EnerCom Analytics has published its analysis of Colorado’s Proposition 112, the ballot measure involving expanded setbacks for oil and gas activities. The analysis covers key topics like the locations that would be affected, the impact on anticipated development plans, company response options, and current investor sentiment. The complimentary report can be downloaded here.

Oil and gas companies in Colorado are facing an existential threat in Proposition 112, which will impose larger setback requirements on oil and gas activity in the state. With the vote approaching rapidly and polling indicating a nearly even level of support and opposition, firms operating and investing in Colorado cannot ignore the proposition.

Proposition 112 requires all new oil and gas development be located at least 2,500 feet 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.”

This broad definition is open-ended, empowering local governments to set a wide range of areas as off-limits to new development. The measure also allows local governments to enact larger setbacks, leaving open the possibility of outright bans through massive setback requirements. The measure does not apply to federal land, however.

Current laws impose several different setback requirements, 1,000 feet from high occupancy buildings, 500 feet from most occupied buildings, and 350 feet from “Designated Outside Activity Areas,” the first five locations listed as vulnerable areas in Proposition 112. All are well below 2,500 feet, though, and there are no setbacks from bodies of water. This measure, then, entails a major expansion of setbacks.

Key Points:

  • Proposition 112 bans drilling on vast majority of non-federal land
  • Key activity centers would be heavily impacted by the measure
  • E&P companies are attempting to secure continued drilling opportunities by getting as many permits as possible
  • Approved permits will be grandfathered in, permits awaiting approval may or may not
  • Permit inventories give public DJ companies 1.5-5 years of drilling inventory at current rates
  • Oil and gas companies in Colorado have hard choices to make if 112 passes
  • Equity markets are cautious, and are pricing in significant risk
  • Political risk makes investors reluctant to put capital into Colorado
  • Amendment 74 may provide payday for impacted companies

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