Colorado oil producers rise as voters reject drilling limits

A $42 million battle over drilling in Colorado ended in a victory for Anadarko Petroleum Corp., Noble Energy Inc. and other D-J Basin explorers. Voters on Tuesday rejected a plan to force oil and gas development further away from residential and environmentally “sensitive” areas, illustrating the industry’s influence in a state that is producing more crude than ever before. Proposition 112, which would have curbed drilling on more than half of surface land, failed with 57.5 percent voting to reject and 42.5 percent voting to approve. Oil and gas companies raised more than $41 million to defeat the measure, compared with just $1.3 million gathered by proponents.

Other companies poised to benefit from the outcome include BP Plc, Extraction Oil & Gas Inc., PDC Energy Inc., SRC Energy Inc., HighPoint Resources Corp., and Bonanza Creek Energy Inc. Anadarko Petroleum Corp., Noble Energy Inc. and other companies exploring for oil and natural gas in Colorado jumped in stock market trading Wednesday after voters rejected a plan that sought to limit their ability to drill in the state. The push to limit development in the Rocky Mountain state comes as oil production soars to record highs, driven by activity in the prolific D-J Basin just north of Denver.

As of August, Colorado output reached 477,000 barrels a day, leading the state to overtake California and become the fifth largest producer in the nation. But the boom’s proximity to Denver’s suburbs has raised concerns about health and safety, especially after an Anadarko gas line explosion last year killed two people and leveled a home. Proposition 112 was voted down with 57% of ballots cast against the measure. It would have forced oil and gas development further away from residential and environmentally “sensitive” areas, curbing drilling across more than half of Colorado. Though the measure failed at the ballot, Colorado’s legislature may take action early next year to further regulate the industry.

House Majority Leader KC Becker, a Democrat representing Boulder county who endorsed Proposition 112, has said the statehouse will consider legislation tackling funding for orphan wells, air and water monitoring, greater local control over siting and potentially a setback from infrastructure. The battle over the proposition illustrated the industry’s influence in a state that’s producing more crude than ever, driven by activity in the prolific DJ basin just north of Denver.

“We’ll push harder to get something done during the first half of the session” which runs from January to May, Becker said in October. “No one will be perfectly happy. What we want to get done is turn down the volume on this whole thing and address people’s basic concerns.” Colorado voters rejected a ballot measure Tuesday that would have imposed aggressive new restrictions on where oil and natural gas companies could drill and frack. Drillers would have had to be at least 2,500 feet away from homes, businesses and other places deemed sensitive, more than double the current setback. It likely would have put large portions of the state off-limits to oil and gas development.

The failure of Proposition 112 is a major victory for drillers in the Centennial State, which ranks No. 6 in the country in both oil and natural gas production. Energy extraction and production contributed about $13.1 billion to Colorado’s economy in 2017, or about 4.3% of the state’s total gross domestic product. Opponents, led largely by the industry, had put at least $20 million into the campaigns to defeat it. Democratic gubernatorial candidate Rep. Jared Polis, who won on Tuesday, and current governor John Hickenlooper (D) joined the GOP in opposition to it. The industry argued that around 95 percent of the state would be closed to drilling, decimating the oil and gas sector there.

Oil and gas companies raised more than $41 million to defeat the proposal, compared with just $1.3 million amassed by its supporters. Supporters argued that state officials have failed in their duties to protect residents in the drilling-heavy Front Range from the impacts of oil and gas, including air pollution, and that a ballot measure is the only way to ensure the protections. The initiative’s backers also dispute opponents’ estimates of how much land would have been off-limits, saying that existing oil and gas wells would still be producing, and that techniques like horizontal drilling can greatly increase the reserves that can be recovered. Oil and gas companies with operations in Colorado are seeing their shares jump after voters rejected a ballot proposal that would have placed tough restrictions on drilling in the Centennial State.

The vote lifts a threat that hung over some energy stocks since early August, when supporters gathered enough signatures to get the measure on the ballot. Colorado’s proposition 112 would have prohibited energy companies from drilling within about half a mile from homes, schools, businesses and water sources. The measure would have cut the state’s projected oil and gas output roughly in half by 2023, according to an estimate by S&P Global Platts Analytics.

Shares of Bonanza Creek Energy and Extraction Oil & Gas, two drillers that produce solely from Colorado’s Wattenberg Field, surged about 9.5 percent and 13.5 percent, respectively. Shares of PDC Energy, another Wattenberg player, were up nearly 8 percent shortly after the opening bell on Wednesday. Shares of more diversified drillers with a footprint in Colorado were also higher. Anadarko Petroleum’s shares rose 6.5 percent in premarket trading, while Noble Energy’s stock price jumped nearly 4 percent. Anadarko’s stock has fallen 20% in that time, SRC Energy Inc. 35 percent and Extraction Oil & Gas Inc. 43%, analysts at Houston-based Tudor Pickering Holt & Co. said in a note.

While Colorado voters rejected Proposition 112, they made Democratic Jared Polis their new governor. Polis campaigned on generating 100 percent of Colorado’s electric power from renewable energy sources by 2040. Coloradans rejected a ballot initiative that would have required new oil and gas projects to be set back at least 2,500 feet from occupied buildings. The measure – known as Proposition 112 and supported by environmentalists – would have marked a major change from the state’s current limits: 500 feet from homes and 1,000 feet from schools. On Wednesday, Anadarko rose 7.8% at 10:03 a.m. in New York while Noble gained as much as 7.1%; Extraction climbed as much as 19%; PDC Energy Inc. jumped 14%; SRC gained 20%; HighPoint Resources Corp. rose 24%; and Bonanza Creek Energy Inc.

Voters also said no to Amendment 74. That measure would have changed the state constitution to let property owners sue local governments over regulations, such as new drilling rules, if those measures lowered property values or reduced revenue for landowners. As sociologists who have researched oil and gas drilling in the communities that host it for the past seven years, we think that local governments and Coloradans need to have more say over where drilling occurs. To us, given the concerns we’ve heard from homeowners in our research, the defeat of the fracking measure demonstrates the industry’s economic power and political clout.

Big oil and gas companies like Anadarko Petroleum Corp., Noble Energy Inc. and PDC Energy heavily backed efforts to defeat the anti-fracking measure and joined forces with the Colorado Farm Bureau, which represents farmers, ranchers and other agricultural interests, to support the amendment. The community-based organizations that got Proposition 112 on the ballot spent about US$1.6 million on this campaign, while the opposition’s budget topped $31 million. We need to work together to eliminate, to the extent possible, this two-year cycle that increasingly hurts economic stability,” Walker said.

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