Revisions to Colorado Regulation 22, Part B Affecting Upstream Operations

In December 2021, the Colorado Air Quality Control Commission (AQCC) adopted a broad range of new regulations aimed at reducing emissions of greenhouse gas (GHG) pollutants and ozone precursors, with emission reductions prioritized in disproportionately impacted communities (DIC). The regulations adopted covered several broad topic areas and spanned both Regulation 7 and Regulation 22.

This post is dedicated to the revisions adopted for Regulation 22 that affect Upstream Operations:

• The latest full version of Regulation 22 can be found at the following link.
• A redline version of Regulation 22, showing all changes adopted in December 2021, can be found at the following link.

Greenhouse Gas Intensity Program for the Oil and Natural Gas Upstream Segment (Part B, Section IV)

Beginning January 1, 2023, any person or entity that operates upstream segment activities or equipment must participate in the GHG intensity program outlined in Section IV. The program consists of preproduction and production GHG intensity targets that step down over time to achieve the GHG reductions required of upstream segment operators to meet the requirements of House Bill 21-1266.

GHG Intensity (IV.A., IV.D.)

GHG intensity is defined as metric tons of carbon dioxide equivalent (mtCO2e) emissions from pre-production and production operations, divided by total production of oil and natural gas in thousand barrels of oil equivalent (kBOE). Natural gas production in million standard cubic feet (MMscf) can be converted to kBOE by dividing by 5.8 MMscf/kBOE.

GHG Intensity Targets for Upstream Segment Operations (IV.B.)

Two (2) sets of GHG intensity targets were developed: one (1) for majority operators and one (1) for minority operators.

Majority operators are defined as operators with company-wide production from current, acquired, or developed assets in Colorado of greater than or equal to 10,000 kBOE per calendar year. This also applies to new to market operators whose first transaction(s) in Colorado is to purchase the assets of a majority operator.

Minority operators are defined as operators with company-wide production from current, acquired, or developed assets in Colorado of less than 10,000 kBOE. This also applies to new to market operators whose first transaction(s) in Colorado is to purchase the assets of a minority operator. A minority operator may become a majority operator in a given calendar year beginning in 2023 if they have production greater than or equal to 10,000 kBOE, or if they have an increase in production greater than or equal to 2,500 kBOE compared to the previous calendar year.

GHG Intensity Targets for New Facilities (IV.C.)

Operators of well production facilities that commence operation on or after December 31, 2022 must meet new facility intensity targets in addition to the intensity targets outlined above. A more stringent target exists for facilities located in an eight (8)-hour ozone control area and DIC.

Greenhouse Gas Intensity Plans (IV.E.)

A GHG intensity plan must be submitted on an Air Pollution Control Division (Division)-approved format that contains the following:

• Identification of all the operator’s well production facilities (facility name, AIRS ID or facility location, and identification of facilities located in a DIC).
• Operator’s GHG intensity company-wide and per well production facility for the preceding calendar year, as well as intensity calculation method.
• List and description of best management practices (BMP), control methods, emission reduction strategies, and technology the operator intends to use to meet the applicable targets.
• Estimate of the GHG reductions that each type of BMP, control method, emission reduction strategy, or technology is expected to achieve.
• A description of which BMP, control methods, emission reduction strategies, and technologies will be deployed in DICs and a demonstration that co-benefits will be required.

GHG intensity plans must be submitted to the Division by the following deadlines:

• August 31, 2023 – Intensity plans for the calendar years 2025-2026.
• June 30, 2025 – Intensity plans for the calendar years 2027-2029.
• June 30, 2027 – Intensity plans for the calendar year 2030.

Annual verifications on a Division-approved form must be submitted to the Division by June 30 of each year from 2024 to 2031. The verification form must summarize the operator’s implementation of its GHG intensity plan during the preceding calendar year.

Acquisitions and Asset Transfers (IV.B.7., IV.E.3.)

Owners/operators that acquire an oil or natural gas well in Colorado after January 1, 2025 must meet the GHG intensity targets for current facilities as outlined above.

A majority owner/operator that acquires an oil or natural gas well in Colorado from a minority owner/operator on or after January 1, 2025 must at least comply with the applicable minority GHG intensity target for the calendar year of the acquisition. This applies only to the preproduction and production emissions from the acquired well(s). The following calendar year, the majority owner/operator must comply with the applicable majority GHG intensity target for the preproduction and production emissions from all its upstream segment operations, including the acquired wells.

A minority owner/operator that acquires an oil or natural gas well in Colorado from a majority owner/operator on or after January 1, 2025 must at least comply with the applicable minority GHG intensity target for the preproduction and production emissions from the acquired well(s). If the owner/operator remains a minority owner/operator after the acquisition, then the minority GHG intensity targets apply to all assets of the minority owner/operator, including the acquired assets.

Asset transfer updates are required for owners/operators that sell or acquire a well or well production facility on or after August 31, 2024 for which the selling owner/operator has submitted a GHG intensity plan that provides implementation of any BMP, control method, emission reduction strategy, or technology. Within 30 days of closing the transaction, the selling and acquiring owners/operators must submit to the Division an update to their GHG intensity plan that includes:

• Selling Operator
  • An identification of each well production facility transferred (names and AIRS ID, if applicable), the name of the acquiring operator, and the date of closing of the transaction.
  • A quantification of the emission reductions that would have been achieved at each well production facility involved in the transaction under the GHG intensity plan.
  • A demonstration that the selling operator will still meet its GHG intensity targets, identifying any additional BMPs, control method, emission reduction strategy, and technology.
• Acquiring Operator
  • An identification of each well production facility transferred (names and AIRS ID, if applicable), the name of the selling operator, and the date of closing of the transaction.
  • A commitment to implementing the same BMP, control method, emission reduction strategy, and technology provided in the selling operator’s ERP on the same schedule. A quantification of the emission reductions that would have been achieved under the selling operator’s GHG intensity plan.
• An identification of how the acquiring operator will achieve equal or greater emission reductions at the same or other well production facilities involved in the transaction. Acquiring operators may opt to achieve equal or greater emission reductions at other well production facilities not involved in the transaction pending approval from the Division. Reductions must meet the same schedule as outlined in the selling operator’s GHG intensity plan.

Contact your Spirit Environmental consultant for assistance on your acquisitions.