A deeper look at initiative 97

If Colorado voters choose to stop drilling by passing initiative #97 on Nov. 6, the economic ramifications are deepColorado governor has no veto power over the measure

Nine weeks from today Colorado’s voters will have the opportunity to vote ‘Yes’ on a measure that will essentially shut down new drilling, workovers and fracing operations in the U.S.’s fifth largest natural gas-producing and seventh largest oil-producing state — initiative 97.

Colorado Initiative 97 Hands Local Governments the Power to Bar Drilling

Gas well in Weld County, Colorado – Photo: Oil & Gas 360

But the proposal that would do so which successfully collected enough signatures statewide to land a new mandatory 2,500-foot setback on the Nov. 6 ballot also hands the ability to bar oil and gas drilling to county commissioners and town councils anywhere in Colorado.

Initiative 97 mandates that the current setbacks—500 feet from homes, 1,000 feet from schools and hospitals—be increased to 2,500 feet, minimum, from all vulnerable areas as defined in the measure, which includes virtually all water bodies in the state, even irrigation ditches and intermittent streams and creeks,  “and any additional vulnerable areas designated by the state or a local government.” This language, the sheer scope of the geography, has the effect of removing most of the non-federal land in the state from drilling. A study by the Colorado state oil and gas regulator calculated that 85% of non-federal land in Weld County would be off limits under the rules of initiative 97.

How 97 gives local governments control 

[EDITOR’S NOTE: words highlighted in bold and italics are Oil & Gas 360’s, intended to highlight the local control sections in initiative 97. You can read the complete measure here.]

“To preserve public health, safety, welfare, and the environment, the people desire to establish a buffer zone requiring all new oil and gas development in the state of Colorado to be located an increased distance away from occupied structures, including homes, schools and hospitals, as well as vulnerable areas.”

The measure defines “vulnerable areas” as “playgrounds, permanent sports fields, amphitheaters, public parks, public open space, public and community drinking water sources, irrigation canals, reservoirs, lakes, rivers, perennial or intermittent streams, and creeks, and any additional vulnerable areas designated by the state or a local government.

“‘Local government’ means any statutory or home rule county, city and county, city, or town located in the state of Colorado.

“The people of the State of Colorado hereby establish that all new oil and gas development not on federal land must be located at least two thousand five hundred feet from an occupied structure or vulnerable area. For purposes of this section, the reentry of an oil or gas well previously plugged or abandoned is considered new oil and gas development.”

“The state or a local government may require that new oil and gas development be located a larger distance away from occupied structures or vulnerable areas than required by subsection (3) of this section. In the event that two or more local governments with jurisdiction over the same geographic area establish different buffer zone distances, the larger buffer zone governs.”


Taking power from the State

In Colorado law today, permitting and regulation of oil and gas operations is the purvey of the state through the Colorado Oil & Gas Conservation Commission (COGCC).

But if voters pass 97, the modified statute would allow local governments—cities, counties and other municipalities—to make their own setback rules. When that happens, the business of oil and gas becomes vastly changed in Colorado.

Oil & Gas 360 -Colorado Initiative 97 Hands Local Governments the Power to Bar Drilling

Wells at a Weld County pad site. Photo: Oil & Gas 360

“Any county government could decide to put a 10,000-foot setback in place with the intent to likely wipe out the whole county [from oil and gas development],” Bob Thibault, an attorney with the energy practice group at Haynes and Boone, told Oil & Gas 360®.

That brings up the topic of drilling in Boulder County, an outspoken anti-oil and gas county commission.

There are oil and gas companies that have been working within the rigorous rulemaking bounds of the COGCC’s Comprehensive Drilling Plan (CDP) process, including Crestone Peak Energy. Crestone Peak has been involved in the complex process to grind out a CDP in its effort to gain the state’s approval to drill its Wattenberg assets in Boulder County. The Boulder County Board of Commissioners has fought the company at every opportunity, along with others seeking to drill inside the county.

But unless Crestone Peak has individual drilling permits in hand before the effective date, if 97 gets voter approval this November, all that work on the CDP is for naught, even if the COGCC were to approve Crestone Peak’s CDP before the vote.  Initiative 97 radically changes what’s at stake for oil companies in Colorado.

What will happen if 97 passes? When does it take effect? What does it mean? Can it be overturned?

Oil & Gas 360 Colorado Initiative 97 Hands Local Governments the Power to Bar Drilling

Term-limited Colorado Governor John Hickenlooper’s second term ends Jan. 8, 2019, when the new Colorado governor will be sworn in.

In a discussion with Haynes and Boone’s attorney Bob Thibault, the attorney said that a statute passed by a ballot initiative is virtually the same as a law passed by the legislature except that the governor cannot veto it.


The Colorado Secretary of State’s office outlines the rule as follows:

“The veto power of the governor shall not extend to measures initiated by or referred to the people. All elections on measures initiated by or referred to the people of the state shall be held at the biennial regular general election, and all such measures shall become the law or a part of the constitution, when approved by a majority of the votes cast thereon, and not otherwise, and shall take effect from and after the date of the official declaration of the vote thereon by proclamation of the governor, but not later than thirty days after the vote has been canvassed. This section shall not be construed to deprive the general assembly of the power to enact any measure.”


Colorado Initiative 97 Hands Local Governments the Power to Bar Drilling

Haynes and Boone energy attorney Bob Thibault. Photo: Haynes and Boone

Thibault confirmed that if it passes, the measure can be changed by a subsequent statute passed by the Colorado legislature, but he pointed out that in today’s world “nothing is going through the legislature easily or quickly.”

The process of vetting, arguing and compromise during the endeavor of lawmaking can be a long, drawn-out affair, especially when a proposed law involves a hot button issue like fracing that tends to be polarizing and thrusts legislators onto a shaky tightrope with the opposing camps’ voters holding both ends of the rope.

“This issue may become just the starting point for the next debate,” Thibault said. He said the groups behind 97 have already succeeded in putting their key points into the public discussion.

Colorado Initiative 97 Hands Local Governments the Power to Bar Drilling

Colorado Initiative 97 Hands Local Governments the Power to Bar Drilling in addition to establishing a mandatory 2,500 foot setback.

Questions abound

If 97 passes in November, one question that will likely come up is the definition of “new oil and gas development.”

Colorado Initiative 97 Hands Local Governments the Power to Bar Drilling

Drilling rig in Colorado – photo: Oil & Gas 360

The measure says, “The people of the State of Colorado hereby establish that all new oil and gas development not on federal land must be located at least two thousand five hundred feet from an occupied structure or vulnerable area. For purposes of this section, the reentry of an oil or gas well previously plugged or abandoned is considered new oil and gas development.”

Does 97 interpret reentering wells that were drilled but uncompleted as “new oil and gas development”? If so, then would the process of going back to frac a well be prohibited under the ’97 passes’ scenario?

The measure defines oil and gas development as follows:

“OIL AND GAS DEVELOPMENT” MEANS EXPLORATION FOR, AND DRILLING, PRODUCTION, AND PROCESSING OF, OIL, GAS, OR OTHER GASEOUS AND LIQUID HYDROCARBONS, AND FLOWLINES AND THE TREATMENT OF WASTE ASSOCIATED WITH SUCH EXPLORATION, DRILLING, PRODUCTION AND PROCESSING. “OIL AND GAS DEVELOPMENT” INCLUDES HYDRAULIC FRACTURING.”

An email exchange with the COGCC confirmed that receipt of a drilling permit for an oil or gas well in Colorado covers drilling and completion of the well. No new permit is required to subsequently frac a well.

That being the case, companies with an inventory of DUCs (drilled uncompleted wells) would be able to complete those wells.

 

Results of 97 passing

If 97 is passed by voters, by law, unless operators have drilling permits in hand, new oil and gas drilling in Colorado shuts down as soon as the law is effective because of the 2,500-foot setback requirement. The effective date is not later than 30 days from election day.

Colorado Initiative 97 Hands Local Governments the Power to Bar Drilling

2,500-foot setback: only the white, unshaded areas would be the non-federal land available to drill if 97 passes in the 2018 general election. Map by COGCC.

How long would it take the legislature to craft a workable bill to replace or supersede 97?

If it becomes a drawn out battle, how long during the hiatus will it be before service companies that make a living supporting drilling and hydraulic fracturing and related oil and gas operations begin laying off employees, shutting down Colorado operations and leaving the state?

With the dependence of revenues from oil and gas to both the state and the counties with concentrated drilling activity, a new bill would eventually make its way forward in the legislature that would alter 97’s almost total elimination of available land on which to drill in Colorado.

But, as Thibault points out, the people who have been elected to write and pass laws will likely give consideration to all sides of the issue when they launch that process.

Both setbacks and local control are likely to find their way into a replacement bill crafted by the legislature

Thibault believes that any legislature-initiated bill that would modify 97 that is likely to come out of the bill-making process will likely set forth its own setback rules, and it would likely give some consideration to whether to increase the degree that Colorado’s towns, cities and counties have a  say in where drilling is done within their jurisdictions.

“Ceding some control to local governments is very likely one of the first things that will come onto the table,” Thibault said.

Dual bazookas aimed at Colorado

Thibault pointed to “dual bazookas that are aimed at the state of Colorado” in the coming election.

Referencing another initiative that just made the ballot—initiative 108—Thibault said that the fact that 108 is a proposed constitutional change is very important. “Compensation for government taking, as a general right, is already the U.S. constitution and it’s in the Colorado constitution.  But, this would make it much easier to seek compensation for diminished mineral rights.”

In other words, if 97 passes, and becomes a law that takes away property owners’ ability to develop and sell their minerals, and if 108 also passes, making it law that “private property shall not be taken, of damaged, or reduced in fair market value by government law or regulation for public or private use, without just compensation,” then the State of Colorado is going to face a potentially devastating financial hurdle to compensate mineral owners for hundreds of millions of dollars or more in lost value that occurs as a result of 97 becoming state law.

Initiative 108


The text of initiative 108 follows (the proposed amended language appears in all caps):

“2017-2018 #108 — Final Draft Just Compensation for Reduction in Fair Market Value by Government Law or Regulation

Be it Enacted by the People of the State of Colorado:

SECTION 1. In the constitution of the state of Colorado, amend section 15 of article H as follows:

Section 15. Taking property for public use—compensation, how ascertained. Private property shall not be taken, of damaged, OR REDUCED IN FAIR MARKET VALUE BY GOVERNMENT LAW OR REGULATION for public or private use, without just compensation.

Such compensation shall be ascertained by a board of commissioners, of not less than three freeholders, or by a jury, when required by the owner of the property, in such manner as may be prescribed by law, and until the same shall be paid to the owner, or into court for the owner, the property shall not be needlessly disturbed, or the proprietary rights of the owner therein divested; and whenever an attempt is made to take private property for a use alleged to be public, the question whether the contemplated use be really public shall be a judicial question, and determined as such without regard to any legislative assertion that the use is public.”


“This kind of financial bind could affect the credit rating for the state,” Thibault said. “After all, what state can afford to buy all of the minerals within it, at face value, at the immediate time?”


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