Calling Colorado's sweeping new rules governing oil and gas operations "the most costly and burdensome" in the nation, the Colorado Oil & Gas Association has sued state regulators, asking a judge to invalidate the rules that Gov. Bill Ritter signed into law April 22.

The rules took effect April 1 across much of the state; the deadline to challenge them in court was Friday, the day the suit was filed in Denver District Court.

On April 22, Ritter signed House Bill 1292, which officially approved all new rules put forward by state agencies in the previous year, including the oil and gas regulations.

"House Bill 1292 and the new guidelines will allow the [energy] industry to grow in a way that is sustainable and compatible with our entire economy," Ritter said April 22 in a statement defending the new rules.

Ritter also said then that he was “committed to helping this [oil and gas] industry thrive. Clean-burning natural gas is an important part of Colorado’s New Energy Economy, and this industry will play a key role in Colorado’s economic recovery and our economic future.”

But oil and gas executives have said the rules will drive their costs higher, in some cases by thousands of dollars per well. They've also predicted that investment dollars will be diverted to other states viewed as more favorable for energy operations when the economy recovers.

Efforts to change Colorado's regulations governing how and where oil and natural gas is mined in the state have been controversial for two years.

Ritter and environmental groups have pushed for new rules, saying they're needed to protect Colorado's environment, wildlife and public health from what was a booming industry.

Oil and gas executives have said the rules go too far, require too much, and are costly to comply with.

The lawsuit filed Friday focused on two issues: Whether the Colorado Oil & Gas Conservation Commission accurately and publicly forecast what it would cost the state agency to enforce the new rules, and whether the agency accurately forecast the cost of compliance the rules would level on companies operating in Colorado.

The lawsuit claims the agency did neither, and asked the judge to invalidate the rules or tell the agency to, in essence, try again.

The lawsuit claims the Department of Natural Resources (DNR) told legislators in 2007 that enforcing new rules would cost about $19,510 even though internal calculations put the cost at more than $3.3 million, including hiring at least 14 new employees.

The lawsuit included a statement from DNR's deputy director, Mike King, as quoted by the Associated Press in a Feb. 3 report, that King "wasn't comfortable letting a fiscal note [with the higher figures] drive the bill into the ground."

The same AP story also included King's explanation that the lower cost figure was the agency's early cost estimate when the new rules consisted solely of a consultation between the oil and gas commission and other state agencies on requests for drilling permits.

The lawsuit also blasts the oil and gas commission's cost-benefit analysis of the new rules and their effect on one of the largest industries in the state.

“The [commission's] … analysis understates (or omits entirely) the economic effects, impacts, probable costs, and consequences of the new … rules," the lawsuit states. "The analyses fail to disclose the adverse effect, impacts, probable costs, and future consequences upon the economy of Colorado, its consumers, private markets, small businesses, job losses and economic competitiveness. They fail to analyze less costly or intrusive methods for achieving the purported purposes of the new … rules. The also fail to reevaluate the economic impact of continuing agency action."

In a statement accompanying the new rules, the commission said they are needed largely "to address concerns created by the unprecedented increase in the permitting and production of oil and gas in Colorado in the past few years. ... As the level and extent of drilling activity has increased, so has the public concern for the health, safety and welfare of Colorado’s residents."

The commission said the rules were the result of "the most extensive rulemaking hearing in the commission’s history," lasting 22 days. It said input was considered from 85 interested parties, including oil and gas companies.

Colorado's once-booming oil and gas industry — which recorded more than $17 billion in direct spending in the state in 2005, according to a study by the Colorado School of Mines — is undergoing a major downturn, although at this point much of it can be attributed to the reeling economy and lower energy prices.

The number of active drilling rigs in Colorado, each carrying a crew of about a dozen or more, has sunk from more than 120 last summer to about 50 — a level not seen since early 2004.

Drilling companies have laid off many workers, although they've declined to specify how many people have lost their jobs.

And applications for drilling permits — a key measure of planned industry activity — plunged to 34 in April, the first month that the new rules took effect. That's down from a record 1,461 requests filed in March.

Companies have said they want drilling requests under the state's old oil and gas rules to protect their investment plans in the state as long as they could. Permits, when approved, are good for a year.

Click here to read more