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Report: Colorado's underground minerals still accessible if Proposition 112 passes

The oil and gas industry has painted Proposition 112 as a de facto ban on new oil and gas development, but is it really dire? A report leaked to 9NEWS allows us to see the facts.

DENVER — An independent energy research group has determined that oil and gas companies would still be able to access more than half of the minerals underground in northeastern Colorado if Proposition 112 were to pass.

The report was produced by RS Energy Group, an independent energy research firm based in Calgary, Alberta, Canada.

The 39-page report called "Proposition 112 Playbook: Indecent Proposal," states that Proposition 112 would restrict oil and gas operations on 92 percent of non-federally owned surface land, but that oil and gas companies could still access 61 percent of minerals underground in what's known as the DJ (Denver-Julesburg) Basin, and 43 percent of what's known as Core Wattenberg.

It means that of the limited surface area that oil and gas operations could build wells, they could still access the minerals underground 10,000 feet away through horizontal drilling.

The DJ Basin in in northeast Colorado and includes Weld County. Wattenberg is an oil and gas field within the DJ Basin.

"RS Energy Group independently created the Proposition 112 Playbook based on our own analysts' research within the industry and basin. We, at RS Energy Group, pride ourselves on creating independent, unbiased information to our clients based on publicly-sourced research and data," said RS Energy Group Co-CEO Manuj Nikhanj told 9NEWS in an email. "Some additional things to consider that are relevant that our report did not address were the proposed restrictions for flow/gathering lines, competition for surface rights and the complexity with having thousands of existing wells. When considered, the accessible mineral rights would be lower than the 61 percent/43 percent stated above."

If voters pass Proposition 112, new oil and gas operations would have to be more than 2,500 feet away from schools, buildings and "vulnerable areas." It defines vulnerable areas as playgrounds, permanent sports fields, amphitheaters, public parks, public open space, public and community drinking water sources, irrigation canals, lakes and reservoirs, streams and creeks and "any additional vulnerable areas designated by the state or a local government."

According to the report, current regulations restrict 22 percent of the DJ Basin surface area. Oil and gas operations are currently required to be 500 feet away from a home and 1,000 feet away from a school.

Nikhanj said the oil and gas industry did not ask for the analysis.

"It is a topical subject that our analysts felt our clients would value our opinion," said Nikhanj.

A proposed 2,000-foot setback was pulled from the ballot four years ago. This report also did analysis on what a 1,500-foot setback would mean for oil and gas operations.

The report found that the underground mineral rights are "minimally affected" for all oil and gas companies except Extraction Oil and Gas, which would lose the ability to drill 25 percent of its mineral rights.

"We just wanted to run a sensitivity analysis in the report," said Nikhanj. He said the oil and gas industry did not request data for a 1,500-foot setback.

The report determined that if Proposition 112 were to fail, Extraction Oil and Gas and SRC Energy would have the most gain.

"Based on our analysis, they have the most acreage at risk of being restricted if (Proposition) 112 passes, so they have the most to lose, which means they have the most to gain if it doesn't pass," said Nikhanj.

9NEWS received the report from the Yes on 112 campaign, which said it received it from an anonymous source who did not obtain it illegally. The report is accessible to subscribers of RS Energy Group reports. According to RS Energy Group -- which include oil and gas companies, institutional investors and investment banks.

The state regulators, Colorado Oil and Gas Conservation Commission (COGCC), has previously put out a map showing which surface area would still be available to oil and gas operators, but the state has not provided any research on what the passage of Proposition 112 would mean for how much of what's underground could still be accessed from the allowed surface area.

"We have not seen this report. This report goes to valuation. COGCC does not track this information," said COGCC spokesman Travis Duncan.

The Colorado Oil and Gas Association downplayed the details in the independent report.

"The COGCC is Colorado’s oil and natural gas regulatory body, and they conducted their own analysis of Proposition 112. Other, theoretical analysis based on broad developmental assumptions is risky, because that analysis can speculate about outcomes that may not be true or even possible. I can tell you this, when it comes down to it, the COGCC is the entity issuing permits, so their perspective doesn’t just carry weight, it is the metric from which we must operate. According to the COGCC, in order to determine mineral access, extraction, and production, you have to include geology, drilling methods, reservoir analysis, production engineering, mineral leases, surface use agreements, land use, and economics to provide a true sense of whether or not a location can be drilled. That is a long list of inputs that have to be well understood before knowing if drilling is even possible. It is not a list of theoretical assumptions or hypotheticals," said COGA president Dan Haley.

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