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Colorado Legislators Pass Bill to Overhaul Oil, Gas Industry

Nilanjan Choudhury
Investors need to pay close attention to Anadarko Petroleum (APC) stock based on the movements in the options market lately.

A legislation that would change the way oil and gas drilling permits are issued in Colorado is on its way to Governor Jared Polis. The Senate voted 19-16 to concur on the amendments made to SB19-181 in the House. The regulation was approved along party lines, with Democrats voting in favor and Republicans voting in opposition.

The push for the industry’s overhaul gathered momentum after a deadly house explosion and fire in Firestone that killed two people and badly injured another in April 2017. The fatal event was traced to the seepage of an odorless gas from a line owned by Anadarko Petroleum Corporation APC.

The Senate Bill 181 in a Nutshell

The hotly debated and controversial measure, known as Senate Bill 181, is being referred to as ‘the most sweeping oil and gas reforms’ the state has seen. It will lead to a comprehensive overhaul of Colorado’s oil and gas development regulations by expanding the authority of local government/communities over drilling sites. The bill also strives to address concerns about climate change, pollution and threat to wildlife from drilling operations to, while protecting the interests of unwilling mineral rights owners. Finally, the proposal aims to rewrite the mission of the Colorado Oil and Gas Conservation Commission – the state agency overseeing the energy industry – from economic gain to public safety and environmental protection.      

Let’s debate the pros and cons of the bills.

Pro: Backers of the Bill Hail the Health and Safety Provisions

Proponents of the measure and environmental groups in particular argue that the passage of the bill is a decisive step toward protecting the Colorado residents’ health and safety. Its goal is to ensure that state regulators take profit out of citizen welfare while maintaining the continued development of the local oil and gas industry. Moreover, the bill looks to strengthen local control and address the interests of landowners who refuse to lease their lands to an operator

Con: Opponents of the Bill Fear Crippling Blow to the Industry

People who are against the bill, along with industry officials, argue that the regulations, if signed into law, would have a devastating economic impact on the entire state. With the Colorado economy depending heavily on oil and gas industry for tax revenues, funds for infrastructure and welfare projects could be hit if local communities go slow on drilling permit approvals within their jurisdiction. They warn that the legislation could potentially lead to job losses and economic hardship.

Bill Amended to Allay Apprehensions from Opposition Quarters

Seeking to dispel apprehensions that the proposed bill could be misused by state and local bodies leading to outright drilling bans and decelerating industry growth, a number of amendments were added in the past few days. The concessions include a change in language, which aims to ensure that any new regulations/restrictions to be ‘necessary and reasonable’.

While the revisions were seen by some as adding a degree of certainty, it was not enough to silence dissenters who remain firmly opposed to SB 181.

Which Companies Will be Affected?

While the bill’s passage into law is almost a given considering that Governor Jared Polis is a supporter of the measure himself, it is expected to take many months and public hearings before the rules implementing the law are written.

But the Senate Bill 181, which comes after the energy industry defeated ‘Proposition 112’ – an initiative that would have required new oil and gas wells to be drilled at least 2500 feet from most buildings – is expected to be a real concern for the operators in Colorado.

Oil and gas explorers who are exclusively focused on the state’s Denver-Julesburg (or, DJ) Basin including HighPoint Resources HPR, Bonanza Creek Energy, Inc. BCEI, Extraction Oil & Gas Inc XOG and SRC Energy Inc. SRCI among others, could be in for some rough time. Biggies like Anadarko Petroleum, which has invested heavily in the prolific D-J Basin also stands exposed to an element of uncertainty. The Zacks Rank #3 (Hold) company holds approximately 400,000 net acres in the DJ Basin.      

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