Statement of Basis, Specific Statutory Authority, and Purpose
New Rules and Amendments to Current Rules of the Colorado Oil and Gas
Conservation Commission, 2 CCR 404-1

Cause No. 1R Docket No. 1412-RM-02
Enforcement and Penalty Rulemaking (Part 1 - All but Rules 522 and 523)

This statement sets forth the basis, specific statutory authority, and purpose for new rules and amendments (“Enforcement and Penalty Rules” or “Rulemaking”) to the Colorado Oil and Gas Conservation Commission (“Commission”) Rules of Practice and Procedure, 2 CCR 404‑1 (“Rules”). The Commission promulgated Part 1 of the Enforcement and Penalty Rules on December 15, 2014. Part 1 of the proposed rules included all rule proposals other than Rule 522 (Procedure to be Followed Regarding Alleged Violations) and Rule 523 (Procedure for Assessing Fines). The Commission bifurcated consideration of Rule 522 and Rule 523 after closing the record, and continued deliberations on those rules to January 5, 2015. Amendments to Rule 522 and Rule 523 will be considered separately as Part 2 of the Rulemaking.
The Commission is promulgating the Enforcement and Penalty Rules to implement amendments to Section 34-60-121, C.R.S., enacted by the passage of HB 14-1356 (“Penalty Bill”), and Executive Order D 2013-004, which directed the Commission to review, propose rules, and adopt guidance regarding its enforcement and penalty assessment procedure. The Enforcement and Penalty Rules are also promulgated to make certain Commission rules more consistent, effective, and efficient pursuant to Executive Order D 2012-002. The Enforcement and Penalty Rules are intended to deter noncompliance and encourage operators that are not in compliance to quickly and cooperatively come into compliance. As a result, they are also intended to protect public health, safety, and welfare, including the environment and wildlife resources.
In adopting Part 1 of the Enforcement and Penalty Rules, the Commission relied upon the entire administrative record for this Rulemaking proceeding, which formally began on June 6, 2014, when the Penalty Bill became effective. 
Stakeholder and Public Participation
The Commission held stakeholder meetings regarding the proposed Enforcement and Penalty Rules on August 13, 2014, September 18, 2014, October 3, 2014, and November 18, 2014. The Commission invited and accepted written and verbal comments from stakeholders regarding the proposed Enforcement and Penalty Rules during these stakeholder meetings. 
The Commission encouraged public participation in the Rulemaking by allowing the public to comment on the proposed rules in advance of and/or during the hearing. As well, persons or organizations desiring to do so could participate in the Rulemaking as a party. Parties could submit prehearing statements and comments, including alternative rules or amendments, respond to the prehearing statements and comments submitted by other parties, and participate in a prehearing conference.  
The Commission issued a Notice of Rulemaking Hearing concerning the Enforcement and Penalty Rules that was published in the Colorado Register on October 25, 2014. 
Statutory Authority
The Commission’s authority to promulgate the Enforcement and Penalty Rules is derived from the following sections of the Colorado Oil and Gas Conservation Act (“Act”), §§ 34-60-101 – 130, C.R.S.: 
•	Section 34-60-105(1), C.R.S. (Commission has the power to make and enforce rules); 
•	Section 34-60-106(2)(a), C.R.S. (Commission has authority to regulate the “drilling, producing, and plugging of wells and all other operations for the production of oil or gas.”);
•	Section 34-60-106(2)(d), C.R.S. (Commission has authority to regulate “Oil and gas operations so as to prevent and mitigate significant adverse environmental impacts on any air, water, soil, or biological resource resulting from oil and gas operations to the extent necessary to protect public health, safety, and welfare, including protection of the environment and wildlife resources, taking into consideration cost-effectiveness and technical feasibility.”); 
•	Newly amended Section 34-60-121(1) and (7), C.R.S. (Commission has authority to take enforcement action and impose penalties for violations); and
•	Section 34-60-130, C.R.S. (Commission has authority to promulgate rules to implement the reporting of spills). 
Identification of New and Amended Rules
On December 15, 2014, the Commission adopted amendments to Rules: 
•	100-Series Rules.
•	200-Series Rules: 205.
•	300-Series Rules: 303, 308A, 309, 311, 316A, 316B, 317, 318A, 319, 321, 325, 326, and 330.
•	500-Series Rules: 506, 507, and 521. 
•	600-Series Rules: 603.
•	700-Series Rules: 710.
•	900-Series Rules: 901, 904, 907, 909, and 910.
Overview of Purpose and Intent
The primary purpose for the Commission’s promulgation of the Enforcement and Penalty Rules is to implement significant rule and policy changes to the regulatory oversight of oil and gas operations. The necessity for these changes has been demonstrated by formal action by the executive and legislative branches of Colorado’s government. 
The Commission is promulgating the Enforcement and Penalty Rules to implement the statutory changes to Section 34-60-121, C.R.S., respond to Executive Order D‑2013-004, and address revisions suggested in the Enforcement and Penalty Policy Review under Executive Order No. D 2013-004 (“Enforcement and Penalty Policy Review”). An additional purpose of the Rulemaking is to clarify specific requirements of some Commission rules. Part 1 of the Rulemaking focused on clarifying requirements of specified rules.  Part 2, consideration of Rule 522 and Rule 523, was continued for further deliberations. Any changes to those rules will be approved by a companion order.
In addition to adopting the Enforcement and Penalty Rules, the Commission is developing an Enforcement Guidance and Penalty Policy that will provide interested stakeholders written guidance describing the Commission’s enforcement and penalty assessment procedures.
Amendments and Additions to Rules
The most significant changes undertaken in this Rulemaking were to Rules 522 and 523. Any changes to those rules will occur in Part 2 of the Rulemaking, and will be approved separately after further deliberations. They will not be described here.  
Part 1 Rulemaking Rule Additions and Amendments
The Commission made the following additions and amendments to the below-listed rules. These changes were primarily designed to clarify specific details of these rules or to conform them to anticipated amendments to Rules 522 and 523. 

100-Series Rules
Bradenhead was defined to provide greater clarity for Rules 207.b. and 341.
Container was amended to provide a non-exhaustive list of examples.
Regulatory Compliance Program was added to define for operators what the Commission would require from a program for an operator to voluntarily disclose a violation pursuant to Rule 523.e. 
Suspended Operations Well was added to clarify suspended well operations and that they do not include wells in which only conductor pipe has been set and the well has not yet been spud. The definition was added to ensure operators could comply with the mechanical integrity testing requirements in amended Rule 326.d.
Tank was amended to clarify that separation equipment and process vessels, other than gun barrels, are not included within the Commission’s definition of “tank.” 
Temporarily Abandoned Well, as clarified, is now defined as a well that has all downhole completed intervals isolated with a plug that an operator sets above the highest perforation. Setting the plug in this way ensures the well cannot produce without removing the plug.  
Voluntary Self-Evaluation was deleted.
Waiting on Completion Well was added and defined as a well that an operator has drilled and cased to the final depth but has not perforated. The definition was added to ensure operators could comply with the mechanical integrity testing requirements in amended Rule 326.d.

200-Series Rules
205.c. was amended with the addition of non-vehicular. This was added to make it clear that the existing requirement to track fuel storage is applicable to only fuel stored in tanks that are not part of the vehicle. Fuel stored in saddle tanks on the vehicle, in tanks mounted on the bed and attached to the vehicle, or in a tanker trailer used to transport fuels are not required to be tracked. 

300-Series Rules
308A.a. was clarified to require an operator to submit a “Preliminary” Drilling Completion Report, Form 5, within 90 days of suspending drilling activities only if the operator has not resumed drilling operations.
308A.b. was clarified to state what information an operator must include in a “Final” Drilling Completion Report, Form 5. As well, the requirements regarding Drilling Completion Report, Form 5, that were previously located in Rule 317.e. were consolidated in 308A.b. to make the Rules easier to understand and more efficient.
309.b. was amended to clarify the wording and make the rule easier to read. The Form 7 requires monthly reporting of all water produced including both flowback and produced water. In months during which a well produces both, only the sum of both quantities must be reported on the Form 7 as single amount. The Form 7 does not require operators to separately report flowback from produced water.
316A.a. was clarified to include examples of Class II wastes that an operator can inject into any formation in a dedicated Class II Underground Injection Control well with prior approval from the Commission. The clarification should make compliance with the Rule easier to understand. 
317.e. was clarified to ensure consistent and effective regulatory oversight. The prevention of fluid migration behind casing is essential for the protection of ground water quality, water rights, correlative rights of mineral owners, hydrocarbon reservoirs, and casing integrity. The clarified Rule codifies the industry practice that requires operators to obtain the Commission’s approval before operators make changes to gross interval perforations in completed formations. As well, the requirements regarding Drilling Completion Report, Form 5, previously found in Rule 317.e. were consolidated into 308A.b.
317.r. was added to codify an engineering control that better protects people and the environment and has been utilized by the Commission as a condition of approval on permits for a year. The Rule now requires operators to perform an anti-collision evaluation of all existing offset wellbores that may be within 150 feet of a proposed well. An operator must perform the evaluation before drilling the well and must provide notice to all operators of offset wellbores that are within 150 feet prior to drilling.
317.s. was moved from current Rule 318.A.n and moved into Rule 317 to create a fracture stimulation setback between wellbore’s treated intervals applicable statewide instead of just applying to the Greater Wattenberg Area (“GWA”). If a proposed wellbore’s treated interval will be located within 150 feet of an existing oil or gas wellbore’s treated interval owned by a different operator, the operator of the proposed well must submit a signed written consent from the operator of the encroached upon well with the Application for Permit-to-Drill, Form 2A similar setback applied to fracture-stimulated wells in the GWA under Rule 318.A.n., but the GWA-specific rule was eliminated during the Rulemaking because the Commission adopted a statewide setback. 
318A.f.(5), as amended, clarifies that sampling analysis shall comply with Rule 910.b.(2) and that the same sampling standards and analysis are required under Rule 318 as Rule 609.
318A.n. was deleted because the Commission amended Rule 317.s. to include a fracture stimulation setback requirement to all wells throughout the state, not just fracture stimulated wells in the GWA. 
319.a.(1) was amended to describe the steps an operator must complete before setting a cement plug. The amended regulations codify the API standards and engineered controls as requirements to consistently and efficiently regulate plugging requirements for abandoning a well.
321 was clarified to make the Rule easier to understand.
325.c.(7) and 325.d.(6) were clarified to state that the Commission’s intent is that the maximum or minimum amount stated on the permit is an absolute, not an estimate. 
326.d. was added to state what mechanical integrity tests are required for wells that are waiting-on-completion or in suspended operations. The revision ensures consistent regulatory oversight because it requires operators to perform integrity testing on these types of wells. The definitions of waiting-on-completion and suspended operations wells were added to the 100-Series Rules.
 
500 Series Rules
506.a. was amended to require an applicant to submit an application for a hearing no later than 60 days in advance of the date that the applicant requests the Commission to hear the matter, which allows additional time to prepare or resolve the matter. The Secretary retains the discretion to accept applications filed within 60 days of the requested hearing date. 
507.a.(1) was amended to allow additional time between the notice of hearing and the hearing. Presently, the Commission must provide notice 20 days before a hearing to the persons identified in Rule 507. The Rule now requires the Commission to provide notice at least 35 days in advance of the hearing to the persons identified. The amendment affords involved parties additional time to prepare or reach resolution.
521 was formerly “reserved,” but has now been utilized to describe the requirements necessary to serve a person when service is required by the Rules. The inclusion of a Rule dedicated to service is intended make service procedures easier to understand and locate the requirements for service in a single Rule. Where the term “electronically” is used in this rule, it refers in most cases to email, but could also refer to the faxing of documents if such service is necessary. 

600 Series Rules
603.e.(3) was added to require operators to test blowout prevention equipment using both high and low pressure tests following API Recommended Practice 53 with one modification: 250 psi is the minimum pressure for a low pressure test. For operators testing rig pumps against casing, the resulting pressure loss cannot be more than 10%. For operators using a test plug to isolate casing from the blowout prevention equipment, there cannot be any unexplainable pressure loss from a test. Codifying best management practices for testing blowout prevention equipment better protects the public health, safety, and welfare, including the environment and wildlife resources. In addition, the “incorporation by reference” language was added to the referenced API standard as required by House Bill 10-1235.
603.e.(7) was amended to clarify that an operator must respond to the Director’s request for information regarding performing pressure tests in accordance with Rule 205.f. 

700 Series Rules
710 was changed to “Reserved,” because it previously described the Oil and Gas Conservation and Environmental Response Fund, which is duplicative of the Act and outdated due to statutory amendments. House Bill 14-1077 raised the cap for the fund from $4 million to $6 million.

900 Series Rules
901.e. has been clarified to include examples of acceptable methods to gather data for sensitive area determinations. This clarification makes the Rule easier to understand and is intended to increase consistency in gathering data for sensitive area determinations.
904.a. was amended to clarify that pits constructed before May 1, 2009 on federal land or before April 1, 2009 on other land must also comply with permit conditions existing when the pit was constructed. This clarification makes the Rule easier to understand and is intended to ensure consistency in the regulation of pits.
904.b. was clarified to state subpart (b) applies to all pits that are required to be lined by either rule or permit condition. This clarification is intended to ensure consistent, effective regulation of all lined pits. 
907.c.2.(D) was clarified to state an operator may only use road spreading to dispose of produced water with an approved waste management plan. This clarification is intended to ensure consistent, effective regulation of produced water disposal.
907.e.(2) was amended to require operators to submit a Site Investigation and Remediation Work Plan, Form 27, and receive the Director’s approval before beginning land treatment of any oily wastes. As well, the land treatment cannot interfere with an operation’s compliance with Rules 1003 and 1004 and must comply with Rules 909 and 910. Previously, a Site Investigation and Remediation Work Plan, Form 27, was only required if land treatment onsite caused a threatened or significant adverse environmental impact. The amendment also clarified that operators must notice the surface owners of land proposed to be treated with oily waste if on an Oil and Gas Location. This clarification is intended to ensure consistent, effective regulatory oversight of operators disposing of oily waste via land treatment. As well, the amendments are better protective of the public health, safety, and welfare, including the environment and wildlife resources.
910.b.(3)(E) was amended to require analyzing hydrocarbon-impacted soils for organic compounds identified in Table 910-1 other than Total Petroleum Hydrocarbons (“TPH”) as determined by site-specific conditions and process knowledge. Before the Rulemaking, hydrocarbon-impacted soils had to be analyzed for TPH. The Rule, as amended, is better protective of the public health, safety, and welfare, including the environment and wildlife resources.

Effective Date
The Commission adopted Part 1 of the Enforcement and Penalty Rules, which add new rules and clarify and amend other Rules, during its hearing on December 15-16, 2014 in Cause No. 1R Docket No. 1412-RM-02. The Enforcement and Penalty Rules are prospectively effective pursuant to Section 24-4-103(5), C.R.S.