Oil Drillers' Rocky Mountain High Threatened by Colorado Vote
(Bloomberg) -- BP Plc’s new U.S. onshore oil headquarters in Denver serves as a testament to Colorado’s regal mountains, its expansive forests, its nature-loving culture.
Aspen trees line the BP club room, newly installed beer taps await local craft brews, multiple stone fireplaces invite cozy discussions about ski conditions, and a 52-foot pine tree, sliced in half, serves as a conference table.
Whether Coloradans want the tribute is another matter.
On Nov. 6, voters may spoil BP’s welcome. That’s when Colorado decides whether to limit drilling in an initiative that has drawn almost $39 million in campaign finance contributions. If passed, the proposition would cut the state’s oil output by more than half and, perhaps, act as a potential blueprint for blocking development elsewhere.
BP moved its office from Houston weeks before the proposition hit the ballot. Colorado has been drawing drillers whose interest has been piqued by production that’s climbed 10-fold since 2001 to a record 450,000 barrels a day in April. Along with Noble Energy Inc., Anadarko Petroleum Corp. and others, BP is now in the midst of a multimillion-dollar war over the state’s environmental future.
“The long-term impact is quite significant,” said Matt Andre, an energy analyst at S&P Global Platts. “It’s about the precedent being set, and it working its way to other states.”
At issue is Proposition 112, which requires that new drilling sites, processing plants and gathering lines be more than 2,500 feet from homes, schools and other “vulnerable” areas. In effect, it makes 54 percent of surface land inaccessible to producers.
If the measure passes, production could fall 55 percent by 2023, according to an S&P analysis. But Andre sees that as just a best-case scenario: “It assumes that people who can drill will drill,” he said. “But you have to imagine that some people will move to other plays.”
The stakes are extraordinarily high. By July, Colorado overtook Alaska to become the nation’s sixth-largest oil producer. In 2016, the government estimated that the state had 1.3 billion barrels of proved oil reserves.
The vote’s in a few weeks. In the meantime, the latest campaign filings show opponents to the proposition have put $37.8 million into defeating it, including $300,000 contributed by BP on Oct. 2, and about $6 million each overall from Anadarko Petroleum Corp. and Noble Energy Inc.
That compares with just $921,000 raised by proponents. The latest polling by Height Securities LLC showed support for the measure at 43 percent and opposition at 47 percent, based on a survey conducted Oct. 15 and Oct. 16.
These companies “don’t just have to win,” said Ethan Bellamy, a senior analyst at Robert W. Baird & Co Inc. “They have to win by a mile to take the risk overhang out of the stocks. If Proposition 112 wins, the stocks will get torched.”
BP isn’t the only company to show renewed interest in Colorado, even amid efforts to restrict development in the state. Wyoming gas producer Ultra Petroleum Corp. in September moved its headquarters from Houston to Denver, part of a plan to consolidate operations.
Even Noble, which last year shifted operations to Texas, has reallocated activity back to the Denver-Julesberg basin amid pipeline bottlenecks expected to slow growth in the prolific Permian Basin.
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