Colorado’s New, Higher Oil and Gas Fines Are Biting Industry

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By Dan Elliott, Associated Press

Colorado is imposing heftier fines on energy companies as the state struggles to resolve conflicts between growing cities and big oilfields at their doorstep, an Associated Press analysis shows.

Regulators say the tougher penalties for breaking health, safety and environmental rules are prompting energy companies to be more careful. Others say it’s too early to call them a success.

The higher fines kicked in a year ago after lawmakers said Colorado’s existing penalties were too light. The AP reviewed records for the first 12 months under the new system, from April 2015 through March 2016, and found regulators levied 74 fines totaling $5.3 million — both higher than any calendar year for the previous 20 years.

Regulators also handed out Colorado’s largest single oil and gas fine in at least 21 years, $1.3 million for a series of leaks at facilities owned by Benchmark Energy in a remote part of the state.

That fine probably would have been around $500,000 under the old system, said Matt Lepore, director of the Colorado Oil and Gas Conservation Commission, which regulates the industry.

Lepore said he doubts Benchmark will be able to pay the fine because it’s a small operation. Companies that don’t pay can lose permits they need to do business in the state.

Benchmark officials didn’t return phone messages seeking comment.

The new penalty system raised the maximum daily fine from $1,000 to $15,000 and eliminated a fine cap of $10,000 per violation. Although there is no ceiling now, fines must be commensurate to the infraction, Lepore said.

Each state sets its own rules and fines for the energy industry, and no nationwide data could be found for comparison.

In Colorado, energy companies are policing themselves to avoid bigger fines, Lepore said

“I would surmise that operators are being more careful for fear of a substantial fine,” Lepore said. “We aren’t seeing sort of careless mistakes and careless noncompliance.”

But companies also are fighting harder in the commission’s hearing process if they are accused of a violation, he said.

Colorado ranks only seventh among energy-producing states, but tensions between the industry and its critics are high because cities and oilfields sometimes overlap, putting drilling rigs, wells and storage tanks near homes and schools.

The state’s vigorous environmental groups also fight hard to keep energy development out of wilderness, recreational and residential areas.

A 2014 law revamping the fine system was one attempt to reduce the tension. Democratic state Rep. Mike Foote, who shepherded the bill through the statehouse, said the last time the fines were changed was when Dwight Eisenhower was president, from 1953 to 1961.

It’s too early to declare victory under the new system, Foote said.

“I’m encouraged that the (Oil and Gas Conservation Commission) is enforcing the rules in a more diligent way,” he said. “On the other hand, I’m discouraged that some operators continue to break those rules.”

The Colorado Oil and Gas Association, an industry group, supported the higher fines.

“Only an industry that knows it works in a safe and compliant manner would have worked to increase penalties and enforcement on itself,” association president Dan Haley said in an email.

“As with any industry and government, there are instances where mistakes do happen and violations occur, and we must hold ourselves accountable,” Haley said.

The number and size of fines rose despite the industry’s doldrums. Only 16 rigs were drilling new wells in Colorado in mid-May, down from 81 in late 2011, according to Baker Hughes Inc., an oilfield services company.

But Lepore pointed out Colorado still has 54,000 existing wells producing oil and gas that require state inspectors’ attention.

Colorado has taken other steps to address conflicts over oil and gas development, hiring more field inspectors and attorneys to enforce the rules.

Lepore said the beefed-up legal staff is the primary reason the number of fines is rising, because cases move through the process faster.

The increased fines are welcome news but not the end of the debate, said Pete Maysmith, executive director of Conservation Colorado.

“This is not going to resolve the conflict, especially in many areas where energy development is happening,” he said.

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