Energy overhaul bill SB 181 with House amendments passes final vote in Senate after 22 minutes of discussion in its last legislative appearance in past 4 1/2 weeks
Colorado’s controversial energy overhaul bill, Senate Bill 19 - 181, which was introduced March 1 and shot through six committees and two Committee of the Whole votes in the state’s two legislative houses, finished the final leg of its journey around the statehouse today when the Colorado Senate voted to repass the bill with the House amendments attached.

After only 22 minutes of discussion, Senate Bill 19-181 passed along party lines by a vote of 19 (D) – 16 (R), and it will now be given to Governor Polis (D), who is expected to sign the bill into law.

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Analyst Commentary

From SunTrust Robinson Humphrey
SB 19-181 passed, marking the end of a period of regulatory driven underperformance for the Wattenberg group (18-mo -22% vs XOP).
The final bill is similar to previous interpretations. Some positive amendments came in the 11th hour; "moratorium" only lasts until initial rules are made, and the COGCC director can no longer "refuse" permits only "delay" them. In previous regulatory bouts the Wattenberg group has expanded to group multiples in 3-9 months; perhaps this overhang could be longer but we strongly feel normalization is coming. We are buyers of NBL, PDCE, SRCI, XOG, and HPR.
The most significant last minute amendments were,
1) a language change to allow the COGCC director to “delay” but not “refuse” permits,
2) softening of various pieces of language that could help in any lawsuits,
3) additional professional employees added to help the COGCC,
4) a Senate floor discussion where Rep Feinberg stated that long term bans were not allowed, and
5) permit delays will end when the initial COGCC rules from 181 are made, not when all of them are final.
Every Senate Democrat voted for #181, and we feel it will be hard for them to turn around and say that a bill crafted when they controlled the House, Senate, and Governorship did not go far enough. Of course, the wildcard is an accident like Firestone, which could create a groundswell of regulatory support. However, aside from that scenario we don’t feel that a major ballot fight in 2020 will occur.
As a reminder, while on the surface the bill may appear to dramatically reduce oil and gas development in Colorado, given the mostly rural acreage footprints of our companies under coverage, we currently expect only a 0-4% impact to our NAVs as a result of this legislation.

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From Baird
CO SB181 Heads to Governor Polis for Signature
No change to cautious view. The Colorado state senate passed a revised oil and gas omnibus bill (19-16), including amendments from the CO House, which now heads to Governor Jared Polis for his signature, which he is likely to sign. The bill will reconstitute the oil and gas commission and allow local control into the state's oil and gas framework. Key midstream companies with CO exposure include DCP, NBLX, TGE and WES.
More complex operating environment ahead. Whereas before a promotional COGCC expedited oil and gas development, a new health-and-safety focused COGCC likely creates a higher hurdle at the state level for permitting. In addition, local jurisdictions will have the power to constrain or prevent development. For Weld County producers, a finalized rule set could remove some open-ended legislative risk, at least until the next election. Increased costs and regulatory compliance for air emissions and orphan wells are likely digestible.
Political not scientific. The decision comes without the benefit of a second Colorado Department of Public Health & Environment report, which appears to have been shelved during the process. The votes on SB181 reflected party lines between Democrats (recently ascendant winning the governor's mansion and both the Senate and the House) and Republicans. We don't see a reversal in Colorado's political biases given the immigration of coast-wise voters with a more liberal bias and no love for the oil and gas industry.
Key conclusion. Since most state oil production comes from right-leaning Weld County, we expect the bulk of the state's activity and operators to continue to flourish through 2020. Longer term, if the COGCC begins to equate health and safety with climate change, state-level permitting could become onerous or impossible. In the intermediate period, we would expect Weld activity to continue to thrive. Severe roadblocks likely arise immediately in the urban interface of the DJ Basin for Extraction (XOG) and some private operators. Moreover, we could see another legislative effort for a state severance tax increase.
Next things to watch. Investors should focus on: a) the appointments to the Colorado Oil & Gas Commission made by Jared Polis, followed by b) the rulemaking process at the revised commission. Simultaneously, expect c) local zoning and moratoria from Front Range communities such as Broomfield, Erie and Lafayette, which in turn could precipitate d) litigation from operators and mineral owners, and potentially inter-jurisdictional litigation. A key legal battle we foresee is granted permits vs. new local zoning along with potential minerals takings claims.
Key risks. Our approach to Colorado could prove to be overly cautious if a new COGCC promulgates rules quickly and efficiently that do not add to producer burdens, avoids conflating climate with health and safety, and new local rules are limited to just a few cities.  


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