Colorado's Initiative 112: Overkill Setback Regs That Could Devastate the State's Oil & Gas Industry If It Passes

Colorado’s Initiative 112: Overkill Setback Regs That Could Devastate the State's Oil & Gas Industry If It Passes

Common state setback requirements for oil and gas facilities and equipment from dwellings are about 500ft as is the current requirement in Colorado. On the state ballot this year for voters to decide is a setback requirement of 2500 ft – 5 times the avg. This would put huge swaths, 50-60% of the state’s surface land mass, totally off limits. According to the Colorado Oil & Gas Conservation Commission it would put about 85% of the surface of non-federal lands off-limits. The proposed setback rules do not affect public lands, which cover about 35% of the state. Of course, resources appear where they appear regardless of land designations. Cities and towns have existing zoning laws that precludes oil and gas facilities. Landowner groups formed in some areas to influence the siting process as applicable. However, oil & gas companies have a need to consider well spacing and geology to optimize resource recovery.

Revenue and employment from the state’s considerable oil & gas industry would fall drastically. I can understand increasing the setback distances a little bit, even doubling them to 1000 ft but the 2500 ft rule is clearly overkill designed to destroy the industry. The Denver-Julesburg (DJ) Basin is home to lots of closely spaced wells and to much new housing and development which can justify some increase of setbacks. However, the 2500 ft proposal is far greater than typical even in other states where oil & gas development overlaps with populated and developing areas. The initiative would potentially put 78% of Weld County, the heart of the DJ Basin, off-limits and even more than that for the most economic areas. That would wipe out drilling by most E&Ps in the area.

Reasons for increased setbacks include air quality, possible water well impacts, noise, truck traffic, lights, even vibrations in some cases. The Colorado Department of Health recently concluded a study of the air quality impacts from oil & gas facilities and wells and found that they do not constitute a hazard. Water well impacts are not likely either. Noise, lights, and truck traffic can be mitigated.  

Personally, I do not think this is something that should be on a statewide ballot. For one, I am guessing the percentage of the state’s population that lives less than 1000 ft, even less than 2500 ft, from oil and gas production facilities is small compared to the state population. Most people live in towns and cities and so the issue by and large affects rural people exclusively. Yet the much greater number of unaffected people in cities get an equal vote. That does not seem fair. Most political, social, and environmental issues involve where to put the line between acceptable and unacceptable. New administrations are voted in and out and those lines often change. However, they usually do not change by leaps and bounds. If this initiative passes that will change.

The issue also affects landowners who want to drill on their property, potentially taking away some of their property rights to lease their minerals and benefit financially from wells drilled on their property.

If the initiative passes it will affect the 6-8% of Coloradans employed in oil and gas. It would affect taxes and fees the industry provides to local governments. One think tank predicted it could cost 150,000 jobs and cut state GDP by $218 billion over time. Former governor Bill Ritter, a Democrat, noted that Colorado has “the strongest set of regulations in any state in the country where oil and gas extraction is concerned and where hydraulic fracturing is concerned.” Current governor John Hickenlooper, also a Democrat, has long supported fracking as well as Colorado’s strong regulatory environment. He is also a geologist who knows about oil and gas. As Jude Clemente points out in the Forbes article referenced below stifling oil and gas development will mean less natural gas available to back up renewables and to mitigate climate change through replacing coal.

BTU Analytics, an energy market analysis firm based in Denver thinks there is an even chance the initiative will pass since the state has seen population increases, a younger demographic, and an overall move to the left politically. They also note that the proposal might well sound reasonable to a layman who doesn’t know much about oil and gas.

An article in the academic journal, Social Forces, interviewed 100 landowners about relations with the oil & gas industry focusing on things like lease terms and addressing of complaints. They concluded that the industry has the upper hand and increases what they called “procedural injustice.” They approached the subject from an environmental justice standpoint, apparently. However, I do know that industry does very often attempt to accommodate landowner concerns. Industry must consider optimization of their resources, which basically translates to efficiency of development, which maximizes profit and decreases environmental impact per energy unit produced. Geology, well-spacing, surface topography, and lease boundaries must be considered. As stated above many areas have landowner groups who develop their own lease terms and negotiate as a group so that terms are equal and no one gets disadvantaged by industry negotiators, typically landmen. I think the industry should have the upper hand since it is they who need to decide where to drill. Otherwise they might not drill at all and everybody loses. They can’t and won’t drill in spots where they are too far less than optimized.  

References:

Study Shows Oil & Gas Industry Wields ‘Meta Power’ But Colorado Residents are Fighting Back – by Mark Hand, in ThinkProgress, Oct. 5, 2018

Colorado’s Initiative 97 Unwisely Blocks Oil and Natural Gas Development – by Jude Clemente, in Forbes, Sept. 30, 2018

Making Heads and Tails of Proposition 112’s Chances of Passing – A Coin Flip? – by Tony Scott, BTU Analytics, Sept. 27, 2018

The Right to Resist or a Case of Injustice? Meta-Power in the Oil & Gas Fields (Abstract) – by Stephanie A. Malin, Tara Opsal, Tara O’Connor Shelley, and Peter Mandel Hall, in Social Forces, Sept. 21, 2018

DJ Basin: Is the Future Setback? – by Matt Hagerty, in BTU Analytics, July 17, 2018