The outcome of a ballot initiative in Colorado that pits environmentalists against energy operators appears to be a razor-thin margin ahead of midterm elections Tuesday, and producers are literally hedging their bets, according to Rystad Energy.

Proposition 112, if approved, would require exploration and production (E&P) companies to increase drilling site setbacks to 2,500 feet from 500 feet for residences and workplaces, as well as “vulnerable areas.” Some energy industry opponents think the requirements would prove disastrous for operators in the Denver-Julesburg (DJ) Basin.

“Rystad Energy observes strong evidence that operators are hedging against a potentially adverse voting outcome,” said shale research chief Artem Abramov. “Given that permits approved before the vote...