WASHINGTON — A last-minute deal in Colorado is aimed at averting a ballot showdown in November over the future of hydraulic fracturing and drilling regulations in the state that threatened to strand oil industry investments and divided Democrats.
Instead, under the compromise reached by Gov. John Hickenlooper and Rep. Jared Polis, both Democrats, a new task force would effectively write new proposals to minimize conflicts between oil and gas activities and nearby schools, homes and businesses.
The deal illustrates the economic dividend from energy development in Colorado, where companies such as Houston-based Noble Energy Inc. and Anadarko Petroleum Corp. are focusing on extracting oil and gas from the Niobrara shale, increasingly moving close to residential neighborhoods.
The Colorado Petroleum Association credits oil and gas activity with employing 111,000 people and generating nearly $30 billion in economic activity in the state in 2012.
Hickenlooper has worked for months to broker a compromise heading off the ballot initiatives and preserve that dynamic.
“The work of this task force will provide an alternative to ballot initiatives that, if successful, would have regulated the oil and gas industry through the rigidity of constitutional amendments and posed a significant threat to Colorado’s economy,” Hickenlooper said Monday. “This approach will put the matter in the hands of a balanced group of thoughtful community leaders, business representatives and citizens who can advise the legislature and the executive branch on the best path forward.”
The pact also is likely to limit political fallout in the state’s Senate race, where incumbent Mark Udall is fighting for reelection against Republican challenger Rep. Cory Gardner. At stake, some Democrats said, was nothing less than control of the U.S. Senate, where Republicans stand to take over the chamber if they pick up just six seats.
The formation of the 18-member panel was announced Monday, the deadline for groups to file proposed ballot initiatives — with roughly 86,000 valid signatures required — to be put before voters in November.
Four dueling measures were possible, including two supported by Polis to tighten limits on oil and gas drilling. One would have created an environmental bill of rights; the other would force drilling rigs to be located at least 2,000 feet from homes, quadruple the current required setback.
Surging activity: Colorado fracking stresses regulators as permit bids soar
Those measures would be pulled under the Hickenlooper-Polis deal. It was not immediately clear Monday afternoon whether supporters of two other pro-industry initiatives would agree to withdraw their proposals to block communities from collecting state revenues if they ban oil and gas drilling and require future a financial analysis of future ballot initiatives.
Even so, environmentalists critical of oil and gas activities, including the post-drilling technique known as hydraulic fracturing, could claim some victories. For example, the state will abandon a lawsuit against a Colorado city, Longmont, that banned drilling in residential areas two years ago. And the commission still could recommend tough new restrictions to the state legislature.
Major money has been flowing into the fight over the proposals, even before they were formally accepted. Polis has bankrolled the local control initiatives, even as Noble and Anadarko meanwhile, pumped their own money into the state in opposition. The two oil companies launched the group Coloradans for Responsible Energy Development last year to build support in the state.
Hickenlooper tried unsuccessfully to craft a compromise on the issue earlier this year, pushing for a special legislative session that would give local Colorado governments more regulatory power and zoning control over oil and gas activities in a bid to head off the ballot initiatives. The approach won support from Noble and Anadarko, but not all oil companies operating in Colorado were on board. In July, Hickenlooper was forced to concede the strategy would not work, after he encountered deep resistance from state Republicans needed to convene the session and some oil industry interests.
The Noble- and Anadarko-funded group Coloradans for Responsible Energy Development, did not immediately have a statement on the deal Monday. But Jack Gerard, president of the American Petroleum Institute, said the new deal offered by Hickenlooper “could clear the path for a more balanced and inclusive conversation that will preserve Colorado’s leading role in America’s energy revolution.”
“Short-sighted initiatives that threaten responsible energy production and undermine job creation do a disservice to Coloradans who want a more reasoned discussion,” Gerard added.
Tisha Schuller, president of the Colorado Oil & Gas Association praised Hickenlooper for “putting the state’s interests ahead of politics.”
“These issues are complex and must include a wide range of stakeholders to find common ground with workable solutions,” Schuller said.
The deal is good news for oil and gas producers active in the state, which beyond Noble and Anadarko also include Synergy Resources Corp., Encana Corp., PDC Energy Inc., and Whiting Petroleum Corp. It removes some immediate regulatory risk for those firms, even as some institutional investors were starting to take notice of the policy fight in Colorado and worry that tighter restrictions could effectively put some assets out of reach.
In a research note to clients, FBR Capital Markets and Co. analysts said the pact illustrates “the cultural importance and political influence of the oil and gas sector in Colorado.”
Some environmentalists who backed the local control measures were unhappy with the deal.
Bruce Baizel, director of Earthworks’ Oil and Gas Accountability Project, said hundreds of thousands of state residents had backed the local control initiatives because they know “Colorado’s oil and gas oversight favors the oil and gas industry’s interests before the public interest.”
But, Baizel added, the new commission “provides a possibility that Colorado’s community and environment may yet be protected from the environmental and health threats associated with oil and gas development.”