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Colorado governor downplays effects of new regulations, industry disagrees

Highlights

Prices drive industry, not politics: Polis

Tells industry representatives they are 'valued'

Denver — Colorado's governor downplayed any deleterious effects to the oil and gas industry stemming from sweeping regulations passed earlier this year, saying its future instead depends on market fundamentals, but industry leaders disagree.

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"As long as commodity prices are good, you're gonna have a good business," said Democratic Governor Jared Polis to a packed hall at the Colorado Oil and Gas Association's Energy Summit on Wednesday afternoon. "It has nothing to do with me, and nothing to do with our state politics, and less even to do with national politics; it really all comes down to supply and demand."

The discussion revolved around the potential effects Senate Bill 181, passed earlier this year, could have on the future of oil and gas production in the state. It gives counties and municipalities more authority in approving future drilling sites. The bill also elevates public health, safety and environmental concerns; tweaks aspects of forced pooling; and changes some drilling, operating requirements.

"With all due respect, what you do, what you say, does matter," responded COGA CEO Dan Haley. "And what happens in Colorado does matter. There is a lot of talk out there of people wanting to ban fossil fuels. It makes our folks nervous. I think you underestimate the impact that political rhetoric, political actions and regulatory actions have."

"Commodity prices certainly impact all of us all over the country," he added. "But what I see often from financial analysts is the sort of legislative, political tensions in Colorado impacting markets here."

"It's not so much that I underestimate it, it's that financial markets overestimate the impact of political rhetoric," Polis countered. "The commodities prices and the market is what drives things. It is a much larger force than partisan politics."

What worries Colorado producers the most about SB 181, is the fear that local governments across the Front Range located over the Denver-Julesburg Basin might use the new authority to effecting prevent any future drilling in their communities. So far, nine have passed some form of moratorium.

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"A few of those, Boulder, Broomfield, Adams County, are trying to figure out how they are going to wield this new authority that they have," Haley said. "And we very much are concerned what that might look like. I'm afraid some these areas may not allow for oil and gas development."

While the industry views SB 181 as bringing more uncertainty, Polis said the purpose of the bill was to remove uncertainty. When signed the bill into law in the spring he declared "the oil and gas wars that have enveloped our state are over." He believes shifting power to local governments will prevent a repeat of voter initiatives such as Proposition 112.

"I think there is no question there's less uncertainty than there was in prior years," Polis added. "We think by empowering locally elected officials to solve problems - it doesn't mean every issue around oil and gas will be solved - what it means is instead of people venting their frustrations through risky statewide initiatives ... people will have those appropriate conversations on the local level. You now have less people looking for a one-size-fits-all solution."

However, Polis did not deny some communities, such as Boulder and Broomfield counties, might try to prevent new development. He said the purpose of SB 181 was to give local communities greater control over their own destinies.

However, even if they did, the effect looks to be minimal based on production data. In 2018, production in Boulder and Broomfield counties combined averaged 5.6 MMcf/d, according to S&P Global Platts Analytics. Adams and Arapahoe counties were a bit higher at 17.7 and 12.6 MMcf/d, respectively. However, in Weld County, the core of the DJ Basin, where all five county commissioners support the industry due to its economic impact, production averaged 2.06 Bcf/d.

Likewise, county commissioners in the Piceance Basin, located on the Western Slope also support the industry. Production there this month is averaging 1.4 Bcf/d, according to Platts Analytics.

"Can you drill for oil in a blue state?" Haley finally asked.

"It's a silly question," Polis said. "It's like saying can you build a solar farm in a red state. It doesn't make any sense. Energy is not inherently political, it's inherently economic. It's about the geology. How is the DJ Basin performing? It's all about the dollar. It's all about economics."

However, the majority of industry members packed in the hall of the Denver Convention Center remained unconvinced.

-- Brandon Evans, bevans@spglobal.com

-- Edited by Richard Rubin, newsdesk@spglobal.com