October 09, 2018

Oil and Gas Setbacks, Just Compensation Measures Take Center Stage on the Colorado Ballot

John L. Watson

Proposition 112 and Amendment 74

Proposition 112 (the “Oil and Gas Setback” measure) has a place on the November 6, 2018, election ballot in Colorado and was the primary impetus for proposed Amendment 74. Amendment 74 (the “Just Compensation” measure) has been called the “nuclear option” because of fear of an explosion of litigation if passed. Whether or not one labels the legal actions which some fear will result as frivolous, both of these controversial measures, if passed, may indeed result in a flood of lawsuits. 

Proposition 112 would amend a Colorado statute. Amendment 74 would amend Colorado’s Constitution. Proponents of Proposition 112 seek to increase safety by limiting oil and gas operations through “setback” regulations that would create an expanded buffer between oil and gas wells and occupied buildings and other “vulnerable areas.” Amendment 74 comes in large measure as a response, seeking to protect landowners from the possible loss of property value, which the setback requirements might induce.

Direct Democracy

Colorado is one of 18 states that allow citizens to amend the state constitution and one of 21 states that allow citizens to amend a state statute using the initiative process. Article V, section 1(2) of the Colorado Constitution sets the number of signatures required for a statewide initiative petition as “at least five percent of the total number of votes cast for all candidates for the office of secretary of state at the previous general election.” With a population of about 5.6 million, and a total of about 3.9 million registered voters, proponents had to persuade at least 98,492 Colorado citizens to support the measures. In addition, article V, section 1(4) of the Colorado Constitution requires that initiatives targeting a change to the Colorado Constitution must be signed by at least 2 percent of the total registered electors in each of the 35 Colorado state senate districts in addition to meeting the requirements stated above. Both measures met the mandatory requirements for placement on the November 6, 2018, ballot.

The Oil and Gas Setback Measure Protects “Vulnerable” Areas

Current regulatory restrictions established by the Colorado Oil and Gas Conservation Commission (COGCC) mandate that wells must be 1000 feet from high-occupancy buildings such as schools and hospitals, 500 feet from occupied buildings such as homes, and 350 feet from outdoor areas like playgrounds. The Oil and Gas Setback measure expands those limits and would add a new section 34-60-131 to the Colorado Revised Statutes increasing the setbacks to 2500 feet from “vulnerable areas.”

Aye, There’s the Rub: “Vulnerable” Areas

Hamlet was not thinking about oil and gas development setbacks when he proclaimed, “aye, there’s the rub!” His focus was on any obstacle to his committing suicide.

If one embraces opponents’ objections to Proposition 112, you are indeed talking about the death of new oil and gas development in Colorado. Circulated for signatures as Initiative 97, what is now referred to as Proposition 112 requires that new oil and gas development projects, including fracking, be a minimum distance of 2500 feet from occupied buildings and other areas designated as vulnerable. Indeed, there’s the rub. As defined in the Proposition:

(c) “Vulnerable areas” means playgrounds, permanent sports fields, amphitheaters, public parks, public open space, public and community drinking water sources, irrigation canals, reservoirs, lakes, rivers, perennial or intermittent streams, and creeks, and any additional vulnerable areas designated by the state or a local government.

The setback requirements would not apply to any oil and gas development on the 36 percent of the property in Colorado that is designated as federal lands. Rather, the setback requirements would apply to any new oil and gas development permitted on or after the effective date of the measure on any other non-federal lands in the state. Notably, reentering old oil and gas wells that were abandoned would be considered new development under the measure, and the setback requirements would still apply. The full text of the measure is available online here.

Firestone Explosion Raised the Stakes

There are more than 50,000 existing wells in Colorado that will not be subject to the proposed 2500-foot setback. Proponents focus on the possible health effects, noise, dust, lights, vibrations, and ruined vistas from new development. They worry, too, about explosions and fires.

An explosion in April 2017 in Firestone, Colorado, caused by a leaking flow line from a nearby oil well that was not capped properly, leveled a home and killed two men. See Denver Post article, https://www.denverpost.com/2018/05/23/anadarko-firestone-explosion-lawsuit-settlement/

The CU Study Feeds the Concern

A new study from University of Colorado researchers concluded that there is a possible link between a specific kind of childhood cancer and nearby oil and gas activity. The study addressed whether living near oil and gas wells impacts health. Professor Lisa McKenzie and five colleagues examined data from a state registry of cancer cases. They concluded that people ages 5–24 who were diagnosed with acute lymphocytic leukemia were more likely to live in areas with a high concentration of oil and gas activity.

The study concludes:

Because oil and gas development has potential to expose a large population to known hematologic carcinogens, further study is clearly needed to substantiate both our positive and negative findings.

Future studies should incorporate information on oil and gas development activities and production levels, as well as levels of specific pollutants of interest (e.g. benzene) near homes, schools, and day care centers; provide age-specific residential histories; compare cases to controls without cancer; and address other potential confounders, and environmental stressors.

The study is available online: https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0170423 

State Department of Health Challenges the Results of the CU Study

The state department of public health and environment (and others) challenge the study’s authors’ methodology and conclusions. Dr. Larry Wolk, the executive director of the Colorado Department of Public Health and Environment, said the study’s conclusion was not convincing. He cited limitations in the study’s design and data analysis and said of the possible link between childhood cancer and high-concentration oil and gas development that hinges on just 16 cases, “I don’t think the study supports the conclusion that they made.”

85 Percent of Non-Federal Lands in Colorado Would Be Unavailable to New Development

Anticipating that Proposition 112 might make it to the ballot, the COGCC released a study on July 2, 2018, outlining what the agency stated would be the prospective impact of the initiative. Some of the major findings in the report include:

 

  • An estimated 54 percent of Colorado’s total land surface would be unavailable for new oil and gas development by adopting the buffer zone setbacks and federal land exemption proposed by initiative #97. Of the non-federal land in Colorado, 85 percent would be inaccessible using these same criteria.
  • For example, 78 percent of Weld County surface land (85 percent of non-federal land) would be off-limits to new oil and gas development.
  • In Colorado’s top five oil and gas-producing counties combined, 61 percent of the surface acreage (94 percent of non-federal land) would be unavailable.
  • “Vulnerable areas” buffers, which initiative #97 defines to include a range of surface hydrologic features, would have a significantly larger impact than “occupied structure” buffers on making surface lands inaccessible to new oil and gas activity.

Here is a link to the COGCC study

 

Staff for the Colorado Legislative Council restate a portion of the COGCC study’s conclusions in the fiscal note accompanying the measure. The note states that the current 500-foot setback prohibits oil and gas development on about 18 acres surrounding a given point, and that a 2500-foot buffer would place 450 acres surrounding that same point on a no-drill list. Here is a link to the fiscal note on Proposition 112: https://www.sos.state.co.us/pubs/elections/Initiatives/titleBoard/filings/2017-2018/97FiscalImpact.pdf

Impact to Employment and the State’s Economy? Study Cites Dire Consequences

In addition, according to a study conducted by the Colorado Association of REALTORS®, the Colorado Bankers Association, Colorado Concern, the Common Sense Policy Roundtable, and the Denver South Economic Development Partnership, Proposition 112 would have far-reaching, negative effects on Colorado’s economy. The study* suggests that:

  • Proposition 112 would kill up to 147,800 good-paying jobs in Colorado by 2030, with up to 43,000 jobs being lost in the first year alone.
  • From 2019 to 2030 the estimated loss in state GDP would be $218 billion, with the state losing $26 billion annually in GDP by 2030.
  • From 2019 to 2030 over $147.6 billion in personal income would be lost.
  • From 2019 to 2030 over $9 billion in state and local tax revenue would be lost, with that amounting to a loss of more than $1 billion annually by 2030.
  • Chris Brown & Zhao Chang. Common Sense Policy Roundtable, Colorado Concern, Denver South Economic Development Partnership, Colorado Bankers Association, Colorado Association of Realtors. Increasing the Oil and Gas Setback Requirement to 2,500-Feet in Colorado, the Economic and Fiscal Impacts of 2018 Initiative 97 (2018).

Both Gubernatorial Candidates Oppose the Measure

The industry has a large war chest to oppose the measure. Dan Haley, president of the Colorado Oil and Gas Association, said the industry would fight Proposition 112 with everything it has. Oil and gas operators have given at least $21 million to Protect Colorado, the committee opposing the measure. By contrast, the committee backing the measure, Colorado Rising, received $615,000 in contributions in 2018.

Proponents are not getting help from the future governor of the state, either. Both Democrat Jared Polis and Republican opponent Walker Stapleton have come out against the measure.

The Just Compensation Measure—A Just Response?

Proponents filed multiple versions of the Just Compensation measure—Amendment 74. Chad Vorthmann, executive vice president of the Colorado Farm Bureau and one of the primary sponsors of the initiative, said that it was submitted as a response to proposed setback requirements for new oil and gas development, including fracking, which are on the ballot in the form of Proposition 112.

The Just Compensation measure would require that property owners be compensated for any reduction in fair market property value caused by government law or regulation. Specifically, the measure would amend section 15 of article II of the state constitution. Nothing would be stricken from the current language in section 15, but the following text would be added:

Section 15. Taking property for public use—compensation, how ascertained. Private property shall not be taken or damaged, or reduced in fair market value by government law or regulation for public or private use, without just compensation. . . .

Grace Hood of Colorado NPR interviewed Mr. Vorthmann, who said that the question of who would pay for the “just compensation” claims depends on the circumstances:

If it’s a local zoning rule in question, then the financial burden would fall on the city or county that passed the rule. Another potential example would be Initiative 97 [on the ballot as Proposition 112], a proposed 2,500 foot setback between oil wells and homes. If voters approve both the new setback [contained in Proposition 112] and [Amendment] 74 this November, then the state would be on the hook for perceived losses by oil and gas developers and drillers if the setbacks prevent access to deposits.

See this link for the full NPR article:  https://www.cpr.org/news/story/oil-and-gas-funded-just-compensation-amendment-makes-2018-ballot

Mr. Vorthmann also said,

These measures are about protecting Colorado’s farmers and ranchers from extremist attempts to enforce random setback requirements for oil and natural gas development. While these setbacks may on their face sound reasonable, they would essentially eliminate oil and natural gas development in Colorado and strip away Colorado landowners’ right to use their land the way they wish. This is about protecting the Colorado way of life. Because taking private property is not the Colorado way.

See article in the Fence Post: https://www.thefencepost.com/news/colorado-farm-bureau-proposes-initiative-to-protect-private-property-rights/

Today, without the changes contemplated by Amendment 74, a person or entity can receive compensation from a direct government action only if they prove that a government action deprives them of nearly all of their property. Thus, opponents suggest that there is no question that the proposed constitutional change focusing on any “government law or regulation” (state or local) and its impact on a property’s “reduced fair market value” would significantly expand the circumstances which could trigger the requirement that state or local government pay “just compensation.”

Frivolous Lawsuits

Not surprisingly, Amendment 74 is opposed by the Colorado Municipal League, which says the change “would expose both the state and all local governments to untold legal exposure with unclear language referring to government regulations or actions which would ‘reduce’ the ‘fair market value’ of private property and subject taxpayers to ‘just compensation’ to a private property owner.”

The mayor of Fort Collins, Wade Troxell, said that all types of ordinances and policies at the municipal level would be affected, like code enforcement, land use and zoning, licensing, and redevelopment. “This measure places words in our state constitution that are not clear. Both the state and taxpayers in cities like my own will be subject to frivolous lawsuits. As both a mayor and CML President, I am strongly opposed and will be voting no.”

See article in the Colorado Pols titled “Nuclear Option Amendment 74 Makes Ballot,” https://www.coloradopols.com/diary/111890/nuclear-option-amendment-74-makes-ballot  

Opposing the measure, the Denver Post Editorial Board stated on September 16, 2018:

Colorado Voters should soundly reject Amendment 74. . . . Amendment 74 would encourage developers to sue to see if the court would grant them compensation for the lost “fair market value” of their property. And it is the taxpayers who will foot both the legal costs and the possibility of either a settlement or a monetary award . . . We are staunch advocates of property rights, but this amendment is simply too broad.

Clearly the [oil and gas] industry thinks this [amendment] will help protect their mineral rights just in case voters in Colorado pass a separate ballot measure that aims to implement 2,500 foot setback from homes, schools and water, for oil and gas development. Fear of an outcome that hasn’t occurred yet is not a good reason to amend our Constitution.

The Stakes Don’t Get Any Bigger

Voters will continue to be inundated with the pros and cons of these and other measures on the November 6, 2018, ballot. Jobs. Health and safety. Constitutional rights to just compensation. Quite a ballot full. 

John L. Watson

Published: October 5, 2018

John L. Watson practices in Denver with Spencer Fane LLP.   A trial lawyer for over forty years, he represents clients in the fields of complex commercial litigation, environmental, natural resources, mining, oil and gas law, and toxic tort litigation, real estate development, and special district litigation.  Mr. Watson has served for over fifteen years (2002 – present) as trial tactics faculty at the National Institute for Trial Advocacy (NITA) which is recognized as the nation’s leading provider of legal advocacy skills training. Mr. Watson taught Environmental Law as adjunct faculty at the University of Denver College of Law for five years, served twice as Chair of the Colorado Bar Association's Environmental Law Section (1979 and 2003) and serves currently as a member of the Environmental Law Section’s Advisory Council.