Report: Oil and Gas Setback Proposal Would Mean ‘Staggering’ $180 Billion Loss For Colorado
A study commissioned by the Colorado Alliance of Mineral and Royalty Owners (CAMRO) finds that implementing policies or ballot measures that would effectively ban oil and gas development in in one of Colorado’s most productive oil fields would strand a “staggering” $180 billion worth of resources and cost mineral rights owners as much as $26 billion.
“The biggest takeaway is the staggering dollar amount,” Colorado Alliance of Mineral and Royalty Owners (CAMRO) president, Neil Ray told Western Wire.
Initiative 97 is a proposed ballot measure that seeks to increase oil and gas operations setback requirements to 2,500 feet. The Colorado Oil and Gas Conservation Commission (COGCC), previously studied this back in 2016 when a similar ballot measure was looming.
With Initiative 97 nearly identical to the 2016 ballot measure, COGCC found that a 2,500 setback requirement would lead to the exclusion of 90 percent of new oil and gas development in the state.
The definition in both measures is expansive and subject to additional designations from the state legislature or a local governing body, such as county and municipal governments.
“‘Vulnerable areas’ means 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,” Initiative 97 continues.
The COGCC’s 2016 report found that the state’s top five producing counties would see anywhere from an 85 to 99.6 percent surface impact, effectively halting any new wells in those areas: Weld (85.0), Garfield (98.9), La Plata (99.6), Rio Blanco (99.2), and Las Animas counties (96.3).
At the beginning of 2018, Weld County alone contributed 90.4 percent of the state’s oil production and 39 percent of its natural gas production.
The ballot proposal would also likely initiate a long legal battle for the state.
“I think that you would see lawyers lining up for miles,” said Ray.
A group called Colorado Rising is behind the measure.
Don Phend, a mineral owner and expert in financial analysis, told Western Wire that he can determine damages in a post-ballot measure lawsuit scenario and this measure quickly wades into a legal quagmire.
“That’s where we’re getting into the concept of a taking because it just becomes impossible to drill minerals,” said Phend.
Ray expanded on Phend’s point, telling Western Wire, “Court cases show that if there is a regulatory taking where some regulation or law is passed that causes some property to be diminished in value or completely lose its value, there is deserved just compensation.”
The oil and gas industry in Colorado contributes $1.2 billion in public revenues, according to the report. Ray pointed to one of the many critical, publicly funded programs oil and gas tax revenue supports, education. “That money is supposed to go to schools in the state and that’s what it does here in Colorado,” Ray said.
The CAMRO report was conducted by Netherland, Sewell, & Associates, an oil and gas consulting firm that provides independent reserve reports and analysis for the petroleum and financial industries.
If Initiative 97 passes, funding for schools, fire prevention districts, flood prevention districts, and water, sewer and sanitation districts in communities across the state could be endangered
With an overall economic impact of $31.4 billion in the state, supporting more than 230,000 jobs and contributes $330 million in severance tax revenue, Phend says “the state could be liable for” those lost revenues should Initiative 97 win support in November.
“Imagine if all of that disappears,” said Ray.
The hard-hitting impact to mineral rights owners could not only hit the pockets of the state and taxpayers, but could wipe out a family’s future opportunities, or strip them of current financial ability to support their family.
“While we are not getting rich from our minerals, the extra funds each month were a God send in helping us care for our mother, who suffered from dementia. The peace and comfort we found from being able to provide our mom a safe and clean assisted living facility and, later, memory care facility was immeasurable. We would have experienced extreme financial and emotional hardship without the mineral rights that have been in our family for generations,” said Kathy Allen, a mineral owner who owns minerals in Weld, Yuma, and Montezuma counties, in a statement.
Many mineral rights owners earn modest annual payments, according to CAMRO.
Phend told Western Wire that, much like Allen, the average Colorado mineral owner earns less than $10,000 a year, and offered up examples about families using royalty payments to put their children through college.
A representative of the Colorado Farm Bureau (CFB) said the group holds similar sentiments, telling Denver7, “A number of our members benefit from being able to generate that kind of energy on their property.” CFB told the Denver Business Journal back in January that “the royalty checks often are crucial supplements to a farm’s income.”
For farmers and ranchers, this could pull an operation through a challenging season, and for others this could make or break other opportunities such as sending children to college.
Ray reflected on a young couple he met at a Greeley farm show who farmed dryland in eastern Colorado.
“They had a fairly large acreage and when the company came to negotiate a lease with them, they received a land bonus check that put their three kids through college. They put it in the bank and said these kids are going to go through college with this,” Ray said.
Phend reaffirmed that many minerals owning families are by and large from modest means.
“It’s not a situation where people are typically getting millions and millions of dollars but it doesn’t matter if they’re getting one dollar or one million dollars,” Phend said. “It’s their private property and they still have a right to it.”