Colorado town takes different path on oil and gas boom

Posted on March 18, 2013

While Fort Collins and Longmont have imposed bans on the use of hydraulic fracturing, or fracking, of oil and gas wells inside the city limits, another local government has taken a different route to managing oil and gas operations inside its city.

On Aug. 28, 2012, Erie’s town council approved two Memoranda of Understanding (MOUs) between the town and two of Colorado’s largest oil and gas operators: Anadarko Petroleum Corp.(NYSE: APC), based in The Woodlands, Texas, near Houston, and Denver-based Encana Oil & Gas (USA) Inc. (NYSE: ECA), a subsidiary of Encana Corp., based in Calgary, Alberta, Canada.

The MOUs were a new phenomenon in Colorado, which has seen a contentious tug-of-war in the past 18 months between local and state governments over which jurisdiction has the authority to regulate the multibillion-dollar industry.

I talked with officials at Erie, Anadarko and Encana recently, while working on a story about the affect of Fort Collins’ frack ban on a small, Denver-based oil and gas company, Prospect Energy LLC. The story is available here to Denver Business Journal subscribers.

They told me that six months after the Erie MOUs were signed, they appear to be working.

Encana hasn’t sought any drilling permits from the state since the MOUs were signed, but did apply all the “best practice” techniques required by the agreements to two wells inside the city limits for which the energy company already had permits, said Fred Diehl, Erie’s assistant to the town administrator.

Encana and Anadarko also used the MOU-required techniques for two wells drilled outside the town limits, but close enough to be of concern to residents and city officials, Diehl said.

“The operators have gone beyond our expectations, beyond the scope of the MOUs, to include sites previously approved by the state and sites outside Erie but adjacent to the town,” Diehl said.

The practices outlined in Erie’s MOU are part of Encana’s best practices for wells it drills in the Denver-Julesburg Basin, said Encana spokesman Doug Hock. The basin sprawls north and east of Denver into Nebraska and Wyoming.

“But the differences are that it’s not optional, it’s something that we’re committed to doing in the town of Erie,” Hock said. “It feels like it could be a model for other municipalities to follow. It’s a much better solution and path forward versus moratoriums and bans.”

John Christiansen, spokesman for Anadarko, said via email that the company has worked to maintain an “open dialogue” with the local governments where it operates.

“To date, this approach has served our stakeholders well and enabled our company to continue to safely and responsibly produce the vital energy resources int he Wattenberg field [north of Denver] that support a vibrant economy and growing job market in northeast Colorado,” Christiansen said.

Erie’s MOU approach stands in contrast to the path taken elsewhere.

Longmont’s city council passed new local ordinances in July 2012 that included a ban on drilling in residential areas. The state has filed a lawsuit over the rules, saying the city stepped on the state’s authority.

And Longmont voters during the November 2012 elections approved a city-wide ban on fracking, a widespread technique that uses water, sand and trace amounts of chemicals to crack underground rock formations to access oil and natural gas.

The voter-approved ban also is the subject of a lawsuit filed by the Colorado Oil & Gas Association, an industry trade group.

In Fort Collins, the city council approved a ban on fracking in early March, a move COGA’s president has said the group considers illegal.

Geoff Wilson has seen several state-local clashes over oil and gas operations in the more than 20 years he’s worked at the Colorado Municipal League, where he’s currently the general counsel.

“I’m concerned about the viability of those bans [in Fort Collins and Longmont],” Wilson said. “What the court will wrestle with is whether the ban on fracking amounts to a ban on oil and gas development, something the Colorado Supreme Court said cities can’t do in 1992.”

Wilson said for all the attention paid to the fracking bans, he believes local oil and gas regulations are working in most places.

“The fracking bans detract attention from the day-to-day, responsible land use regulation of this industry by local governments across the oil patch,” Wilson said. “We do this week in and week out in a professional manner and it doesn’t usually end up in the newspapers.

“There are very important public health, safety and land use issues associated with oil and gas, but I’m not convinced that fracking, per se, is at the top of the list of things about which we need to be concerned. I think noise, odors, spills on the surface, good housekeeping around the wellhead