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Colorado Rejects Anti-Drilling Initiative in Divergent Midterm Elections

Colorado voters on Tuesday decisively rejected Proposition 112, which threatened nearly all drilling locations for some of the state’s leading producers, in what proved to be one of the most consequential political battles to confront the oil and gas industry this election season.

The win in the West came amid broader midterm gains for Democrats. The party took back control of the House and several governors’ offices across the country, including in New Mexico, where booming oil and gas development in part of the Permian Basin could be affected by the political shift.

Democrats gained 27 House seats by Wednesday and were on track to take as many as 30. All the party needed was 23 seats for a majority.

The turnabout is likely to create significant hurdles for President Trump’s energy agenda. Democrats would take control of key House committees, including the powerful Energy & Commerce Committee and the Committee on Natural Resources.

Under new leadership, the lower chamber is likely to stymie the administration’s plans to continue rolling back a host of regulations enacted during the Obama era. President Trump’s agenda could easily be bogged down, particularly if the new majority launches investigations into White House affairs as pundits expect. 

“House Committee chairs can brandish their gavels against the White House in two ways,” wrote analysts at ClearView Energy Partners LLC. “Authorizing committees can consume executive branch bandwidth through strenuous oversight. Appropriators can constrain administration options with funding riders and by limiting reprogramming requests.”

Likely to rise up the list of energy priorities for House scrutiny, ClearView said in a note on Wednesday, is the Federal Energy Regulatory Commission’s review of how it handles natural gas pipeline reviews. The Trump administration’s offshore oil and gas leasing program and the Environmental Protection Agency’s rewrites of existing rulemakings such as oil and gas methane standards are also game.

Republicans, meanwhile, retained their grip on the Senate as anticipated. The party gained seats to expand what had been a narrow majority in the chamber over the last two years to a 54-46 edge.

That should come as welcome news for trade groups such as the Independent Petroleum Association of America, which weren’t shy in their backing of the GOP. To be sure, a firmer grip on the Senate would preserve the party’s ability to guide some of the nation’s energy policies, especially through the appointment process to various federal posts and leadership of the Senate Committee on Energy & Natural Resources.

“The Senate Republicans’ four vote cushion seems likely to promote strong cohesion with the White House, particularly in confirming conservative jurists to federal courts, while leaving room for defections” from GOP senators like Cory Gardner, Susan Collins and Lisa Murkowski, who have all straddled the center of issues in the past, ClearView said.  

Republicans gained three seats in the Senate, with Missouri Attorney General Josh Hawley defeating incumbent Claire McCaskill. Mike Braun defeated incumbent Joe Donnelly in Indiana, and incumbent Democrat Heidi Heitkamp of oil-rich North Dakota lost by about 10 points to Rep. Kevin Cramer.

Prop 112 Defeated

With most Colorado precincts reporting, nearly 57% had voted against Prop 112, which would have increased well site setbacks to 2,500 feet from 500 feet for residences and workplaces, as well as “vulnerable areas” such as playgrounds and public water sources

The initiative attracted tens of millions of dollars in spending. According to one analysis, it could have eliminated up to 97% of the drilling locations in inventory for major Denver-Julesburg Basin operators such as Anadarko Petroleum Corp. and PDC Energy Inc., which were joined by a coterie of peers in expressing concerns and keeping a watchful eye on the vote as it drew near.

Analysts at Height Securities LLC said approval of Prop 112 could have been “disastrous” for the state’s exploration and production companies.

Permitting activity in parts of the DJ Basin has spiked sharply in recent months, given that permits issued before the vote would have been exempt from the restrictions if they had passed. Since Prop 112 qualified for the ballot in August, Tudor, Pickering, Holt & Co. noted that many of the state’s leading producers have watched their share prices fall by double digits.

That trend appeared to be reversing itself on Wednesday after the measure failed, with Noble Energy Inc., Anadarko Petroleum and PDC shares all gaining roughly 5%. Extraction Oil and Gas Inc. gained more than 8%. 

Colorado Petroleum Council Executive Director Tracee Bentley said it was a “great night for our state,” noting that Colorado voters had “spoken loud and clear that we recognize the importance of the industry to the state’s economic well-being.” Supporters of the measure, backed largely by environmental groups, said the industry spent heavily to defeat Prop 112 and leaned heavily on the argument that the measure would have had a devastating impact on the state’s economy. They pledged to continue opposing fossil fuel development.

“Moving forward, we will continue working together with all stakeholders to develop solutions that ensure we can continue to deliver the energy we need, the economy we want and the environment we value," said Chip Rimer, chairman of the Colorado Oil and Gas Association, in praising the outcome. 

Washington Rejects Carbon Fee

Voters in Washington state appeared to reject Initiative 1631 by wide margins. The measure would have imposed a carbon fee aimed at fossil fuels and emission reductions. The ballot push had attracted attention as no state has passed such a tax or fee. In fact, the ballot measure generated record spending in the state. 

More than 56% of votes were cast against the initiative, according to unofficial results on Wednesday. Voters rejected a similar measure two years ago.

American Energy Alliance President Thomas Pyle said voters rejected expensive energy.

“The voters have spoken. It’s time to listen to them and focus on policies that expand the availability, affordability and reliability of energy, rather than on policies that make energy more scarce, more expensive and less reliable," he said.

Democrats Win More Gubernatorial Races

In Colorado, where Anadarko, Noble and even BP plc had spent millions of dollars against Prop 112, Democratic Rep. Jared Polis beat Republican State Treasurer Walker Stapleton in a race that was called early in the evening. Outgoing Democratic Gov. John Hickenlooper, along with Polis and Stapleton, had spoken out against Prop 112. A different version of the initiative also has been rejected by state voters in the past. 

TPH said “going forward from the legislature we’re watchful for any communication regarding” the industry’s “follow-on attempts to more quietly resolve concerns” about oil and gas development in the state. Polis will be reinforced by a Democratic-controlled legislature, after the party took control of the state Senate on Tuesday.

Democrats gained governorships in seven states, meanwhile, including Michelle Lujan Grisham in New Mexico, where Permian Basin oil and gas drilling in the southeast part of the state is booming. She will replace outgoing Republican Gov. Susana Martinez.

Lujan Grisham last year announced plans to implement a statewide methane rule to cut waste and pollution from new and existing oil and gas wells. The governor-elect is now expected to introduce such a proposal when she takes office next year, Height Securities analysts said Wednesday.

“While details are scarce, we expect governor-elect Grisham’s proposal could mirror Colorado’s methane regulations, or it could be similar to the Bureau of Land Management’s proposed rules under President Obama,” Height said.

Democrats also took back executive offices in Maine, Wisconsin, Michigan, Illinois, Kansas and Nevada.

In Appalachia, Democratic Gov. Tom Wolf cruised to a second term as Pennsylvania’s governor, widely defeating challenger Scott Wagner. In Ohio, Republicans will continue to hold the governor’s office after Attorney General Mike DeWine beat Democrat Richard Cordray in a tighter race to succeed Republican Gov. John Kasich, who’s term limited.

In New York, where natural gas development and infrastructure has faced staunch resistance from Democratic Gov. Andrew Cuomo, things don’t appear to be changing much. Cuomo crushed his Republican challenger Marcus Molinaro with nearly 60% of the vote to take a third term. His party already controlled the state assembly, but took back the Senate as well on Tuesday.

For that matter, statehouses in Ohio, Pennsylvania and West Virginia, home of robust Marcellus and Utica shale natural gas development, remained firmly under the control of Republicans, but Democrats did take some seats to bolster their strength a bit.

 

 

 

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