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Oil

Study finds Proposition 112 passing could eliminate access to 58% of Colorado's subsurface minerals

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Study finds Proposition 112 passing could eliminate access to 58% of Colorado's subsurface minerals

Highlights

Latest poll shows ballot initiative approval leading 52%-48%

Gas, oil production could fall at least 45% in five years

Denver — If passed, Colorado's Proposition 112 ballot initiative might not completely destroy the oil and natural gas industry in the state as producers could employ longer laterals to reach molecules while still complying with increased setback rules, according to a study released by the Colorado School of Mines.

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Proposition 112, which will appear on the November 6 ballot, would increase new oil and gas drilling setbacks from 500 feet to 2,500 feet from occupied structures, parks and waterways. It would eliminate 85% of all non-federal surface land from use for drilling, according to separate analysis by the Colorado Oil and Gas Conservation Commission. But Peter Maniloff, a professor at the Colorado School of Mines, determined more than 15% of subsurface minerals could be reached through modern drilling techniques.

"With the recent advent of horizontal drilling, some subsurface resources beneath the 2,500 foot buffer may be reachable from within the 15% available surface area," he said. "I calculated what area of the subsurface is within 1 mile of a surface location, which would remain accessible under Prop 112. That is, how much of the subsurface would be available, assuming that firms could drill horizontally for 1 mile from any accessible surface location. I find that 42% of the non-federal subsurface would be accessible, or nearly three times the available surface area."

However, he noted that restricting oil and gas operations to such a small portion of surface space would "impose substantial operational difficulties." This includes limiting the placement of wellbores in order to achieve the highest production rates as well as the difficulty of adding new surface infrastructure, such as roads.

Also, Maniloff's analysis did not consider the varying quality of rock. Most of the core areas of the Denver-Julesburg Basin are located in densely populated areas along Colorado's Front Range, which would become basically inaccessible under Proposition 112.

POLLING DATA

As the election approaches, and the industry continues to pour millions of dollars into defeating the measure, the most recent poll shows a majority of voters support Proposition 112.

The proposition is leading by a 52%- to-48% margin, according to a poll conducted last week by the American Politics Research Lab at the University of Colorado at Boulder. The poll included responses from 800 registered voters and has a margin of error of plus or minus 3.5%.

PRODUCTION COLLAPSE

Research by S&P Global Platts Analytics finds Proposition 112 would curtail gas production by 45% and oil production by 54% within five years. It would render 78% of Weld County, Colorado's surface land off-limits to new oil and gas development. The county currently accounts for more than 95% of all Denver-Julesburg Basin production. Since Colorado's approved drilling permits are valid for two years, the analysis assumes drilling will continue as is for the next two years and 2021 would start to show the impact as 78% of the surface land would be off limits due to the setback restriction. The number of new wells drilled in the Denver-Julesburg Basin would be reduced by 78% starting in 2021, and oil production would decrease by 54% to 275,000 b/d by the end of 2023, according to Platts Analytics. Applying the same analysis to gas, if the number of new wells drilled is reduced by 78%, the impact on production would be a decrease of 45% to 1.9 Bcf/d by the end of 2023.

Drilling permits in the state have been steadily increasing since the beginning of the year as multiple Denver-Julesburg Basin producers have said they are preparing for the worst and accumulating as many permits as possible in advance of the election.

-- Brandon Evans, bevans@spglobal.com

-- Edited by Keiron Greenhalgh, newsdesk@spglobal.com