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Will Colorado deal the shale oil boom a blow?

Colorado's flourishing oil industry could be dealt a powerful blow on Tuesday by voters worried about the sa...

Posted: Nov 5, 2018 9:59 PM
Updated: Nov 5, 2018 9:59 PM

Colorado's flourishing oil industry could be dealt a powerful blow on Tuesday by voters worried about the safety and environmental side effects of the shale boom.

Proposition 112 calls for banning oil and gas companies from drilling any wells within 2,500 feet of occupied buildings, water sources and other "vulnerable" areas.

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If approved, the ballot question would eliminate future drilling locations in a chunk of the surging Denver-Julesburg, or DJ, basin in Colorado, one of the nation's largest oil-producing states. Much of the Colorado land held by oil companies like Anadarko Petroleum (APC) and Noble Energy (NBL) would suddenly be off limits to new drilling.

"The long-term impact of Proposition 112 on Colorado's oil and gas industry would be dramatic," Artem Abramov, head of shale research at Rystad Energy, wrote in a recent report.

No wonder the oil and gas industry has spent more than $30 million to defeat the ballot question.

'Scary' for companies

There has been limited public polling on Proposition 112, which has received the backing of Vermont Senator Bernie Sanders, an independent, and actor Leonardo DiCaprio.

A University of Colorado online poll showed narrow support for the ballot question that was barely within the margin of error. A mid-October poll by Height Capital Markets found that 43% of respondents support the measure, while 47% oppose. Height Capital sees a 20% chance of Proposition 112 passing.

"It's going to be tight. It's kind of scary for the companies," said Katie Bays, an energy analyst at Height Capital Markets.

Even though Texas and North Dakota get most of the attention, Colorado's oil industry is soaring thanks to the shale revolution.

The state's production has quintupled over the past decade to a record-high 477,000 barrels a day as of August, according to federal government stats. Colorado only ranks behind Texas, the Gulf of Mexico, North Dakota, New Mexico and Oklahoma in terms of oil production.

Technological advances have opened access to oil resources that were previously trapped beneath the ground. Breakeven prices in the DJ basin have plunged from $80 a barrel in 2010-2011 to as low as $30 today, according to Rystad Energy.

The state's oil and gas industry employs more than 100,000 workers, according to the Colorado Oil & Gas Association.

Oil output could be cut by 54%

But now environmental groups, led by Colorado Rising, are pushing to rein in the industry. They argue the current setback distance of 500 feet from homes and 1,000 feet from schools is not strong enough.

"I support Proposition 112 because it keeps our communities safe from the many serious dangers of drilling and fracking near homes, schools, hospitals, parks and water sources," Julia Williams, volunteer coordinator at climate group 350 Colorado, said in an email.

Proposition 112 would have a dramatic impact on some companies' Colorado business. Anadarko Petroleum, Extraction Oil & Gas (XOG) and PDC Energy (PDCE) have more than 90% of their acreage within the buffer zone that would be impacted, according to Rystad.

S&P Global Platts Analytics estimates that Proposition 112 would curtail oil production by 54% within five years. And more than three-quarters of Weld County, the production center of the DJ basin, would be rendered off limits to new oil and gas development, S&P said.

"It basically says we're trying to run oil and gas out of the state of Colorado," said Jeff Bush, president of CSI Recruiting, a Denver-based oil and gas recruiting firm.

Bush said that his firm would be "greatly impacted" by Proposition 112, which he described as "over-the-top."

Anadarko warns of a shift

Oil companies have been racing to get approval to drill in Colorado ahead of the vote. There were 200 more drilling permits granted in Weld County in the third quarter of this year compared to the second quarter, according to Rystad.

Anadarko Petroleum warned last week that Proposition 112 might change how the company allocates capital in 2019.

"Regardless of what happens, we feel confident we can continue to deliver our expected 2019 result given the flexibility of our portfolio," CEO R.A. Walker told analysts.

The company did not respond to a request for comment.

The Colorado Oil & Gas Association warned that Proposition 112 could "cripple" Colorado by costing the state 147,800 jobs.

"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," Dan Haley, CEO of the industry group, said in a statement released after the proposition was announced.

What about 2020?

If Proposition 112 passes, its impact would not be felt immediately. The major oil developers have a year or two worth of permits for projects that would still be allowed to go forward. However, Rystad estimates that DJ oil production would peak in early 2021 and fall below current levels by 2023-2024 if the measure is successful.

Even if Big Oil wins on Tuesday, a close vote could force the industry to find a compromise with Denver to restore confidence among shaken investors. Otherwise they run the risk of a similar proposal returning in two years when Democratic turnout will likely be even higher.

"The cards may fall differently in 2020 when Donald Trump is on the ballot again," said Bays, the Height Capital analyst.

Mississippi Coronavirus Cases

Data is updated nightly.

Cases: 331863

Reported Deaths: 7494
CountyCasesDeaths
DeSoto22855279
Hinds22625437
Harrison19462326
Rankin14765286
Jackson14233251
Madison10658227
Lee10398178
Jones8713169
Forrest8164157
Lauderdale7528243
Lowndes6761150
Lamar665988
Lafayette6446124
Washington5497139
Bolivar4907134
Pearl River4889149
Oktibbeha476898
Panola4719112
Marshall4648106
Warren4612125
Pontotoc438873
Monroe4243137
Union424379
Neshoba4179180
Lincoln4088115
Hancock402788
Leflore3562125
Pike3511111
Tate348988
Alcorn343174
Sunflower342293
Adams331987
Yazoo330573
Scott330175
Simpson313690
Copiah311467
Itawamba309580
Coahoma308285
Tippah298368
Prentiss292563
Covington280183
Marion278980
Leake277975
Wayne269942
Grenada265688
George259851
Newton256064
Tishomingo235769
Winston235084
Jasper225748
Attala220373
Chickasaw215960
Stone209137
Holmes194974
Clay191554
Tallahatchie181542
Clarke181480
Calhoun177332
Smith175334
Yalobusha169240
Walthall140448
Lawrence137026
Greene134934
Amite131843
Noxubee131135
Perry130838
Montgomery130644
Carroll124531
Webster116732
Jefferson Davis112934
Tunica110827
Benton104425
Claiborne104231
Kemper100329
Humphreys99033
Franklin85923
Quitman83519
Choctaw80919
Wilkinson73232
Jefferson69028
Sharkey51518
Issaquena1696
Unassigned00

Alabama Coronavirus Cases

Cases: 565510

Reported Deaths: 11468
CountyCasesDeaths
Jefferson828061584
Mobile44938853
Madison36534532
Tuscaloosa26589465
Shelby26409255
Montgomery25598623
Baldwin23319324
Lee16691179
Calhoun15030332
Morgan14877288
Etowah14563368
Marshall12723235
Houston11302292
Elmore10576217
St. Clair10449251
Limestone10420158
Cullman10198204
Lauderdale9883253
DeKalb9226191
Talladega8705187
Walker7545286
Autauga7388113
Jackson7216117
Blount7147139
Colbert6522142
Coffee5962131
Dale5224117
Russell463942
Chilton4603117
Covington4502125
Franklin439781
Tallapoosa4343156
Escambia414782
Chambers3813124
Dallas3674163
Clarke361562
Marion3354106
Pike323179
Lawrence3176101
Winston289672
Bibb276165
Geneva267383
Marengo257367
Barbour241860
Pickens238862
Butler233571
Hale230578
Fayette223863
Henry203345
Cherokee192347
Randolph192244
Monroe190241
Washington174539
Macon167252
Crenshaw163457
Clay161859
Cleburne158445
Lamar149138
Lowndes143854
Wilcox128431
Bullock125342
Conecuh117730
Coosa115229
Perry109628
Sumter107532
Greene95935
Choctaw63125
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