Colorado will vote on November 6 on a ballot proposition to increase the setback distance for drilling oil and gas wells by five times to 2,500 feet.
Proponents of the initiative—which qualified in end-August for the ballot with enough signatures raised—say that it would limit the health and environmental dangers of fracking.
Opponents and analysts say that such setback measures would effectively mean a ban on drilling in the state as it would put a lot of land off limits for new developments.
If Proposition 112—as the new setback proposal will be put on the ballot—passes, it would devastate the oil and gas industry in Colorado, destroy thousands of jobs, and eliminate billions in state revenues from oil and gas taxes and royalties that would affect the entire Colorado economy, say the groups who oppose the initiative to increase the setbacks from the current 500 feet to 2,500 feet.
The stocks of oil and gas drillers and midstream companies active in Colorado, including Anadarko and Noble Energy, have already suffered since the proposition made the ballot and will continue to languish until the November ballot gives clarity on the setback initiative, analysts say.
It’s far from certain that the setback proposal would pass. In fact, analysts say there’s a 50-percent chance, while the industry and groups lobbying against the proposition are optimistic that it won’t be approved in November.
Nevertheless, groups opposing the new setback measures and analysts warn that if it were to pass, the legislation would not only cut Colorado’s oil and gas production and lead to significant job losses, but it would also have a ripple effect on many other industries in Colorado and its entire economy.
Colorado’s field production of crude oil reached a record high last year—at 358,000 bpd, according to figures by the EIA. In 2016, as a result of the slump in oil prices, production had dropped to 318,000 bpd from 336,000 bpd in 2015.
With the oil price rise in 2017 and so far this year, Colorado’s oil production in April and May hit a record at 447,000 bpd, and stood at 423,000 bpd in June, the latest available EIA data shows.
If the ballot measure is approved, Colorado’s oil production could plunge to 275,000 bpd by 2023, which would be a 54-percent drop from current projections, according to an S&P Global Platts Analytics report last week.
“It has the potential to tip Colorado into recession and set off a nasty tax cut battle,” Baird analyst Ethan Bellamy told Platts.
The setback measure, if it passes, would “thrust a dagger into the heart of Colorado’s oil industry,” Bellamy told Oil and Gas Investor.
Anne Lee Foster with Colorado Rising, the proponent of the initiative, said that “This measure is designed to protect the long-term quality of our lives, our health, and a robust economy that is dependent on the natural beauty that Colorado is so famous for.”
Colorado Oil & Gas Association President & CEO Dan Haley says that “Coloradans need to know exactly what is at stake: private property rights, more than 100,000 good paying jobs, more than $1 billion in taxes for schools, parks and libraries, and our nation’s energy security. 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.”
According to the association, the initiative would kill up to 147,800 good-paying jobs in Colorado by 2030, with up to 43,000 jobs being lost in the first year alone. The state would lose US$26 billion annually in GDP by 2030, and more than US$9 billion in state and local tax revenue.
More than 94 percent non-federal land in Colorado’s top five producing oil and natural gas counties—Weld, Garfield, La Plata, Rio Blanco, and Las Animas—would be unavailable for new production if the ballot measure passes, says Protect Colorado, a group opposing the initiative.
The expected state-wide negative economic impacts are the reason why bipartisan opposition to this measure includes Democratic Gov. John Hickenlooper and both gubernatorial candidates, Republican Walker Stapleton and Democrat Jared Polis, according to Protect Colorado.
The huge bipartisan coalition to beat the setback measure in November means that the proposition would likely fail, Simon Lomax, a research fellow with Vital for Colorado, a group opposing the proposition, told Oil and Gas Investor.
“The economic consequences of the impact are so great and extreme it makes this measure so beatable,” Lomax said.
By Tsvetana Paraskova for Oilprice.com
