Upcoming TV debate showcases thinking on both sides of the setback issue

There is a storm cloud of potential upheaval facing Colorado’s oil and gas regulator (the Colorado Oil and Gas Conservation Commission—COGCC) this fall. On the leading edge is a contentious ballot issue that’s going to be in front of voters between mid-October and Nov. 6. Proposition 112 is at the epicenter of the storm.

Proposition 112 asks voters to approve an idea in the name of health and safety. A required 2,500-foot minimum setback for all new oil and gas development in Colorado. Sounds harmless. In a casual conversation with a non-scientific sample of Colorado voters, our reporter asked if people would vote for or against that measure. One of the respondents said, “Why would anyone vote against that?”

It takes the state’s present 500-foot drilling setback from homes and 1,000 feet from schools, hospitals and other high-occupancy buildings and multiplies it by either a factor of 5 or 2.5. That increase to 2,500 feet, according to Proposition 112, means new wells or workovers of older wells can’t be closer than 2,500 feet to any occupied structures, homes, hospitals, schools, any waterway—wet or dry—and any other ‘vulnerable areas’. The measure allows the state or any local government body to declare any area as ‘vulnerable’.

Additionally, local governments, county commissioners and even city councils could impose a broader setback of their choice. If there is a conflict of jurisdiction, the larger setback rules.

COGCC geospatial study of land in the state ineligible for drilling and development – only the white areas are available if Proposition 112 passes.

A geospatial study by the Colorado regulator demonstrates that Proposition 112 will do much more than move drilling targets farther from occupied structures. Largely because of the required 2,500 feet setback required from any kind of water source, wet or dry, the oil and gas acreage available to develop in Colorado is drastically reduced, to almost nothing.

Company-leased acreage in the prolific Wattenberg field in Weld County north of Denver as well as the non-federal owned land in all of the state’s highest producing counties will be immediately removed from candidacy for drilling and development, if the measure passes.

Colorado’s Damaging Setbacks: Six Weeks Will Tell the Tale - Oil & Gas 360

Tracee Bentley, executive director of the Colorado Petroleum Council, Charles (Chip) Rimer, SVP U.S. onshore for Noble Energy and Craig Rasmussen, VP, SRC Energy represented the oil and gas industry in a debate with the proponents of Proposition 112–the mandatory 2,500-foot setback. Photo was taken during the taping of the Aaron Harbor television show. Both energy companies have significant assets that they are developing in the Wattenberg field in Weld County. The show will air Sunday Oct. 7 at 11:00 a.m. and again at 8:00 p.m. on Channel 3.

Effective when?

If it passes, the modified statute would apply to all oil and gas development permitted on or after the effective date. The effective date takes place immediately upon official declaration of the election by the governor (usually a matter of days, but can be up to a maximum of 30 days after the election date per the state constitution), and it is self-executing. Because it is a citizen-led initiative, no gubernatorial veto is permitted by the state constitution once such a measure is voted in by the people.

So the effect on Colorado’s oil and gas industry would be immediate as far as prohibition of new drilling using permits issued on or after the effective date.

But as to operating companies and oilfield service companies, oil industry workers, royalty recipients and severance and production tax recipients (including Weld County, which depends on these funds to support education, libraries, first responders and many other county services) actually feeling the direct economic impact—losing jobs, cutting activity, canceling oilfield service contracts, feeling the pinch of reduced production–that might take months, or a few years.

According to the COGCC database, the state has issued more than 5,000 permits to drill in the past 12 months. So, on a company-by-company basis, the cessation of activity would be felt following the drilling and completion of each company’s share of the 5,000 wells represented by the approved and issued permits (the permit to drill also includes the completion phase for each well, the COGCC confirmed with Oil & Gas 360.).

Once those wells are drilled and completed, though, the work available to oilfield service companies and their field crews in the state would dry up.

Paychecks, royalty checks, severance and production taxes would disappear eventually

According to a 2014 economic study by the University of Colorado Leeds School of Business, “the industry recorded $15.8 billion in production value, accounting for 38,650 direct jobs with average annual wages in excess of $105,000—twice the average wage of all industries in Colorado. Collectively, this industry contributed nearly $4.1 billion in employee income to Colorado households in 2014. … Total economic impact of the industry was $31.7 billion in 2014, supporting 102,700 jobs and $7.6 billion in compensation.”

After the 5,000 permitted wells have been drilled and completed, almost eight decades of new drilling—including new wells and workovers—will come to an end in Colorado. Presently producing wells will continue to decline at their natural decline curves until the state’s production starts to look like Venezuela’s.

Can it be reversed?

It could change if the state legislature can put together a new bill, agree on it, send it through the Colorado General Assembly and have it signed into law either by the sitting governor or by the newly elected Colorado governor, depending on whether such a law could be enacted by the end of the year or after the inauguration. But if a new bill that would undo Proposition 112’s setback rule fails to gain bipartisan support in the legislature or is vetoed by the governor, then the state will have to abide by the change to statute—stop drilling for oil and gas—until the next statewide general election in 2020.

Leading up to the 2020 election, can another citizen-led initiative to either amend the state statute or change the Colorado constitution to undo the 2,500-foot setback, gain the required valid signatures, make the ballot, and be voted in during the election?

What will Colorado’s oil and gas operators do in the meantime—if 112 is voted in? Abandon Colorado as a viable state in which to drill and develop oil and gas assets? Drill their existing permits and hold their acreage in case the legislature successfully acts to craft legislation that reverses or relaxes the 2,500-foot setback and the governor signs it (at this time both parties’ gubernatorial candidates—Jared Polis (D) and Walker Stapleton (R) have come out against 112).

If that happens then it is a non-issue until the proponents of lengthy, prohibitive setbacks put their next initiative together and land it on the 2020 ballot.

Is the real issue to impose larger setbacks for health reasons, or is it a way to keep fossil fuels in the ground by creating a de facto drilling ban?

“There’s battle lines being drawn; no one’s right if everybody’s wrong” – Stephen Stills, 1966. Fifty-two years after the famous Buffalo Springfield song hit the radio, that lyric accurately describes the political atmosphere in Colorado this fall, in which the keep-it-in-the-ground movement is going up against the oil and gas industry in the nation’s seventh largest oil producing state.

Setback proponents square off against the oil and gas industry in television panel debate

Last week in Denver at a taping of the Aaron Harber television show entitled “Your Decision: 2018,” the two sides squared off.

Harber and his show’s producer had brought together a mix of players on a panel to discuss pros and cons of Proposition 112.

Colorado’s Damaging Setbacks: Six Weeks Will Tell the Tale - Oil & Gas 360

Taping the Aaron Harber Show “Your Decision 2018” – Proposition 112 – 2,500-foot mandatory setback for new Oil and Gas development in Colorado. Harber is on far right side of stage.

Fulltime volunteer Anne Lee Foster joined Heidi Henkel, founder of Broomfield Moms Active Community, and state Representative Joseph A. Salazar on the left side of the panel. They represented Colorado Rising, one of several organizations working to pass Proposition 112.

Seated on the right were three representatives from the oil and gas industry in Colorado—Tracee Bentley, executive director of the Colorado Petroleum Council, Charles (Chip) Rimer, SVP U.S. onshore for Noble Energy (ticker: NBL), and Craig Rasmussen, VP, SRC Energy (ticker: SRCI). Both energy companies have significant assets that they are drilling and developing in the Wattenberg field in Weld County.

Aaron Harber was the moderator for the discussion.

Harber asked Foster to define vulnerable areas and how the proponents of Proposition 112 came up with 2,500 feet as the correct number for a setback for oil and gas activity. She said “anywhere where our families gather” are vulnerable areas. She said that 2,500 feet is the standard evacuation distance for firefighters and within that area most negative health impacts happen. Salazar added that “farmworkers had to rise up against industries who were poisoning our food and water.”

Bentley said that the 2,500-foot setback is an effective ban on drilling disguised as a citizen health initiative. Rasmussen agreed it was chosen as a ban in order “to shut down this industry.” None of the proponents countered the idea directly.

Colorado’s Damaging Setbacks: Six Weeks Will Tell the Tale - Oil & Gas 360

Panelists debate Proposition 112 on the Aaron Harber Show – Proponents (from far left): representing Colorado Rising – Anne Lee Foster, Heidi Henkel, state Representative Joseph A. Salazar. On the right side of the panel, representing the Oil & Gas industry – Tracee Bentley, executive director of the Colorado Petroleum Council, Charles (Chip) Rimer, SVP U.S. Onshore for Noble Energy, and Craig Rasmussen, vice president, SRC Energy.

Foster said that the intent was to establish a “floor of protection” based on scientific studies. She said Boulder County Open Space spent billions on open space to stop toxic activity. She said it was “something that’s been outlined by science.”

Henkel said that the industry has grown too much, that it’s gotten too big in a short amount of time. “It’s obscene,” she said.

Foster referenced a Delphi Institute study that called for larger setbacks for oil and gas. Bentley called the study and other research quoted by Foster and Henkel into question and reiterated that the COGCC already has “the strongest air rules of anywhere else in the country.”

Henkel countered with an anecdote about a stay-at-home mom who watched nearby oil operations and reported “venting going on” to the COGCC. She said the American Lung Association “gives the Front Range an ‘F’” for air quality, and that according to NOAA, 40%-50% of that is from oil and gas activity.

Bentley itemized the severance and production taxes oil companies are paying in Colorado, especially in Weld County, and Salazar said that “the idea that [oil companies] pay their fair share is ridiculous.” He said that this initiative “balances out” the situation.

Referencing comments from the proponents about lack of enforcing the rules against oil and gas companies, Harber injected that as far as enforcement, “you can elect a new attorney general to enforce the rules better.”

Salazar countered with, “Or Aaron you have citizen led initiatives that finally stand up to the oil and gas industry.” Henkel said there have been “years and years and years of fighting against big industry.” Harber said that just because an industry is big, that size alone doesn’t make it ‘bad’.

Rimer defended the safety of the industry, giving examples of how oil and gas companies have had generations of their own family members working at wellsites with no negative health effects.

The show is scheduled to be aired Sunday Oct. 7 at 11:00 a.m. and 8:00 p.m. Mountain Time. Harber said it will air on Channel 3 on both satellite networks, on Comcast and on broadcast TV in Colorado.

The editorial board of The Wall Street Journal published a recent editorial that took a close look at who and what is behind Colorado’s Proposition 112.

“Colorado Rising claims this new effort was ‘started by local people and grassroots groups across the state.’ That’s false modesty,” the Journal editorial board said of the claim. “Spokeswoman Anne Lee Foster admitted that Food and Water Watch and 350.org, both national green groups, had given nearly $250,000 to the effort. The Sierra Club, Greenpeace, the Center for Biological Diversity and Earth Guardians have endorsed Prop. 112,” the Journal reported.

The Journal editors predict that if Proposition 112 passes in Colorado, the same de facto bans on energy production will migrate to other states.

In mid-September the Denver Business Journal ran a non-scientific poll on its website asking visitors their preference on having a bigger well setback “from homes.” Results from almost 1,200 voters in the casual poll were as follows:

Colorado’s Damaging Setbacks: Six Weeks Will Tell the Tale

Graph: The Denver Business Journal.






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