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Colorado industry pumps millions into effort to defeat drilling setback

Highlights

Protect Colorado received over $21 million this campaign cycle

Proponents using low-budget, door-to-door campaign

Denver — Oil and gas companies have pumped millions this campaign cycle into an effort to defeat a Colorado ballot measure that would increase new drilling setbacks by five-fold and cripple the future of the industry there.

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The pro-industry group Protecting Colorado's Environment, Economy and Energy Independence, received $7.9 million during August alone, according to data from the state's secretary of state. The industry learned in late August that Initiative 97 had received enough valid signatures to secure a spot on the November ballot. If approved, drilling setbacks would increase from the current 500-foot setback to 2,500 from all occupied structures as well as vulnerable areas, including waterways and parks. It will appear on the ballot as Proposition 112.

"Proposition 112 will devastate the economy and cut nearly 150,000 jobs and billions in tax revenue for critical local services like schools, public safety and roads," said Karen Crummy of Protect Colorado. "The measure is so extreme it has bipartisan opposition from former, current and future elected officials, including gubernatorial candidates Jared Polis and Walker Stapleton."

Protect Colorado has been running ads in an attempt to educate the public about what is at stake if Proposition 112 passes. 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. And at least 85% of all new oil and natural gas development on non-federal lands would be off limits, according to the Colorado Oil and Gas Conservation Commission.

HIGH STAKES

"What is clear, and what industry clearly understands, is that 97 is a must kill for the Colorado oil and gas industry, which will spare no expense or effort, especially key players, to educate voters about the economic harm that 97 likely would inflict upon the state," according to a note by Baird Equity Research.

Key players in Colorado have already poured a lot of money into fighting the measure. Anadarko Petroleum, for instance, has contributed a total of $5.8 million to Protect Colorado so far this election cycle, including $1.83 million last month. DCP Midstream has donated $1 million, while Noble Energy and PDC energy have contributed $4.4 and $3.3 million, respectively, in 2018. Contributions have also come in from SRC Energy, Whiting Oil and Gas Corporation and many others.

Total contributions to Protect Colorado throughout 2018 top $21 million through the end of August.

In contrast, the group Rising Colorado, which was behind the initiative, has only received $615,182 in contributions this year. The group is relying on its 1,000 volunteers to conduct a door-to-door campaign and appear at various events across the state, according to Anne Lee Foster, an original proponent of the new setback rule.

"We've seen multiple times where industry has dramatically outspent grassroots campaigns and still lost at the ballot box," she said.

Protect Colorado spent $4.9 million in August on ads and other forms of outreach, but still has $8.6 million in its coffers to spend before the election on November 6.

'CATASTROPIC'

Gas production in Colorado's Denver-Julesburg Basin has increased by about 200 MMcf/d since this time last year and is projected to top 2 Bcf/d within a year, according to S&P Global Platts Analytics. However, if Proposition 112 passes, it would soon start a steady decline as the number of new wells drilled and completed would shrivel up. Some producers have been trying to secure as many drilling permits as possible between now and the election in case it passes. "The initiative has the potential be nothing less than catastrophic for the industry," said Crystal Heter, a president at Tallgrass Energy Partners.

"Ken Salazar, former Secretary of the Interior under President Obama and a former US Senator from Colorado, indicated to a group of investors that he is 99.9% sure that Initiative 97 will not pass," according to Baird. "He might be right and might have his finger on the pulse of the Colorado electorate, but recent elections, such as Brexit and Trump, have taught us to be skeptical of polls and expert opinions."

-- Brandon Evans, bevans@spglobal.com

-- Edited by Annie Siebert, newsdesk@spglobal.com