BEFORE THE OIL AND GAS CONSERVATION COMMISSION
OF THE STATE OF COLORADO

IN THE MATTER OF CHANGES TO THE RULES OF PRACTICE AND PROCEDURE OF THE OIL & GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO	)
)
)
)	CAUSE NO. 1R

ORDER NO. 1R-112	

REPORT OF THE COMMISSION

TO ALL INTERESTED PARTIES AND TO WHOM IT MAY CONCERN:

Pursuant to a hearing before the Oil and Gas Conservation Commission on April 4, 2011, in Suite 801, The Chancery Building, 1120 Lincoln Street, Denver Colorado, the Oil and Gas Conservation Commission promulgated amendments to its Rules and Regulations as described below:
904. PIT LINING REQUIREMENTS AND SPECIFICATIONS 
a. 	Pits that were constructed before May 1, 2009 on federal land, or before April 1, 2009 on other land, shall comply with the rules in effect at the time of their construction.  The following pits shall be lined if they are constructed on or after May 1, 2009 on federal land, or on or after April 1, 2009 on other land: 
(1)	Drilling pits designed for use with fluids containing hydrocarbon concentrations exceeding 10,000 ppm TPH or chloride concentrations at total well depth exceeding 15,000 ppm. 
(2)	Production pits, other than skim pits, unless the operator demonstrates to the Director’s satisfaction that the quality of the produced water is equivalent to or better than that of the underlying groundwater or the operator can clearly demonstrate by substantial evidence, such as by appropriate percolation tests, that seepage will not reach the underlying aquifer or waters of the state at contamination levels in excess of applicable standards.  Subject to Rule 901.c, this requirement shall not apply to such pits in Huerfano or Las Animas Counties constructed before May 1, 2011, or to such pits in Washington, Yuma, Logan, or Morgan counties constructed before May 1, 2013. 
(3)	Special purpose pits, except emergency pits constructed during initial emergency response to spills/releases, or flare pits where there is no risk of condensate accumulation. 
(4) 	Skim pits. 
(5) 	Multi-well pits used to contain produced water, drilling fluids, or completion fluids that will be recycled or reused, except where reuse consists only of moving drilling fluids from one oil and gas location to another such location for reuse there.  Subject to Rule 901.c, this requirement shall not apply to multi-well pits used to contain produced water in Huerfano or Las Animas Counties constructed before May 1, 2011, or to multi-well pits used to contain produced water in Washington, Yuma, Logan, or Morgan counties constructed before May 1, 2013. 

(6) 	Pits at centralized E&P waste management facilities and UIC facilities.

Exhibit A, attached and incorporated by this reference, is a statement giving the basis, statutory authority, and purpose for the revisions.  
		DONE AND PERFORMED by the Oil and Gas Conservation Commission of the State of Colorado this 		day of April, 2011.

	IN THE NAME OF THE COLORADO
	OIL AND GAS CONSERVATION COMMISSION
	OF THE STATE OF COLORADO

	By			
	      Rob A. Willis, Acting Secretary

Dated at Suite 801
1120 Lincoln Street
Denver, Colorado 80203
April 7, 2011

Exhibit A

Proposed Statement of Basis, Specific Statutory Authority, and Purpose

Amendments to Rule 904.a. of the 
Colorado Oil and Gas Conservation Commission, 2 CCR 404-1

This statement sets forth the basis, specific statutory authority, and purpose for the amendments to Rule 904.a. of the Rules and Regulations and Rules of Practice and Procedure (“Rules” ) promulgated by the Colorado Oil and Gas Conservation Commission (“Commission” or “COGCC” ) on April 4, 2011.  Rule 904.a. concerns the requirements to line certain pits.

Statutory Authority

The amendment to Rule 904.a. is based on: 1) general Commission jurisdiction and rulemaking authority granted in section 34-60-105 (1) C.R.S; and 2) specific statutory authority of section 34-60-106 (2)(d) C.R.S.  Additional authority for the promulgation of the rules is provided by sections 34-60-102, 34-60-103, 34-60-104, 34-60-105, and 34-60-108, C.R.S. of the Oil and Gas Conservation Act.  The Commission also adopted the following statement of basis and purpose consistent with section 24-4-103(4), C.R.S., of the Administrative Procedure Act. This statement is hereby incorporated by reference in the rules adopted.

The rulemaking for these amendments to Rule 904.a. was held on April 4, 2011 (testimony and deliberations).  This amendment becomes effective twenty days after it published in the Colorado Register.

Basis and Purpose

Rule 904.a.(3) requires the lining of production pits unless the operator demonstrates either that the quality of the produced water equals or exceeds that of the groundwater or that seepage will not violate state water quality standards.  Rule 904.a.(5) requires the lining of multi-well pits that contain produced water, drilling fluids, or completion fluids that are recycled or reused, with certain exceptions.  Except for six counties in Eastern Colorado, these two requirements apply to production and multi-well pits constructed during or after June 2009 on state and private land or during or after July 2009 on federal land.  In Washington, Yuma, Logan, Morgan, Huerfano, and Las Animas counties, these lining requirements apply to production and multi-well pits constructed on or after May 1, 2011. 
 
In October 2010, the COGCC staff, in consultation with the staff of the Colorado Department of Public Health and Environment (“CDPHE”), began to consider amending Rule 904.a. to defer the effective date of these lining requirements by two additional years in Washington, Yuma, Logan, Morgan, Huerfano, and Las Animas counties.  As part of this process, the COGCC staff conducted stakeholder meetings in November and December 2010 with local governments, oil and gas operators, and environmental groups.  Representatives of Washington, Yuma, Logan, and Morgan counties in Northeastern Colorado supported deferring these requirements in their jurisdictions, while representatives of Huerfano and Las Animas counties in Southeastern Colorado did not support such a deferral in their jurisdictions.  Operators in Northeastern Colorado likewise supported such a deferral, while operators in Southeastern Colorado either stated that they will begin lining such pits in May 2011 regardless of the effective date of the requirements or took no position on the issue.  Environmental groups did not support deferral of the lining requirements, but indicated that they are principally concerned with the lining of pits in Southeastern Colorado.  

The amendment to Rule 904.a. defers the effective date of the lining requirements by two additional years in Washington, Yuma, Logan, and Morgan counties.   These lining requirements will apply in these counties to production and multi-well pits constructed on or after May 1, 2013.  The rationale for the amendments is as follows:  

1.	The lining requirements only apply to newly constructed production and multi-well pits and few such pits have been constructed in Eastern Colorado since the current version of Rule 904.a. took effect in 2009.  Specifically, COGCC records indicate that since July 1, 2009 only one such pit has been permitted in each of Washington, Yuma, and Morgan counties, and no such pits have been permitted in Logan County.  Of the three permitted pits, two were lined and one was an emergency pit that has already been closed.  Therefore, it appears that deferral will not result in a substantial number of unlined pits being constructed.  In addition, COGCC staff will continue to gather additional useful information regarding these pits.  

2.	To ensure that the environment is properly protected during the deferral, the COGCC staff may exercise its authority under Rule 901.c. to impose additional requirements on a new production or multi-well pit in these counties where there is reasonable cause to believe that the pit threatens to cause or causes a violation of Table 910-1 standards.  In addition, Rule 324A. prohibits such pits from violating water quality standards and requires the use of cost-effective and technically feasible precautions to prevent significant adverse impacts to water, soil, and biological resources.  Therefore, during the deferral period, the COGCC can still require new production and multi-well pits in these counties to be lined on a case-by-case basis where site-specific circumstances indicate that such action is needed to protect the environment.    

3.	In previously making these lining requirements applicable to production and multi-well pits constructed in these counties beginning in May 2011, the Commission anticipated that this would “allow COGCC and CDPHE staff to work with operators and local government to evaluate further the basis, need and appropriate nature of production pit lining requirements for these Eastern Colorado locations.”  Because of other obligations, and the relatively small number of pits constructed in Eastern Colorado, COGCC and CDPHE staffs have not completed such work.  This further deferral will provide additional time for the staff, operators, local governments, and other interested parties to gather relevant information and evaluate these requirements before they become effective.  This, in turn, will help ensure that Rule 904.a. strikes a responsible balance between energy development and the protection of public health, safety, welfare and the environment, without unnecessarily disrupting current water management practices or imposing unwarranted costs or restrictions. 

4.	Much of the above reasoning arguably applies to Huerfano and Las Animas counties as well.  As previously noted, however, those counties did not support a further deferral of these requirements.  In addition, Pioneer Natural Resources USA, Inc. indicated that it will begin lining new production and multi-well pits constructed in Southeastern Colorado in May 2011 whether or not the requirements are deferred.  Other operators in that area, such as XTO, El Paso, Red River Ranch, and Petroglyph, took no position on the deferral; they currently dispose of produced water through permitted discharge or injection and are likely to continue doing so during the next two years.  Therefore, in Huerfano and Las Animas counties, the effective date of the lining requirements is unlikely to affect water management practices or impose additional costs or restrictions.  Accordingly, there is little apparent benefit to deferring them further.  

Accordingly, the Commission amended Rule 904.a. as described above.