges if new code conflicts with rulemakings • Larimer County regulations in progress; may want to align ours with County • Extensive staff time dedicated toward developing regulations within a changing regulatory landscape • Limited ability to leverage BMPs that may be (or have been) established through other community models since majority are still in progress • Potential need for additional resources for consulting support NEXT STEPS Staff is seeking direction on whether to re-evaluate regulatory needs at a later date or act immediately to begin developing new regulations related to oil and gas. Option #1: Continue current efforts; reevaluate in a year Continue to explore updates to the Operator Agreement, partner with Larimer County, collaborate with COGCC, and monitor the changing regulatory landscape statewide on oil and gas development. Staff would provide Council with periodic updates via memoranda and bring the subject of developing a regulatory framework before Council approximately a year from now, after Larimer County has adopted regulations and the COGCC has completed rulemakings. Option#2: Develop new regulatory framework now; consider moratorium Begin developing new comprehensive regulatory framework for oil and gas development. If staff were to pursue this option additional resources would be evaluated to support the measure. Thereafter, staff would develop a scope and public outreach plan. At project milestones staff would provide Council with updates. Draft regulations would go before Planning and Zoning Board for recommendation, with final approval by Council via ordinance within 12-18 months. Council could also consider a moratorium as regulations are being developed. 1 Oil and Gas Operations Overview and Options 9-17-19 ATTACHMENT 1 Council Discussion Which option would Council like to pursue for oil and gas development? • Option #1: Continue current efforts; reevaluate in a year • Option #2: Develop new regulatory framework now; consider moratorium 2 COUNCIL PRIORITY Oil and Gas • Reduce or eliminate surface impacts STRATEGIC ALIGNMENT Neighborhood Livability • 1.7 Guide Development BUDGET • Planning and Environmental Services 2019-2020 Ongoing Offers Why We Are Here 3 Oil and Gas Wells by the Numbers 4 • Colorado: 52,692 Active Wells • Weld County: 21,032 Active Wells • Larimer County: 272 Active Wells • City of Fort Collins • One Operator • Prospect Energy • 10 Active Wells • 3 Producing • 5 Injecting • 2 Shut-In Timeline to Date 5 Oil and Gas 1924 • First well drilled in Fort Collins field 1992 • Most recent well drilled 2013 • 5-year ban on fracking • Operator Agreement • Land Use Code – reciprocal setbacks 2016 • Colorado Supreme Court decision – ban rejected 2018 • Land Use Code updates – increase reciprocal setbacks 2019 • SB 19-181 Adopted Current Efforts • Colorado Oil and Gas Conservation Commission (COGCC) • Regulate all stages of oil and gas development • New rulemakings • Colorado Department of Public Health and Environment (CDPHE) • Air regulations, health response • Larimer County • Evaluating new comprehensive code • City of Fort Collins • Operator Agreement (OA) • Land Use Code • Local Governmental Designee (LGD) 6 Reciprocal Setbacks 7 Land Use Code 2013 2018 2018 Example: Hearthfire Northeast Fort Collins O&G Development Interest Producing Injecting Shut-In Abandoned City Limits Well Status DOUGLAS RD TURNBERRY RD 8 Country Club Reserve 9 New Residential Development Active (IJ) Active (PR) Active (IJ) Active (SI) Inactive (PA) Senate Bill -181 1. Change in COGCC Mission from fostering responsible, balanced development to regulating in a manner that protects public health, safety & environment 2. Expands local authority 10 COMMUNITY RESPONSE: • 10+ Developing Regulations • 8 Adopted Moratoria • 1 Released Draft Regulations COMMUNITY RESPONSE: • 10+ Developing Regulations • 8 Adopted Moratoria • 1 Released Draft Regulations Continue Current Efforts 11 OPTION #1 Fall, 2020 OPERATOR AGREEMENT (OA) Spring, 2023 STATE Spring, 2020 COUNTY Update OA Re- evaluate Spring, 2022 CITY? • Operator Agreement may be updated • Actively monitor regional and State rules • Evaluate gaps and opportunities Fall, 2020 Pursue Regulatory Framework Now 12 OPTION#2 OPERATOR AGREEMENT Spring, 2023 STATE Spring, 2020 COUNTY Summer, 2021 CITY • Implement full authority of SB-181 • Could consider moratorium Option Comparison 13 OPTION PROS CONS #1: Continue current efforts; reevaluate in a year - Time to align/evaluate new State and County standards - Could still pursue regulations in the future - New drilling not likely - Limited clarity on standards for new operators #2: Develop regulatory framework now; consider moratorium - Addresses full authority - Could replace Operator Agreement (2023) - Provides greatest clarity - May not align with the State and County - Few precedents to measure legal challenges - Requires staff time and additional resources Council Discussion Which option would Council like to pursue for oil and gas development? • Option #1: Continue current efforts; reevaluate in a year • Option #2: Develop new regulatory framework now; consider moratorium 14 ATTACHMENTS 1. Powerpoint presentation (PDF)