Energy

Issue and need:

Since 2012, five Colorado communities have passed some version of a fracking ban or moratorium (Longmont, Broomfield, Lafayette, Boulder, and Fort Collins). Loveland citizens defeated a two year moratorium in June 2014. Late this summer, a compromise between Governor John Hickenlooper and Rep. Jared Polis resulted in the removal of two harmful ballot measures from the November 2014 ballot. Had these two statewide measures passed, they would have in effect banned fracking in Colorado, devastated Colorado’s oil and gas industry and hurled our state’s economy into a recession.

A dynamic economic modeling system developed by Regional Economic Models Inc. (REMI), and utilized by the University of Colorado Leeds School of Business, recently studied the results of a statewide ban on hydraulic fracturing – 93,000 fewer jobs, $12 billion in lost gross state domestic product, and an annual reduction of $985 million in tax revenue for local and state governments between 2015 and 2040. Put another way, the job losses equate to a 2.2 percent increase to the state’s unemployment rate. This permanent, annual drag to Colorado’s economy could take decades to overcome.

The Chamber reconstituted the Coloradans for Responsible Reform (CFRR) campaign this past spring to help defeat these ballot measures and prevent economic calamity. The oil and gas industry also developed a campaign, Protect Colorado, to help ensure the ballot issues were defeated. At the time, polling data showed 47 percent to 63 percent support for set-backs and local control. However, a majority of voters don’t support outright banning or passing laws that in effect would ban oil and gas development in Colorado.

Once the compromise was reached, CFRR and Protect Colorado shut down operations. Our attention now turns to Governor Hickenlooper’s local control commission/task force, consisting of two co-chairs and 18 members reflecting a variety of stakeholders and community interests. This task force is charged with recommending oil and gas development “solutions” to the 2015 state legislature.

Background:

Hydraulic fracturing is a three to five day process in a month long well-site development process. Hydraulic fracturing has occurred in Colorado for more than 60 years. Recent technology advancements combining horizontal drilling, hydraulic fracturing, and high tech information and data processing systems have driven oil and gas development in shale formations several thousand feet beneath the surface.

Presently, there are more than 52,000 active wells in Colorado. In 2012, Colorado ranked ninth in oil production and sixth in natural gas production nationally. While the national data is not yet available for 2013, Colorado broke an all-time record this past year producing 64.1 million barrels of oil. This level of production could provide energy independence for the United States within the next decade bringing with it the high likelihood that we become an energy exporter in the world.

Approximately 95 percent of all new Colorado wells are fracked, and over 1.2 million wells have been safely fracked throughout the United States. According to the Interstate Oil and Gas Compact Commission (IOGCC) and the Environmental Protection Agency (EPA), hydraulic fracturing has never been found to have polluted underground sources of drinking water. Fracking fluid is 99.5 percent water and sand. Fracking uses less than 0.1 percent of Colorado’s annual water supply. Practical risks for water contamination are at the surface while handling and transporting chemicals, which is the case for most industrial processes. Again, there is strict regulation on the handling and transportation of these materials.

Colorado has the most stringent oil and gas regulations in the country, which are highly regarded as a best practice nationally and even internationally. Since 2011, several environmental safeguards have been put in place:

• Drilling setbacks were increased from 350ft to 500ft. Developers also need special exemption to drill within 1,000ft of a high-occupancy building, such as a hospital or school.
• Developers are required to collect up to four water samples from aquifers, existing water wells, and other available water sources within a half-mile of a proposed oil and gas well. These samples must be taken before the well is drilled and then again within 78 months after the well is placed into operation.
• Developers must disclose chemicals used in the fracking process in an independent database, fracfocus.org.
• Earlier this year, a first of its kind air quality rule was implemented that requires producers to install equipment to capture 95 percent of methane gas that leaks from wells and pipes, while also limiting the volatile organic compounds that lead to smog. Well sites will be inspected for leaks once a month by producers, who will have 15 days to fix any leaks.

The Chamber supported efforts to avoid an expensive and politically damaging ballot measure campaign, both at the end of the 2014 session and during the failed attempts for a special session this summer. CFRR has been preparing for a ballot measure fight over the past several months, in case those negotiations failed. In the third week of July, Governor Hickenlooper announced he would not call a special session. The Chamber, its affiliates and partners worked hard throughout the summer to convince Congressman Polis that he should withdraw his ballot issues and resolve his concerns through another mechanism. In light of the compromise, we anticipate that the issue will be taken up in the next legislative session. We also anticipate that we may see similar measures on the ballot in the future, underscoring the importance of a long-term strategy to educate Coloradans about fracking.

Challenges:

Potential legislative action or future ballot initiatives fall into a two categories: local control and setback increases. There are unique challenges for both

Local control would grant additional regulatory authority over oil and gas development to counties and municipalities in varying degrees. While this may sound reasonable on the surface, air and water do not adhere to municipal or county boundaries and cooperation with neighboring communities could prove challenging. Additional local oversight authority also comes with its costs, and new revenue would be required to sustain it. Further, local control increases the cost and uncertainty of doing business in Colorado.

Historically, a statewide regulatory framework that ensures environmental protection, while maintaining predictability for investment, has been the most cost-effective vehicle for oil and gas development in Colorado. There are cases when local oversight is most appropriate, for example, land use oversight for roads and utility infrastructure. In other cases, federal oversight is the most appropriate regulatory vehicle, for example, management of federal lands or construction of interstate pipelines. The Chamber recognizes that ongoing conversations about the most appropriate level of government oversight of various aspects of Colorado’s oil and gas industry make sense, but will present a huge challenge as we oppose the ballot issues (many will assume we are saying that no additional discussion should occur—difficult nuance to manage and critical to our success in November).

There is also interest in increasing setbacks, which had been proposed to extend from 500 feet to 2,000 feet… A 2,000 foot drilling setback requirement from inhabited structures would effectively ban 70 to 80 percent of Colorado’s oil and gas activity.

In addition to effectively banning development in the vast majority of the state, there are a number of alarming challenges related to a setback of this length. Subsurface mineral rights are not uniformly managed by a single property owner. Just as you may not trespass on your neighbor’s property, an oil and gas developer may not drill through a neighboring mineral right owner’s property in most cases. While it is technologically feasible to drill more than two miles horizontally beneath the surface, an assortment of adjacent property owners limits the opportunity to achieve that distance. Consequently, a 2,000ft setback would dramatically reduce the amount of developable mineral rights in Colorado, and a key challenge will be educating voters and legislators about this important nuance.

A final challenge in the short and long term will be overcoming the public’s distrust of the oil and gas industry. Voters and legislators need data and sources they can believe in. Research tells us that Colorado voters trust Colorado School of Mines the most on these particular issues. Further, voters need people and faces they can believe in.

Potential solutions and/or principles:

1. Ensure the Governor’s oil and gas development task force has representation from varying perspectives, so that solutions are thoughtful and considerate of all Coloradans.
2. Continue to partner with Vital Colorado and CRED to provide education and facts to Coloradans in the longer term.
3. Explore a Colorado Experience program that might highlight Energy as the topic (visiting Vestas, fracking sites, drilling sites, solar arrays, etc.). A change from visiting a specific city to visiting places based on a specific topic.
4. Work with the state on a strategy to engage business more generally in rule changes, challenges, issues and solutions so we can ensure a broad range of views are shared and communicate those solutions timely and effectively.