Oil And Gas Setback Ballot Initiative - A Major Setback?

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Summary

Colorado ballot proposals for the fall 2016 election seek to expand existing setbacks to oil and gas wells from 500 feet to 2,500 feet.

The addition of intermittent water resources to the setback classification makes available drilling acreage in the DJ Basin drop precipitously.

One DJ producer has appropriately called these proposals ‘a frac ban in disguise’.

Since BTU Analytics is based in Denver, several oil and gas setback ballot initiatives have caught our eye that are currently being circulated for signatures as part of the initiative process where citizens can amend and propose new state level legislation. Of course, the Colorado Front Range holds the majority of the state's 5.3 million person population and also has one of the more competitive oil and gas plays in the form of the DJ Basin. As it relates to energy infrastructure development the NIMBY (not in my backyard) paradigm has long been used however it seems in the US a new emerging paradigm needs watching - BANANA (build absolutely nothing anywhere near anyone). Colorado ballot proposal #76 proposes to broadly expand on the existing 2013 500 ft setback rule by increasing the setback to 2,500 ft and expanding setback locations to not only residential structures but parks, open spaces, all water resources, playgrounds and sports fields.

The DJ Basin is located just north of Denver and due to prolific production, wellhead economics have driven oil production from less than 100 MBbl/d in 2010 to over 350 MBbl/d today with a forecast of almost doubling current volumes by 2021 despite the current commodity price correction - as shown below.

If we look more closely at Weld County attributes such as existing residential parcels (shown in black below), water resources (shown in blue below), existing wells (yellow for horizontal and blue for vertical) and the green boundary as defined by PDC Energy as the DJ Basin inner core and middle core. As the map shows, there are many intersecting attributes. Also we should mention the town of Greeley, CO lies squarely in the middle of the core DJ Basin as shown by the density of black residential parcels - see slide below.

There are multiple ballot proposals out for signature in Colorado trying to limit oil and gas development across the state. Ballot Initiative #76 is expansive however measure #77 is even more severe as it proposes a 4,000 ft setback - click here to see a COGA overview of the ballot proposals. The question we wanted to try to answer is how much available development acreage disappears if Measure #76 gets on the ballot in Fall 2016 and is passed?

One E&P representative recently described Measure #76 as a 'fracking ban in disguise'. BTU Analytics created the map below based on some basic assumptions to show how much development acreage would fall into the 2,500 set back requirement.

The answer is a lot. Pink in the map above shows the 2,500 ft setback for residential parcels and yellow shows the 2,500 ft setback to all water resources. A 2,500 foot setback would be a major blow for DJ Basin development (and Colorado economic activity) going forward. The question is, will Colorado slip on a BANANA this fall?

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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