The Denver Business Journal recently published an article summarizing a study released from the University of Colorado Leeds School Of Business suggesting that a 2,000 foot setback from homes and buildings could cause up to a 50% drop in oil and gas activity. The expansion from 500 feet to 2,000 feet setbacks appears to be the focus of Rep. Jared Polis as follow up from a ballot initiative dropped from 2014. According to Cathy Proctor, a task commission is set to report by the end of February regarding better ways for industry and local communities to work together and what the real impacts are from an expansion in setback requirements.
Freedom to Contract
The law inherently favors parties’ ability to contract, which is arguably governed by the terms of either an oil and gas lease or a surface use agreement. On one hand, many might feel that whether they want a 200 or 2,000 foot setback is their decision to be defined by contract and the price to be paid accordingly. Presumably one might ask for more money if an oil and gas well is 200 feet from their house as opposed to 2,000 feet. While the freedom to contract is arguably a strong argument against increased setback limitations, at the same time, such notion potentially fails to what is the reality of negotiations in the field.
Overcoming Disparities in Bargaining Position
Seemingly the larger issue being ignored is disparities in bargaining positions. A landowner with little to no oil and gas rights, or perhaps a landowner coaxed by a land agent that “surface uses will be addressed later,” might welcome a state imposed restriction as they may have no other recourse to feasibly minimize the intrusion on their property. While there have seemingly been improvements over the years to try and protect landowners, those provisions hardly address the real issues facing landowners. Take the irrigated farmer with no mineral rights that is offered a surface use agreement for $3,000 for a well pad site in the middle of his sprinkler. With land and commodity prices having risen over the past years, such farmer is lucky if the offered surface damages cover his loss of income for one year. The tractor doesn’t get any cheaper because the oil and gas company takes a few acres for a well pad site. With threats of bonding on being typical or court action to obtain an injunction, landowners are often forced with retaining their claims and seeing how it goes and chasing the companies later, or taking a subpar offer to at least get some money in the bank for the damages.
Task Force Report
As mentioned in the article, a task report is promised by the end of February. We will stand by to see what substantive issues if any are going to be addressed or if it’s going to be a black and white 500 feet or 2,000 feet debate.