Proposition 112 Oil & Gas Setbacks: 7 Big Questions Answered

COLORADO – By Lars Gesing for The Colorado Independent. It is one of the most contentious ballot measures this fall, with opponents spending millions to defeat it: Proposition 112 would set back new oil and gas development 2,500 feet from a “vulnerable” structure, such as a home or school building, and it has voters scratching their heads over which of the purported “facts” in support or against the measure they can trust.

We looked into the evidence behind the seven big questions surrounding Proposition 112. Since much of the fight deals with the forecasted economic impact, definitive answers are hard to come by. But what we have found, in a nutshell, is that much of the billboard and 30-second ad campaigns against and in support of the measure lack critical context.

Our answers to these seven questions aim to provide that context. They are based on an extensive review of data and studies as well as nearly a dozen interviews with economists, law professionals, oil and gas development analysts and conservationists. So, buckle in.

1. What is Proposition 112 about and who are the two camps in support and opposition?

The full text of the ballot measure reads as follows:

“Shall there be a change to the Colorado Revised Statutes concerning a statewide minimum distance requirement for new oil and gas development, and, in connection therewith, changing existing distance requirements to require that any new oil and gas development be located at least 2,500 feet from any structure intended for human occupancy and any other area designated by the measure, the state, or a local government and authorizing the state or a local government to increase the minimum distance requirement?”

As the measure’s authors point out, Proposition 112 expands on existing setback requirements for oil and gas developments adopted in August 2013. Those regulations establish a 500-foot setback from any building unit and at least a 1000-foot setback from any “high occupancy” building unit, such as a school, for example.

But since 2013, the conflict between oil and gas developers and residents and communities worried about hydraulic fracturing — fracking — has escalated as more studies show potential adverse health impacts. Boulder and Longmont voters went as far as trying to pass complete bans on fracking. But state law allows such development, and the Colorado Supreme Court in 2016 struck down the attempted bans. If Proposition 112 were to pass, it would supersede existing law and local jurisdictions would gain more authority to restrict oil and gas development.

Proposition 112 was put on the ballot through a grassroots effort organized by the issue group Colorado Rising. Its backers are primarily focused on what they call “lax regulations” and public health. Their initiative is based — in part — on the more than 2,200 resident complaints filed with the Colorado Oil and Gas Conservation Commission [COGCC] since January 2015 over a range of fracking-related issues, from odors to noise and air quality.

Colorado Rising has the support of national environmental organizations including Greenpeace and 350.org, and the latest campaign finance records filed with the state show it so far has received a total of roughly $800,000 in contributions. It currently has $130,500 to spend in the final weeks before Election Day.

Those numbers pale in comparison to Protect Colorado, the oil and gas industry-backed issue committee working to defeat Proposition 112. Protect Colorado has received more than $34 million in contributions — and after already spending $29 million still has upward of $5 million cash on hand to continue its PR blitz.

The industry cites numbers by state regulators and business groups that claim Proposition 112’s passage would devastate its business, endangering 147,000 Colorado jobs, and forfeiting $1.1 billion annually in state and local tax revenue by 2030.

Gov. John Hickenlooper as well as both major party candidates running to replace him, Republican Walker Stapleton and Democrat Jared Polis, oppose Proposition 112 — despite the latter’s full-throated support for similar measures back in 2014. The Denver Post editorial board also came out against the measure, arguing its passage equates to “a ban on oil and gas.”

2. If passed, would Proposition 112 really equate to a ban on new development of oil and gas in the state?

The chief source for this argument is an analysis by the COGCC, the state body charged with both regulating and promoting the oil and gas industry. The study concludes that 85 percent of Colorado’s total non-federal land surface would be off limits for new oil and gas development if Proposition 112 were to pass. That restriction would reach 94 percent of non-federal land in the state’s top five oil and gas producing counties, the COGCC reported.

Critics point out that the analysis conflated existing wells with new development. And while the existing wells would eventually run dry and any new development would be subject to the new law, until then they would be grandfathered in. So, for example, untouched by 112’s passage would be many of the roughly 23,600 active wells documented in Weld County in an April 2018 report by Troy Swain, the Weld County Oil & Gas Liaison. A visual comparison of his map with the map produced in a report by the anti-112 business group Common Sense Policy Roundtable shows a significant amount of those 23,000-plus wells currently fall within the proposed setback area boundaries.

A predicted rise in oil prices in the coming years also could help offset some of the losses for price-per-barrel-dependent producers. But, given the volatility of oil prices, it also means the industry would want to ramp up production as prices rise — and the numbers show that Proposition 112 at the very least would put a significant dent in their ability to (quickly) do so.
Proposition 112’s restrictions exclude federal land, and that likely would mean the industry would turn greater focus on public lands, conservationists say. As is currently the case, oil and gas companies must lease federal parcels and then apply for permits to drill from the federal government.

Protect Colorado and other 112 critics suggest that if the industry is cornered into developing primarily on federal land in the state, Coloradans would still lose say in where development happens in this state. But, unless the process changes, permits still remain subject to a sometimes lengthy environmental review and several rounds of public feedback, not to mention lawsuits as is the case with an ongoing legal challenge to oil and gas development lease sales in Colorado and Utah.

Still, the Trump administration and Interior Secretary Ryan Zinke have placed a premium on processing these oil and gas development permits much more willingly and quickly than in the past, said Justin Pidot, who served as the Deputy Solicitor for Land Resources for the Department of the Interior during the Obama administration. Pidot now is an Environmental and Natural Resources Law professor at the University of Denver’s Sturm College of Law.

A vast majority of public lands that are technically available for drilling are not developed yet. (Certain public lands, such as national parks or Congressionally-designated wilderness areas are totally off limits.) Alison Gallensky from the conservation organization Rocky Mountain Wild said an analysis she performed showed that in Colorado, 17 out of roughly 30 million acres of public lands managed by Bureau of Land Management or the U.S. Forest Service are currently available to be leased, while two million acres have already been leased.

Compounding industry concern is the wording of the measure. While the current standard of an “occupied housing unit” is relatively specific, Prop. 112’s authors define a vulnerable structure — from which the 2,500 feet setback would take effect — much more loosely. The list of places they deem vulnerable includes “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.”

Law professor Pidot said he expects local governments would take advantage of the leeway to designate additional areas as “vulnerable.”

“In jurisdictions like Boulder, where we have seen a lot of desire to exclude oil and gas development, I am sure they would use that provision to seek ways to restrict or even entirely exclude oil and gas development because it does give a lot of discretion,” Pidot said.

3. Could horizontal drilling be the answer to the conflict behind Proposition 112?

Colorado Independent reader John Fielder posed a version of this question to us via Ask the Indy. When we reached out to Fielder, an acclaimed landscape photographer, he said that while he is not directly impacted by oil-and-gas activity near his home, “global warming impacts my livelihood and my recreation pretty much every day of my life.” He said, too, that it saddens him to think that because of climate change, he could not see encouraging his grandchildren to have their own children.

The short answer to this question: It’s not that simple.

For context: Horizontal drilling is just what it sounds like. Rather than developers drilling straight down into the earth to get to the sub-surface reservoir, they drill at an angle — a technique that can open up formerly unproductive rock units that, for example, could not be penetrated vertically because of their geological features.

In the context of Proposition 112, the use of horizontal drilling faces several obstacles.
First of all, the well pad from which the horizontal drilling would be done would still have to be placed outside the proposed 2,500 foot setback area.

As it is, nearly all drilling in Colorado is done horizontally, said Will Fleckenstein, director of Strategic Partnerships and Enterprises in the School of Mines Petroleum Engineering department. But, he added, there are both financial and structural limitations to how to employ such drilling, also called lateral drilling.

Fleckenstein explained that developers can’t just drill straight down into the ground and then simply add another section of pipe at a 90-degree angle. “Pipe does not bend around a corner,” he said. Instead, developers have to drill at an angle first before the perfectly horizontal section can begin. That extra distance away from the optimal starting point would cost extra money, cutting into profits. Oil and gas developers also like to drill near existing infrastructure such as roads to save on construction costs. And then there is the problem that a company might not have all the required mineral rights to reach the desired location.

Constraints aside, horizontal drilling could present a path forward. The German Research Center for Geosciences referenced a 2010 article from the American Oil and Gas Reporter, which led the researchers to the conclusion that because multiple horizontal wells can be drilled from a single well pad, fewer well pads are necessary and they can be spaced out more. The bottom line: Less available space would put the onus on the industry to increase efficiency and reach in horizontal drilling.

Peter Maniloff, assistant professor in the Economics and Business Division at the School of Mines, offers perhaps the most concrete assessment of how horizontal drilling can mitigate proposed restrictions in 112.

Maniloff looked at what 112’s impact would be if oil and gas developers drilled horizontally for at least one mile. His findings: Horizontal drilling — though costlier and less convenient for producers — would have the potential to cut the areas off limits from 85 percent of non-federal land to 58 percent.
While technological strides will certainly help make more sub-surface areas accessible, Maniloff said, it would not open up the entire area.

The western end of the Denver-Julesburg basin is the most productive, he said, but it is also the most densely populated. “Not all subsurface is created equal, and we are largely talking about setting the good parts off limits,” Maniloff said.

4. Would hundreds of thousands of Coloradans lose their jobs?

Opponents of Prop. 112 regularly cite the Common Sense Policy Roundtable study to argue that an estimated 147,000 Coloradans would lose their jobs over the next 11 years, with about a third of those layoffs happening as early as next year. The study says 77 percent of those jobs would not even be in the oil and gas industry itself but in associated sectors as well as those counting on the wages of industry workers as customers — a chain-reaction that economists call the multiplier effect.

The average annual wages for jobs in the oil and gas sector exceeded $100,000, according to a 2016 study from the University of Colorado’s Leeds School of Business. The team of scientists, spearheaded by Richard Wobbekind, a leading economist in the state for three decades, found that in 2011, the oil and gas industry contributed a total of $3.8 billion in employee income to Colorado households.

If people have less money to spend, local businesses in energy industry-dependent towns such as Greeley will struggle, DU economist Strauss said.

U.S. Bureau of Labor statistics show that direct employment in mining and logging, which includes the oil and gas sector, make up only about 30,400 jobs — roughly one percent of Colorado’s workforce. In comparison: The state’s growing recreation and tourism industry employs more than 350,000 people.

The ripple effect will be felt on Main Street, but the intensity of those effects might be overstated, said School of Mines economist Ian Lange, who reviewed the Common Sense Policy Roundtable report before its release.

Unlike 30 or 40 years ago, the state’s economy has grown more diverse and less reliant on the energy sector.

Case in point: When the oil price dropped in 2014 and 2015, Colorado’s economy overall continued to hum along, as the 9News Truth Test recently pointed out. But that wasn’t the case everywhere: Weld County, for example, got hit hard by the downturn and just recently bounced back to ranking among the top big counties in the country for job growth.

Currently, Colorado’s unemployment rate of 2.9 percent as of August 2018 is among the lowest in the nation. In that month alone, the economy added 1,500 jobs.

Less drilling means fewer jobs, but some of that capital and labor is then “freed up to do something else,” Lange said. “Denver has such a dynamic economy, somebody else is going to pick up those resources whereas in the ’80s we might have gone idle.”

He pointed out that smaller, more local oil and gas developers would be disproportionately hurt. Bigger players would just move resources to other places.

It is that transient nature of working on oil and gas wells that makes calculating the real economic impact so difficult. When one well is drilled, a worker will likely stay with the company but move on to another site. That site might not necessarily be near home — or even in the state of Colorado at all, since big corporations such as Noble Energy operate wells in multiple states.

Prop. 112 supporters point back to the active wells that will remain active if the measure passes, arguing that workers would still be necessary to operate wells already developed. They reference a U.S. Department of Energy study, which highlights 13,000 existing oil jobs and 9,800 existing natural gas jobs in Colorado.

And with more than 5.6 million people living in Colorado as well as an annual growth rate of 1.85 percent, proponents of Proposition 112 argue that even in the unlikely event of all oil and gas well workers moving out of state if the measure passed, their leaving would have fairly little impact compared to the nearly 100,000 people who move to the state every year.

READ MORE at The Colorado Independent

Image: Silver Creek Elementary, in Thornton. Oil and gas operations are 350 feet away from the playground. (Photo by Ted Wood/The Story Group)