The oil-and-gas industry will face about $13 million in upfront costs for new bonds and pollution-control equipment under proposed regulations, according to a state cost-benefit analysis.
Drillers also may face added costs on their sites, ranging from $500 for marking tanks to $30,000 to install double- layer pit liners.
“The benefits are enhanced protection for the state’s water, air, wildlife and public health,” said Dave Neslin, acting director of the state Oil and Gas Conservation Commission.
The proposed drilling rules — the most comprehensive overhaul in more than a decade — are slated for commission hearings in June and July. A decision is expected in August.
“The key question still hasn’t been answered: What is the impact on production?” said Doug Hock, a spokesman for EnCana Oil & Gas USA.
The analysis, Hock said, is “more like a fiscal note showing the costs. The real question is the effect on production and taxes in the state.”
The industry, in its own analysis, estimates there may be at least a 10 percent cut in drilling if the regulations are adopted, and that would trim the growth in gas production in the state by about 4 percent.
The commission had sought economic data on production from companies in April but was told that there was not enough time to comply with the request.
“The burden is on the state in a rule- making to determine the impact,” said Meg Collins, president of the Colorado Oil and Gas Association, a Denver- based trade group.
The largest cost in the rules is $11.1 million for additional bonds to guarantee the plugging of abandoned wells, which about 400 operating companies will have to raise.
The size of the bonds was raised in the proposed rules to $20,000 from $5,000 per well to reflect increased costs, Neslin said.
The bonding requirement may hit small, independent producers especially hard, Collins said.
The other large expenditure is an estimated $2 million for combustors that would reduce pollution at about 100 oil rigs that flare or vent gas, according to the analysis.
It was difficult to place a dollar value on the benefits, Neslin said, but among them, according to the analysis, are:
• Reducing air pollution and odors.
• Avoiding ground and water contamination by better lining of pits.
• Protecting drinking water by limiting drilling near water supplies.
• Protecting wildlife by limiting land disturbance and closing key wintering or breeding areas for 90 days.
“It may look like an economy-versus- environment trade-off,” said John Loomis, a Colorado State University economist not involved in the state study. “But there is an economic value on both sides.”
Mark Jaffe: 303-954-1912 or mjaffe@denverpost.com
