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Politics in Colorado could drive oil and gas industry to 'friendlier basins'

The Colorado oil and gas industry has described Proposition 112 as a production ban and raised tens of millions of dollars to fight the measure in Nov. 6 state elections, but industry critics have contested that description.

The Colorado Oil and Gas Conservation Commission made a dire prediction for the industry before Proposition 112 even made the ballot: the measure, which would require setbacks of 2,500 feet for new oil and gas production, would cut off approximately 85% of nonfederal land in the state from future oil and gas development. According to the Colorado Oil and Gas Association, or COGA, passage of Proposition 112 would push oil and gas development toward the Kansas and Nebraska borders, where there is little of either resource.

"Proponents have been pushing this 2,500-foot number for over four years, and they've done the math," COGA Communications Director Scott Prestidge said. "Proposition 112 is intentionally designed to serve as a ban, plain and simple."

"A 500-foot setback consists of 18 surface acres, but a 2,500-foot setback is 450 surface acres, which is a 25-times larger setback," Prestidge said. He noted that the measure would add dozens of new buildings and features that would need setbacks.

In commentary on the Colorado vote, Sanford C. Bernstein analyst and Senior Vice President Bob Brackett said conversations with HighPoint Resources Corp., Bonanza Creek Energy Inc. and PDC Energy Inc. have led him to believe that Proposition 112 will fail. The vocal segment of the state's population that is against oil and gas production, however, could eventually take its toll on the industry, he said."We believe longer term that the industry will continue to fight a battle for education and against excessive regulation … and strategic prudence suggests the ability to pivot to friendlier basins is a longer-term desire," Brackett said.

Environmental group Colorado Rising, which supports the measure, said the industry's concerns about the 2,500-foot setback are overblown. They contend that the setbacks are less of an issue with advanced fracking technology.

"I am getting information that the [Colorado Oil and Gas Conservation Commission] map is flawed in its analysis," group spokeswoman Anne Lee Foster said. "Additionally, they aren't factoring the use of horizontal drilling to access minerals. It's very misleading."

COGA said drilling laterals of the length needed for a 2,500-foot setback is largely ineffective in Colorado. "It's common to see laterals of one to two miles in Colorado, but beyond that is rare," Prestidge said.

In an Oct. 19 call organized by management services company Raymond James & Associates Inc., a Colorado political analyst said the chances that Proposition 112 will pass have increased but still remain below 50/50. Should it buck the odds, the consequences for local governments as they lose a source of revenue could be severe, said Jep Seman, the co-founder and principal of Colorado Advocates.

"It's the old political adage that all politics is local, and that adage is still true today," Seman said. "The industry will be pushing — whether their voice matters is a question — but the real pressure will come from local counties. When they have a decline in revenue, they will start putting real pressure on legislators."

Seman said the industry and other parties are preparing for the possibility of Proposition 112 passing by readying legal challenges. "There will be litigation immediately."

With two weeks before election day, industry supporters have started a vigorous door-to-door effort to get voters to send in their ballots in the state's mail-only election. The industry has also enlisted the help of one of the most popular men in Colorado: former Broncos quarterback John Elway, who has made a commercial asking voters to reject the proposition.

"They're leaving it all on the field," Seman said.