If Initiative 97 passes in November, the Initiative would have an extensive impact to exploration and production (E&P) and midstream companies that operate in Colorado, including Extraction Oil and Gas (XOG), SRC Energy (SRCI), Western Gas Partners (WES) and DCP Midstream (DCP).
Centennial, CO – September 12, 2018 – East Daley Capital Advisors, Inc., an energy information and insights provider that is redefining how markets view risk for midstream and E&P companies released a report highlighting potential impacts should Initiative 97 pass in the November election. Initiative 97 is creating unease for oil and gas companies and impacting equity values for several producers and midstream companies that operate in Colorado. If passed, the Initiative would have a tremendous impact on earnings for many oil and gas companies that operate in the state.
“A potential sudden hit to growth or elimination of growth for pure-play Denver-Julesburg (DJ) producers, such as Extraction Oil and Gas and SRC Energy, is the likely culprit behind equity price volatility,” said Justin Carlson, VP and Managing Director, Research at East Daley Capital. “When it comes to midstream companies, Western Gas Partners and DCP Midstream are watching this regulatory risk closely. Other companies could also be impacted by the ruling, as Williams recently purchased the Discovery System in the area and there are many gas, oil and NGL pipelines that would also be affected.”
East Daley analysis indicates that there would be a trickle-down impact to midstream companies. Of the midstream companies that East Daley monitors, Initiative 97 would have the largest impact to Western Gas Partners and DCP Midstream. As of August 22, there were 31 active rigs in the DJ Basin, 12 of which were connected to DCP Midstream’s assets system and 13 of which were connected to Western Gas Partners’ DJ footprint. Using East Daley’s Production Scenario Tool (PST) specific to Western Gas Partners and DCP Midstream’s G&P systems and replacing the current rig assumptions with the proposed drilling ban in January 2019, the resulting production forecast is a natural volume decline for each system.
The Colorado secretary of state confirmed in August that the number of required signatures met the threshold to get Initiative 97 on the November ballot. However, the Initiative will face widespread opposition from political leaders on both sides of the aisle. According to the Colorado Oil & Gas Association (COGA), the initiative would eliminate about 94% of non-Federal land in Weld County, which is where most Colorado oil and gas drilling is occurring.
Contact East Daley for more information on how Initiative 97 is impacting the midstream market. East Daley will continue to monitor this initiative and report updates as they become available leading up to the November elections.