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The midterms and oil: Anti-drilling measure could crush Colo. oil, gas industry


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The midterms and oil: Anti-drilling measure could crush Colo. oil, gas industry

This article is part of a package of stories that explores how the 2018 midterm elections may impact the U.S. energy business. The package also includes articles about how the natural gas, coal and power sectors may or may not be disrupted by election results.

The oil industry is watching and waiting as Colorado voters head to the polls Nov. 6 and decide whether to pass a ballot initiative to expand the required distance between new oil wells and populated areas.

Colorado ballot initiative 97, or Proposition 112, would require new oil and gas projects to be at least 2,500 feet from buildings, parks and certain wildlife areas. The state now requires as little as 500 feet of separation.

An estimated 90% of surface acreage in Colorado would be unavailable for development by adopting the buffer zone setbacks and federal land exemption proposed by the measure, according to a July study by the Colorado Oil and Gas Conservation Commission. The report also said 85% of acreage in Weld County, which is Colorado's largest oil- and gas-producing county, would be inaccessible for new drilling.

"The setback measure would put 85% of the state off limits to new oil and gas development," Karen Crummy, a spokeswoman for Protect Colorado, a group opposed to the measure, said in an Oct. 10 email. "More than 94% of non-federal land in the state's top five producing oil and natural gas counties (Weld, Garfield, La Plata, Rio Blanco and Las Animas) would be unavailable for new production."

In 2017, Colorado ranked seventh in U.S. oil production and fifth in gas production.

The opposition to the anti-drilling measure is well-supported by the oil and gas industry. As of Oct. 15, more than $34 million had been donated to a campaign to defeat it, while just a little more than $800,000 has been donated to environmental group Colorado Rising, which pushed for the measure from the start.

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"The environmental groups on the other side of the argument are being heavily outspent," Raymond James analyst Pavel Molchanov said in an Oct. 5 research note.

There is also little support for the anti-drilling proposition politically. Neither of the candidates running for governor in Colorado — Democrat Jared Polis and Republican Walker Stapleton — are in favor of it. Additionally, 48 mayors from municipalities across the state are lined up against the measure and held a rally at the Colorado State Capitol on Oct. 16.

"[A]s always, elections ultimately come down to voter turnout, but our sense currently is that the odds are tilted in favor of a positive outcome for the industry," Molchanov wrote.

Opposition is based on the economic and fiscal impacts on the state and companies that operate within it, should voters pass the measure. "A half-mile setback is a blatant attempt by activists to ban oil and natural gas in Colorado and put working families on the unemployment line," said Dan Haley, president & CEO of the Colorado Oil & Gas Association.

Oil and gas producers with assets in Colorado include Noble Energy Inc., Anadarko Petroleum Corp., PDC Energy Inc. and DCP Midstream LP. For the industry, a change from the existing 500-foot setback requirement to a 2,500-foot requirement would eliminate between 62% and 80% of annual new oil and gas development in the state. By 2030, it would reduce the total value of production in the state by between 54% and 70%, according to a July study by Common Sense Policy Roundtable, a nonprofit think tank.

Between 2019 and 2030, the estimated dollar amount of lost oil and gas production ranges from $110 billion to $141 billion.

Although spokespeople from DCP Midstream, PDC Energy and Anadarko declined to comment on the Colorado ballot initiative, the industry is confident that efforts to defeat the ballot initiative will ultimately prove successful. "The industry's campaign is ongoing, sophisticated, robust, well-organized and well-funded," DCP Midstream said in September.

If it passes, the shock wave would reverberate far beyond the energy industry, Colorado Oil & Gas Association Director of Communications Scott Prestidge said.

"The positive impact the oil and natural gas industry has on Colorado's economy is enormous, with an annual economic impact of $32 billion," Prestidge said in an Aug. 29 notice to Colorado residents issued after supporters filed with the Colorado Secretary of State the signatures necessary for the initiative to be included on the November ballot.

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The state and its local governments would lose between $210 million and $258 million in tax revenue from the reductions in the oil and gas industry in the first year and between $825 million and $1.1 billion annually by 2030. By 2030, there would be roughly 115,000 to 147,800 fewer jobs through all sectors of the economy, with the oil and gas extraction industry making up 23% of the total losses, according to the Common Sense study.

The Colorado Farm Bureau filed a competing ballot measure, Initiative 108, that would allow private citizens to take individual counties or the state to court for compensation if any state law reduced their property value.

While the anti-drilling ballot measure in Colorado is unlikely to pass in November, legislators are likely to push for some kind of legislation in 2019 that would address oil and gas drilling.

"We will be looking at something that focuses on health and safety first, which may include things like more air and water quality monitoring and inspections, local control, cleaning up orphan wells, and public transparency and engagement," Colorado House Majority Leader KC Becker, a Democrat, said in an Oct. 13 email.

If the anti-drilling measure passes in Colorado, it could pave the way for other states to do the same, WindSail Capital Group co-founder and managing director Ian Bowles said during an Oct. 16 webinar. However, this would also likely open the door to litigation from the oil industry.