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What will oil and gas reform mean for Colorado?

Two scenarios: One of harmony, another of economic devastation
Senate Bill 181, which would grant municipalities some control over oil and gas development, could allow for a balance of anti- and pro-energy counties or scare way industry investors on a grand scale.

DENVER – A sweeping reform of oil and gas development working its way through the Capitol offers one of two futures for Colorado: a harmonious balance of anti- and pro-energy counties, or economic devastation. But in Southwest Colorado, where there are limited oil reserves, old wells and a culture of local control, the fallout is unlikely to mirror impacts on the Front Range.

The highly controversial Senate Bill 181, which has already been approved by the Senate, is a massive rewrite of energy regulation in Colorado that would grant municipalities some control over development. This week, the House Energy and Environment Committee also approved the bill. Proponents say the bill protects Coloradans from the hazards of oil and gas development; opponents, largely oil and gas companies and their employees, warn the bill will devastate their industry.

But Southwest Colorado’s politics, economy and history ensure that SB 181 will have different impacts than those in the Denver-Julesburg Basin, the heart of Colorado’s shale boom in the northeast corner.

Two basins, two economies

“Senate Bill 181 itself doesn’t present as much risk in the San Juan as it does the Denver-Julesburg,” said Bernadette Johnson, vice president of market intelligence for Drillinginfo, which forecasts gas and oil prices and industry trends.

The Denver-Julesburg Basin, where energy development is booming, stands to lose the most if regulations are put in place that would hamper drilling. Weld County, home to the basin, produces more than 90 percent of the state’s oil and most of its gas. If SB 181 shut down a third of the state’s overall production, the Denver-Julesburg Basin would be hit the hardest and Colorado could lose more than $4.4 billion in state and local tax revenue by 2030, according to the Common Sense Policy Roundtable.

The shale boom in the Denver-Julesburg Basin has put Colorado among the top oil and gas producing states in the U.S. The basin has more than 20,000 wells and last year reached a 10-year high of nearly 3,500 permits pulled. By contrast, the San Juan Basin has more than 3,600 active wells and in 2018 had 99 permits, a third of the region’s 10-year high.

Growth in Southwest Colorado’s San Juan Basin, where there is mostly natural gas production, has been hampered by record-low natural gas prices. The basin’s natural gas production is among the highest in the state, but natural gas prices have fallen 84 percent since 2005, shrinking the number of new wells.

The San Juan Basin’s older wells do face risks from SB 181’s requirement that all wells be monitored for emissions, an addition that might be too costly for low-producing wells. Companies might choose to plug a well rather than monitor its emissions.

Local control not new to Southwest Colorado

If passed into law, SB 181 would grant local control over some regulations, which could include drilling setbacks. The bill also requires that permitting for oil and gas operations start at the local, not state, level. But local regulations, setbacks and permits have been part of oil and gas development in La Plata County for 30 years. (The county, in fact, pioneered local control measures in the late 1980s.)

Operators on the Front Range worry that local control over permits will delay drilling and cost them time-sensitive leases. But in La Plata County, where local permitting has long been the norm and new leases are rare, SB 181’s changes to permitting are unlikely to have a large impact.

Finally, at least a third of the San Juan Basin’s wells are on tribal land, where most state and local regulations don’t apply.

Industry nervous to invest

The San Juan Basin can’t compete with the Denver-Julesburg Basin when it comes to economic appeal. But the basin’s largest operator, the British oil giant BP, hopes that will change. The company’s San Juan assets are the most attractive piece of a $3 billion sale announced in December. The sale would make available drilling in shale formations, which have transformed the Denver-Julesburg Basin in the past decade.

But Johnson of Drillinginfo warns that potential investors are likely to be scared off by repeated attempts to rein in Colorado’s oil and gas industry, leaving the San Juan’s potential untapped. There’s a similar environment in New Mexico, where the whole basin is facing a changing political climate.

Proposition 112, a 2018 failed ballot measure that would have increased drilling setbacks from 500 feet to 2,500 feet, remains a bellwether of political changes influencing the oil and gas industry. Local attitudes toward oil and gas will be given more power under SB 181, which ensures that more stringent regulations – even on the local level – always take precedence. La Plata County voted in favor of Prop. 112, an indication that future county commissioners might have more interest in adding regulations.

rhandy@ durangoherald.com

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