Proposition 112 is a Credit Negative for Colorado’s Energy Companies, says S&P

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Much is at stake next week in Colorado, the U.S.' sixth largest oil-producing state: voters will decide whether two measures with significant implications for state's energy companies will become law.

S&P Global Ratings' latest report analyses the ramifications for rated energy companies. Here are the main points:

  • Proposition 112 extends well setbacks (the permissible distance between a wellhead and surrounding structures) to a distance that would, in effect, render 85% of the state unusable for oil and gas drilling. According to some estimates, this could decrease the state's GDP by some US$26 billion annually by 2030.
  • Producers are responding aggressively, by attempting to accumulate as many drilling permits as possible (valid for two years).
  • Though this could have dire consequences for the state's energy sector and future oil and gas development, according to S&P, recent polling suggests that most voters are in favour.
  • Polls also show that voters are in favour of Amendment 74 – which would require the state government to compensate landowners if a law or regulation devalues their property.  Currently, land must be devalued by at least 90%, but Amendment 74 would recognise any decrease in fair market value. This could mean that APC, one of the state's largest oil and gas producers, could be entitled to significant compensation as it owns the mineral rights on most of its land in Colorado.

Michael Grande, director, S&P Global Ratings, says: “Passage of Proposition 112 is clearly a credit negative for the energy companies we rate, and it will affect some companies more than others.”

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