The 2018 midterm elections were among the most significant in recent memory. The newest crop of senators, representatives, governors and other officials are likely to shape the direction of local and national politics for years to come. In Colorado, however, one of the most important issues on the ballot wasn’t an elected office at all. According to many, Colorado Proposition 112 effectively put the future of Colorado’s oil and gas industry into the hands of voters. For now, at least, oil will continue to be a major part of the Centennial State’s economy.
The Battle Over Proposition 112
The oil and gas industry has come under withering criticism from some Colorado residents in recent years. Much of the charge has been led by the grassroots activist group Colorado Rising. Claiming that Colorado’s fracking industry poses serious health and environmental risks, the group has launched a variety of initiatives aimed at limiting and regulating drilling and development operations throughout the state.
Colorado Proposition 112, also known as the Oil and Gas Setback measure, was the culmination of the group’s efforts to curb the Colorado petroleum industry. The ballot initiative would have placed new statutory regulations on drilling operations, forcing companies to maintain a buffer zone of at least 2,500 feet between drill sites and occupied buildings or other designated areas. Supporters claimed this setback distance was essential to protecting the health and safety of Colorado residents. They pointed to studies suggesting that people who live within half a mile of fracking sites experience higher rates of illness and other health effects.
Opponents of the measure, however, saw something more sinister. Many opponents claimed that the measure would effectively kill off the Colorado oil industry. Under the proposed setback regulations, a staggering 85 percent of nonfederal state land would have been rendered off-limits to fracking operations. This includes a significant expanse of the booming Denver-Julesburg Basin. The Denver Basin is home to about 90 percent of new Colorado oilfield activity.
Unsurprisingly, Prop 112 proved to be a highly contentious issue. It also proved costly. Major players in the Colorado oil industry dumped vast sums of money into campaigns opposing the initiative, ultimately spending more than $41 million during the election season. In the end, the ballot measure was resoundingly defeated by nearly 300,000 votes across the state. Still, many view the proposition’s defeat as a temporary setback in a larger and longer-running war.
Further Battles Ahead
Despite the failure of Prop 112, environmentalists and fracking opponents still see reasons for optimism in the wake of the election. The Democratic Party – traditionally less supportive of oil and gas interests than Republicans – will soon take control of all branches of the Colorado government. This “trifecta” control gives the party more power to shape state policy than it’s had in decades. Some officials in the party are already eager to flex those political muscles on the issue of fracking.
One popular proposal is to shift more of the decision-making power to local governments by allowing communities to dictate setback distances, permit issuance, zoning regulations and other issues themselves. Under the current system, most of these decisions are made and enforced at the state level. The Colorado court system has consistently overruled drilling restrictions set at the local level in recent years in favor of more lax state-level regulations.
Many activists have also pushed for legislation addressing orphan wells and abandoned pipelines. This issue took on particular importance after a fatal home explosion in 2017 was caused by an abandoned flowline in the town of Firestone. Though there are no comprehensive records of orphan wells and abandoned pipelines, there are estimated to be many hundreds of orphan wells across Colorado in need of intervention. Some state officials have also pushed for legislation to ensure that future wells carry a greater financial assurance in order to cover potential remediation and reclamation costs.
The Bottom Line for Colorado Oil
The shale boom has completely revolutionized the oil and gas industry in the Centennial State. Colorado currently ranks seventh in the United States in oil production and fifth in natural gas. Colorado oilfield production generates around $31 billion for the state economy each year and employs an estimated 100,000 people across the region. Production has more than quintupled in the last decade alone and breakeven prices have fallen by more than half in the last few years.
Despite the failure of Prop 112, the future of Colorado oil remains something of an enigma. The Denver-Julesburg Basin, home to the biggest Colorado oilfield boom, remains a massive reserve for the state. Production is likely to continue growing rapidly, but there are reasons for concern among producers and their investors. A defeat in the 2018 midterm elections doesn’t guarantee that a similar ballot initiative won’t return again for the 2020 general election. In such a scenario, much higher turnout could conceivably change the outcome the second time around.
If stricter setback regulations eventually do come to pass, the impact on the petroleum industry is far from certain. One variable is that the amount of surface area available for drilling – about 15 percent of nonfederal land in the event of a 2,500-foot setback – doesn’t necessarily reflect the amount of subsurface area that could be reached. A recent analysis has suggested that horizontal drilling techniques could make about 42 percent of the subsurface available to producers. This would still have a substantial impact on the industry and its presence in the state economy, but it’s not the complete shutdown that is sometimes portrayed.
The Colorado oil and gas industry finds itself in something of a precarious position. The potential of the vast reserves underlying parts of the state is undeniable. The impact the shale revolution has had on the Colorado economy is also clear to see. However, despite falling short of the necessary votes, Prop 112 has shown that oil and gas producers in the state can never rest easy. The first battle is through, but the larger war is far from done.
