Oil and gas companies that rely on fracking to increase production have just won a major political victory in Colorado.
Two initiatives that could have limited oil and gas exploration in the state will not appear on the state's ballot this fall. Supporters of the measures, which could have hurt producers such as Noble Energy Inc. (NYSE:NBL) and Anadarko Petroleum (NYSE:APC) by restricting fracking, backed down.
News stories indicate that the measures were withdrawn because of a political deal between Colorado's governor, John Hickenlooper, and U.S. Rep. Jared Polis. News reports earlier this year claimed Polis backed the measures, something that the Congressman's staff has denied in emails to Seeking Alpha.
Democrats Changing Mind on Fracking
Supporters of the initiatives, Amendments 88 and 89, had reportedly gathered enough signatures to get them on the state ballot. Instead of amending the state Constitution to limit fracking, Hickenlooper will form a taskforce that will propose new legislation to regulate the practice to the state legislature.
Polis and Hickenlooper are both Democrats who are facing reelection this fall. The two may have been afraid that the initiatives would have increased the turnout of Republicans and Independents and hurt their chances of reelection.
A number of other Colorado Democrats, including U.S. Senator Mark Udall, are facing tight reelection contests this fall. Energy policy is already a political hot potato in the state. Udall is running television advertisements accusing his opponent, U.S. Rep. Corey Gardner, of being a tool of "big oil."
Noble Energy Is the Big Winner
The real winner from the political settlement in Colorado is Noble Energy, which holds approximately 610,000 net acres in the DJ Basin in the north central region of the state. Noble's website indicates that the DJ represents one-third of its oil and gas volumes.
Noble produced 95 million barrels of oil in the basin in 2013 and had proven reserves there of 450 million barrels of oil. The company also owns acreage in another field that straddles the Colorado/Wyoming border.
The DJ Basin has certainly paid off for Noble; over the past year, the company's TTM revenue has risen from $3.73 billion in March 2013 to $4.514 billion in March 2014. The company also reported a TTM return equity ratio of 10.93%, up from 7.93% in June 2013.
Noble is also at the center of the fracking controversy in Colorado. Its operations in the DJ Basin, including its largest onshore field, the Wattenberg, are on the plains north of Denver. Residential development in that area has exploded in recent decades because of its proximity to the Denver metro area. The biggest opponents of fracking in Colorado have been suburban homeowners who objected to drilling and oil and gas wells in their neighborhoods.
The withdrawal of the ballot initiatives shows that political opposition may not be as big an obstacle to oil and gas production as we thought. That means the way could be open for more production in Colorado and bigger revenues for Noble Energy.
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