ADMINISTRATIVE LAW OVERVIEW &

COLORADO REGULATORY UPDATE

MAY 11, 2020

Governing Authority - Colorado Oil & Gas Operations

Colorado Oil and Gas Conservation Commission

Local Governments

Colorado Department of Public Health and Environment

Colorado Parks and Wildlife

Colorado Division of Water Resources

Colorado State Land Board

Public Utilities Commission

Bureau of Land Management

U.S. Forest Service

Bureau of Indian Affairs

Environmental Protection Agency

Colorado Oil and Gas

Conservation Commission

All authority derived from Colorado Oil & Gas Conservation Act

C.R.S. 34-60-101, et seq.

Jurisdiction over oil and gas operations in Colorado – more limited after adoption of SB

19-181

Charged with regulating oil and gas development to protect and mitigate adverse impacts to public health, safety, welfare, the

environment and wildlife resources

Local Governments

Required to obtain LG Disposition of LG permit:

- Prior to approval of COGCC permit, must obtain disposition of LG permit unless LG has waived requirement or does not regulate oil and gas operations

- LG permit usually leads to COAs on APDs

Minimize adverse impacts = to extent necessary and reasonable, to protect public health, safety, and welfare and the environment by avoiding adverse

impacts from oil and gas operations and minimizing and mitigating the extent and severity

of those impacts that cannot be avoided

Charged with regulating the surface impacts of oil and gas operations in a reasonable manner to

address matters specified in this subsection (1)(h) and to protect and minimize adverse impacts to

public health, safety, welfare and the environment

Colorado Department

of Public Health and

Environment

Consultation on COGCC permits/applications:

- Under COGCC Operator Guidance, LGD request, or when operator seeks a variance from certain specified rules, COGCC consults with CDPHE

- Operator can consult with CDPHE prior to submission of APD

- Consultation usually leads to COAs on APDs

Jurisdiction over air, stormwater and water quality matters for oil and gas

development

Charged with protecting and improving the health of Colorado’s people and the quality

of its environment

Colorado Parks and Wildlife

Consultation:

- If the proposed oil and gas location falls within an area of “restricted surface occupancy” or “sensitive wildlife habitat,” or if the operator is requesting a variance from a wildlife rule (1200 Series)or CDP, the COGCC is required to consult with CPW

- Operator can consult with CDPHE prior to submission of APD

- Consultation usually leads to COAs on APDs

Jurisdiction over wildlife and habitat across Colorado

Perpetuate the wildlife resources of the state, to provide a quality state parks system, and to provide

enjoyable and sustainable outdoor recreation opportunities that educate and inspire current and future generations to serve as active stewards of

Colorado's natural resources

Colorado Division of

Water Resources

Consultation:

- Involved in oil and gas development with UIC well and development proposed near water wells or bodies of water

- Operator can consult with CDPHE prior to submission of APD

- Consultation usually leads to COAs on APDs

Jurisdiction over water rights, water well permits and water use

Administers water rights, issues water well permits, represents Colorado in interstate water compact

proceedings, monitors streamflow and water use, approves construction and repair of dams and

performs dam safety inspections, issues licenses for well drillers and assures the safe and proper

construction of water wells, and maintains numerous databases of Colorado water information

Colorado State Land

Board

Consultation:

-Involved in oil and gas development with UIC well and development proposed near water wells or bodies of water

- Operator can consult with CSLB prior to submission of APD

Consultation can lead to COAs on APDs

Jurisdiction over all Colorado state lands –approximately 2.8 million surface acres and 4.0

million mineral estate acres

The State Land Board manages an endowment of assets held in perpetual, intergenerational, public

trusts for the financial support of Colorado’s public schools and other public institutions. The State

Land Board has a dual mission: to generate reasonable and consistent income; and to protect and enhance the value of the trust lands for future

generations.

Public Service

Commission

Current rulemaking to amend the pipeline safety rules with hearing set for July 2020

Jurisdiction over transmission, distribution, regulated gathering, master metered, liquefied

natural gas and larger propane gas systems

PUC Gas Pipeline Safety Section is charged with enforcing the state's gas pipeline safety regulations in order to provide for the public

safety of the citizens of Colorado

Bureau of Land

Management

Consultation:

- Receives notice of COGCC applications and protests if disagrees with relief sought

Balances existing and future development in way that conserves the land for future generations

Ensuring public receives fair compensation for Federal minerals that are developed

Planning for energy development on BLM-administered lands is done with help from the public

Charged with managing federal lands and renewable and non-renewable energy resources

on behalf of the public

U.S. Forest Service

Consultation:

- Receives notice of COGCC applications and usually works with BLM on COGCC-related issues if they arise

Balances existing and future development in way that conserves the land for future

generations

Charged with sustaining the health, diversity, and productivity of the nation’s forests and grasslands to meet the needs of present and

future generations

Bureau of Indian Affairs

Consultation:

- Receives notice of COGCC applications and usually works with BLM on COGCC-related issues if they arise

Natural resource management on approximately 56 million acres of trust land

Charged with enhancing the quality of life, to promote economic opportunity, and to carry out

the responsibility to protect and improve the trust assets of American Indians, Indian tribes

and Alaska Natives.

U.S. Environmental

Protection Agency

Consultation

- In CO, no consultation required with EPA for COGCC permits, but consultation required with CDPHE

•EPA works to ensure:

•- clean air, land and water

•- reduced environmental risks are based on the best available scientific information

•- Federal laws protecting human health and the environment are administered and enforced

•- environmental stewardship is considered in establishing environmental policy;

•- all parts of society have access to accurate information sufficient to effectively participate in managing human health and environmental risks;

•- Contaminated lands and toxic sites are cleaned up by potentially responsible parties and revitalized

•- Chemicals in the marketplace are reviewed for safety

The mission of EPA is to protect human health and the environment.

Colorado Administrative Procedures Act

Courts review agency action on the following bases:

Arbitrary or capricious;

A denial of statutory right;

Contrary to constitutional right, power, privilege, or immunity;

In excess of statutory

jurisdiction, authority,

purposes, or limitations;

Not in accord with the

procedures or procedural

limitations of this article 4 or as

otherwise required by law;

An abuse or clearly

unwarranted exercise of discretion;

Based upon findings of fact that are clearly erroneous on

the whole record;

Unsupported by substantial

evidence when the record is

considered as a whole; or

Otherwise contrary to law, including failing to comply with

section 24-4-104 (3)(a) or 24-4-

105 (4)(b).

Unless otherwise stated in specific statutes, APA serves as standard of review for agency actions

Colorado agency rulemakings and permitting governed by the Colorado APA – C.R.S. 24-4-101, et seq.

SB 19-181: Mandated Rulemakings

• AQCD: Minimize Methane Emissions and other HC’s, VOC’s and Oxides of Nitrogen from Facilities in all segments of the OG supply chain (25-7-109(10.a.))

• COGCC: Technical Review Board (29-20-104(3)(a) & 34-60-104.5(3)(a))

• COGCC: 100 Series Definitions (34-60-103)

• COGCC: 300/600 Series Rules: New Form 2A and Form 2 requirements and permit reviews/delays/criteria/approvals (34-60-106(1)(f))

• COGCC: Adoption of Fees (34-60-106(7)(b))

• COGCC: Overhaul of Rules for PHSWE&W (34-60-106(2.5))

• COGCC: Alternative Location Analysis and criteria & evaluation of cumulative impacts of OG development (34-60-106(11)(c))

• COGCC: Wellbore integrity (34-60-106(18))

• COGCC: Flowline, Inactive, TA & SI well requirements (34-60-106(19))

• COGCC: Certification for Workers under OSHA, API, ASME, HazMat, Welders (34-60-106(20))

• COGCC: Pooling Threshold and new application requirements(34-60-116)

• COGCC: Overhaul of rules to address dual jurisdiction between COGCC and LG for siting and oil and gas operations (34-60-131)

• COGCC: Financial Assurance (34-60-112)

Rulemaking:

Where are we now?

• 500 Series Rulemaking & Pooling Threshold:

• Completed Summer 2019

• Flowline Rulemaking:

• Completed November 2019

• CDPHE AQCD –Emissions/LDAR:

• Completed December 2019

• Wellbore Integrity:

• Hearing set June 10-11, 2020

• Mission Change:

• Hearing set August 24 -September 10, 2020

• Financial Assurance:

• TBD

Permitting:

Where are we now?

• Director’s May 16, 2019 Objective Criteria are currently utilized to make the final determination of Forms 2 and 2A

• COGCC Permitting Policies and Guidance have changed several times – still a significant backlog

• Local Government permit disposition required (if not waived) prior to approval of a Form 2A

• In addition to local government permit disposition, the DSU Order and 2A must be approved before a Form 2 may be processed for Completeness and approved

• Weld County 1041 Authority –requires COGCC permits to be (1) approved, (2) denied, or (3) additional information requested within 60 days of submittal; Weld County waived disposition for Form 2As and DSUs

• October 17, 2019: CDPHE Health Study released purporting short-term and acute impacts within 2,000’ – COGCC following new procedures for permitting until new rules in place under study

SB 19 - 181 Required Director Objective Criteria

1) Oil and Gas Locations within 1,500’ of a Building Unit or High Occupancy Building,

which include Urban Mitigation Area (“UMA”) and Large UMA Facility (“LUMAF”) locations.

2) Oil and Gas Locations within a municipality.

3) Oil and Gas Locations within 1,500’ of a municipal boundary, platted subdivision, or county

boundary.

4) Oil and Gas Locations within 2,000’ of a school property line.

5) Oil and Gas Locations within: a) a Floodplain or a Floodway; b) an identified public drinking water supply area ( e.g., Rule

317B buffer zone, or the Brighton Public Water System); or c) a Sensitive Area for water

resources.

6) Oil and Gas Locations within a Colorado Parks and Wildlife (“CPW”) mapped Restricted

Surface Occupancy Area (“RSO”) or Sensitive Wildlife Habitat (“SWH”), or locations receiving site - or species -specific CPW comments.

7) Oil and Gas Locations within 1,000’ of a Designated Outdoor

Activity Area.

8) Oil and Gas Locations with storage of hydrocarbon or

produced liquid in more than 18 tanks or in excess of 5,200

barrels.

9) Oil and Gas Locations where the operator is using a surface

owner protection bond pursuant to Rule 703 to access the

surface.

10) Oil and Gas Locations where the Relevant Local

Government, or state or federal agency requests additional

consultation.

11) Oil and Gas Locations where the operator requests the

Director grant a Rule 502.b Variance for an associated

permit application.

12) Oil and Gas Locations with an access road (the road constructed

from the public road to the Oil and Gas Location) with in a RSO,

SWH, 317B buffer zone, or within 200’ feet of a Building Unit on lands not subject to a

Surface Use Agreement.

13) A proposed Centralized Exploration and Production Waste Management Facility.

14) A Request to Vent or Flare (Form 4) from a location within 1, 500’ 1 of a Building Unit or High

Occupancy Building Unit or within the Denver Metro/North Front

Range 8 - Hour Ozone Nonattainment Area.

15) An Intent to Plug (Form 6) for a well that is associated with

a stray gas investigation.

16) Oil and Gas Locations proposed by an Operator who is subject to additional individual or blanket financial assurance requirements pursuant to Rule

702.a.

COGCC Rule Series Overhaul

• 100 Series – Definitions

• 200 Series – General Rules

• 300 Series - Drilling, Development, Producing and Abandonment

• 400 Series Unit Operations, Enhanced Recovery Projects

• 500 Series Rules of Practice and Procedure

• 600 Series Safety Regulations

• 700 Series Financial Assurance and Environmental Response Fund

• 800 Series Aesthetic and Noise Control Regulations

• 900 Series Exploration and Production Waste Management

• 1000 Series Reclamation Regulations

• 1100 Series Flowline Regulations

• 1200 Series Protection of Wildlife Resources

COGCC “Mega”

Rulemaking

• Mission Change White Paper –Published 11/1/2019

• 200 – 600 Series ”Strawdog” Rules Published 1/2020 & 2/2020

• 800, 900 & 1200 Series ”Strawdog” Rules Published 2/2020 & 3/2020

• 100-600 Series Rules Noticed and Revisions Published 3/15/2020

• 800, 900 & 1200 Series Rules Noticed and Revisions to be Published 6/16/2020

• During this time, interested parties have been meeting and providing comment to COGCC

25,000’ overview –

COGCC Proposed

Rules

• 100 Series: New definitions for every series rules

• 200 Series: Limitations on transfer of operatorship timing and liability

• 300 Series: Full permitting process Overhaul – Oil and Gas Development Plan, CAP, and LG approvals; Rule 318A WSU terminated

• 400 Series: Operations, reporting and substantial Noise, Odor, dust and lighting modifications

• 500 Series: Procedural modifications, standing and “affected person” allowances

• 600 Series: Setbacks of 1,500 feet from 10 or more Building Units or 1 High Occupancy Building Unit

• 800 Series: Modifications to UIC wells and aquifer exemptions

• 900 Series: Overlapping jurisdiction with CDPHE; modifications to flaring

• 1200 Series: New definition of High Priority Habitat; new plans for APDs

Local Government Regulations:

Weld County 1041 Designation

• 1974: legislation was signed into law(proposed under HB 74-1041) to allowlocal governments to identify, designateand regulate areas and activities of stateinterest through a local permitting process

• July 8, 2019: BOCC approved the creationof an Oil and Gas Department within theCounty

• August 5, 2019: Weld County implementedCode changes for a new WOGLApermitting process

• September 2019: COGCC and WeldCounty entered into a Memorandum ofUnderstanding under which the COGCCmust provide comments to Weld Countywithin 28-days of receipt of a WOGLAPermit, and the COGCC must (1) grant, (2)deny, or (3) respond for more informationto a Form 2 and Form 2A within 60-daysof completeness

• The COGCC cannot process a Form 2 forCompleteness until the WOGLA permit isapproved

• September 17, 2019: COGCC released newGuidance on Weld County Permits, inwhich Staff confirmed that operators maysubmit a Form 2 and a Form 2Aconcurrently with the COGCC, howeverthe COGCC will not review the Form 2 forCompleteness until there is an approvedForm 2A, a DSU Order (if applicable), anda WOGLA permit

Local Government Regulations:

Adams County

• September 3, 2019: BOCC approvedAmendments to the Adams County Regulationswith respect to Oil and gas Facilities (OGFs)

• September 20, 2019, Permit Moratorium lifted

• Consistent with the County's authority to regulatesiting under SB19-181, the County implementeda new OGF permit process via an administrativeprocess or a waiver process (requiring a publichearing before the Board)

• The OGF permit review process must complywith 10 new “steps”, including an alternative siteanalysis (requiring 3 proposed sites), aneighborhood meeting, notice within ½ mile, anda public hearing if a waiver is requested

• Several amendments to Design Requirements andPerformance Standards were also enacted for newOGF permits and major modifications to existingpermits, including a 1000’ setback from theproperty line of any school, daycare, residence,platted residential lots, high occupancy buildingsand environmentally sensitive areas (subject to awritten waiver), permit and impact fees, noisecontrol and mitigation measures, and airemissions standards

• The Board also adopted new Inspection andEnforcement Rules, a new Fee schedule, andWorkers Safety regulations

Local Government Regulations:

Other Jurisdictions

• Arapahoe County:

• Stakeholder process ongoing foramendments to Oil and Gas Regulations

• Include review of noise and lightingmitigation, visual mitigation ofproduction pads, odor controls, expandednotifications to nearby residents at thetime of the initial land developmentapplication to Public Works, EmergencyResponse Plans included with the initialland development application to PublicWorks, project schedules forconstruction, drilling and completion,updated periodically, and incentivizingpipelines by streamlining the pipelineapproval process

• Superior – 4/2020: Adopted regulations toinclude 1,500-foot residential setback, 1,000-foot setback for trails, parks, and water bodiessetback, and an $82,500/well financialassurance requirement

• Lochbuie – 2/2020: Adopted regulations toinclude 1,500-foot residential setback

• Boulder, Broomfield, Erie, Lafayette:Moratoria remain in place

• Certain jurisdictions are working through the“disposition” requirement to waiver the priorLG approval

Colorado Legislative

Update

• Legislature Remains Closed:

• General Assembly announced thatthe temporary suspension of thelegislature will continue until theweek of May 25 to give additionaltime for preparations includingsafety protocols, to work throughappropriate legislation, and to seekgreater clarity on potentialCongressional action that couldsignificantly impact our statebudget.

• Bills to watch:

• HB 1265: Increase Protection AirToxin Emissions

• SB 204: Additional Resources toProtect Air Quality

• Ballot Signature Gathering:

• Colorado Rising’s anti-oil and gasballots (#173-#178) are in thesignature gathering phase

• Current dispute over in-personversus online signature gathering

Practical Recommendations -

Rulemaking

• Get involved in rulemaking:

• Through industry trades or other organizations

• Company involvement

• Individual involvement

• Public Comment at hearings (local, state and federal)

• Stakeholder input

• Stay up-to-date:

• Rulemakings are happening quickly and dates are changing frequently

• Jost Energy Law posts updates when received from COGCC on website and LinkedIn

• www.jostenergylaw.com

• If you have a concern, voice it:

• Real impacts occur outside of what is anticipated in paper rules

Practical Recommendations -

Permitting

• Forward-thinking Permitting:

• DSUs planned earlier

• Comprehensive Development Plans (CAP)

• Advanced planning with Surface Owners and Local Governments

• GWA Rule 318A eliminated under COGCC proposed rules

• No more “first in time” at the COGCC, analysis is now “what development plan is most protective?”:

• Siting process should start with Surface Owners and Local Governments (OA’s valid)

• Form 2’s cannot be reviewed until the DSU Order is approved (a minimum 90-day process); this includes Density Applications and Reduced Setback Applications

• Re-consider use of 318A under current rules

• COGCC imposing the 460’/quarter-quarter WSU acreage as the maximum size of the WSU

• Pooling Application can approved for a WSU Pooling prior to APD approval

Thank you for your time today!

Jost Energy Law, P.C.

Jamie L. Jost, Managing Shareholder

555 17th Street, Suite 975

Denver, CO 80202

720-446-5620 – Main

720-362-0875 – Cell

jjost@jostenergylaw.com