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Proposed Colorado Setback Ballot Initiative Could Spur Investor Uncertainty, TPH Says

While the probability of making it to Colorado's statewide November ballot is very small, a proposed voter initiative that would extend setback requirements for oil/natural gas activity could make energy investors uncertain about future prospects in the state, according to Houston-based Tudor, Pickering, Holt & Co. (TPH).

That uncertainty could grow between now and the Aug. 8 deadline for measures seeking to get on the Colorado ballot, TPH said. If the proposed Initiative No. 78 were to make it onto the ballot and be approved by the voters it could eliminate 90% of land that is now eligible for future energy production in Colorado (see Shale DailyJune 7).

TPH examined the Colorado proposal and found that the oil/gas operators in the state are taking the prospective ballot measure very seriously compared to two years ago when several anti-oil/gas measures qualified before the governor headed them off by establishing a statewide task force to address concerns.

In a morning note on Monday, some TPH commentary suggested that the financial community keep its eye on efforts to come up with more than 98,500 valid voter signatures for Initiative No. 78.

While nothing has yet qualified for the November statewide ballot, the industry indicated at a Wells Fargo Securities' webinar earlier this month that it is taking seriously the possibility that a greatly extended setback could become a reality. Current Colorado laws mandate 500-foot setbacks for "building units (homes, etc.)," and 1,000 feet for "high-occupancy buildings," such as hospitals and schools, TPH analysts said.

"It goes without saying that if put on the ballot and subsequently passed, this could be a headwind for exposed E&Ps [such as a number of companies followed by TPH] to varying degrees," TPH said.

TPH said the oil/gas-supported group, Protect Colorado, already has focused on developing legislation for a constitutional amendment that would make it more difficult for similar anti-industry measures in the future.

TPH's analysis stressed the point that even though the risk of the measure getting on the ballot, let alone being passed by voters, is low, "equity investors are averse to uncertainty, and the potential for volatility around this issue may disproportionately impact the trading profile of exposed E&Ps over the next few months."

Protect Colorado, the Colorado Oil and Gas Association, and several industry/business/economic development groups have been working in recent years to educate citizens about hydraulic fracturing (fracking), which some local governments have attempted to restrict or ban (see Shale DailyMarch 4, 2014). Initiative No. 78 is their biggest concern at present.

"Setback proposals being considered were designed to mask their true intention, which would essentially ban future oil/gas development in the state," said Josh Penry, principal in EIS Solutions Rockies Region consulting practice, speaking on a Wells Fargo webinar in Denver earlier this month. Penry was joined on a conference call with news media Friday by David Tameron, senior oil/gas exploration and production analyst at Wells Fargo Securities.

Penry and Tameron assigned a 50-50 chance that some anti-oil/gas development measure will get enough qualified voter signatures by the state's Aug. 8 deadline. 

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