Study: Drilling setbacks could come with costs

Kelly Sloan, The Business Times

Increased setbacks for oil and natural gas wells could cost jobs and led to economic losses in Colorado, a study concludes.

The Business Research Division of the Leeds School of Business at the University of Colorado at Boulder conducted the study on  behalf of  the Common Sense Policy Roundtable, an economic think tank, as well as the Denver South Economic Development Partnership and Denver Metro Economic Development Corporation.

According to the study, imposing a 2,000-foot setback between oil and gas and permanent structures would curtail available drilling locations in Colorado by 25 percent to 50 percent. The current legal setback is 500 feet, slightly less than the distance of two football fields.

The resulting reduction in new drilling and production, in combination with depletion from existing wells, would cost the state between 18,000 and 36,000 jobs in the first five years and an average decrease in state gross domestic product of $2.2 billion to $4.4 billion during that span.

A ballot initiative proposed for the 2014 election called for a 2,000-foot setback, and that distance remains a goal of some environmental groups.

An increase in the setback distance also is thought to be one possible recommendation from the task force established by Colorado Gov. John Hickenlooper last year as part of a compromise to pull the initiative and other energy related measures from the 2014 ballot.

The study estimated that under a 2,000 -foot setback, personal income could drop by $2.2 billion in Colorado given a 25 percent reduction in drilling locations and twice that should locations be reduced by 50 percent.

“A 2000-foot setback would significantly impact Colorado’s families,” said Earl Wright, chairman of the board at Common Sense Policy Roundtable. “The study suggests that an average family of four could lose $3,344 of income annually.”

Tom Clark, chief executive officer of the Denver Economic Development Corporation, said he hopes the task force considers the study findings. “This information should help the governor’s task force understand the financial impact such decisions would have on the average Colorado family,” Clark said. “Some have proposed well setbacks nearly seven football fields long. This study illustrates the economic impacts of making that choice.”

The setback study  follows the results of other research conducted by the Business Research Division on the potential economic effects of a statewide ban on hydraulic fracturing, in which it found that a 95 percent decrease in new oil and gas production in Colorado would result in an average reduction in state GDP of $8 billion in the first five years and of $12 billion between 2015 and 2040.