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Colorado Focus Issue 3 – Property rights, Economic Development, and Hubris

February 20, 2020

Oil and gas are the lifeblood of North America’s economies – moving goods and people – and empowering our way of life. As I came to understand the centrality of these energy sources during my time as CEO of the Colorado Oil and Gas Association (COGA), I became something like a recent religious convert, wanting to tell everyone the good news about this amazing, domestic resource! 

Well-intended individuals and companies in oil and gas embrace sharing information in two ways: 1) with the passion of an evangelical (see my work on energy poverty where I do my own evangelizing!) and, 2) with the confidence of a college professor (we are an industry dominated by scientists and engineers, after all). But when these two modes aren’t persuasive, we usually default in any given situation to our legal rights as an industry, focused on the industry’s and local property owners’ access to their mineral rights. And lately, this default has gotten us into trouble.

As this series examines what we can learn from Colorado’s 10-year transition from a state that was reliably supportive of oil and gas to today’s generally hostile environment toward that development, one of the key takeaways we can study is where we used our strengths — until they were used against us. 

If your company is relying upon either economic relevance or a legal case for property rights to gain stakeholder support, then your social risk is likely higher than you think.

Both of these things are true:

  • Colorado’s oil and gas industry has historically been interwoven into the state’s legal and economic framework.
  • In relying upon these facts, Colorado’s public has largely rejected the oil and gas industry’s case.

The situation:

It’s a short tale, the one of how two of Colorado’s greatest strengths got used against oil and gas here:

  • Again and again, we have told (and continue to tell) Colorado communities how economically vital oil and gas is to the state and to local economies. This strategy is extremely effective in neutral to supportive communities; but among an audience with any fear, doubt, or hostility, it simply raises questions like: What is the health of my child worth? Once a trump card such as health gets played, you are going to lose the purely economics argument in front of a local elected official every time.
  • By over-relying on economic arguments, the oil and gas industry painted communities into a corner. We essentially said to a city council: You need us – for jobs, to fund your schools, to meet your annual budget. As a result, communities where oil and gas development is controversial found a simple solution: figure out how to not need oil and gas revenue. While Colorado’s economy is strong and its population is growing, this path is both feasible and desirable for local officials. Instead of becoming valued community partners, we became the breadwinner the community outgrew.
  • The result has been a series of sharp divides between supportive communities such as Colorado’s Weld County and the increasingly number of hostile cities along the Front Range.
  • As with the economic situation, Colorado has for decades had a clear balance of property rights between the mineral (subsurface) and surface estates. This has ultimately given companies a legal advantage. In numerous situations, the industry has relied upon its legal advantage, which allowed them in the end to have the last say. The legal framework ensured companies and mineral owners access to their subsurface property.
  • And so, once the political pendulum swung, Colorado’s legislature changed this legal framework giving local governments a significantly enhanced authority that changes the legal calculation significantly.

I make this issue stand-alone, although the tale is brief, because I see this dynamic playing out all over North America.  

The critical mistakes companies are making:

If your company is downplaying its social risk by relying upon 1) economic relevance, or 2) property rights – then you are probably underinvesting in the bridge- and relationship-building required to create a new oil and gas paradigm.

Seize the day.   Successful companies will: 

  • Assess social risk from a cautionary tale perspective. If the legal framework – or economic needs – of your communities change, do you have the support network required to mitigate your social risk?
  • Beware the implied threats. I’ve used them and seen them used – and nothing motivates a legislature or a city council to figure out how they can live without you faster than your telling them they can’t live without you.
  • Think like a development partner. Imagine that in five years you will need to be “an invited guest” in every community in which you operate. (This is, in fact, now the case in Colorado.) What would you do differently today to ensure that you are welcome?

The last in this five-part series is on its way next week. I look forward to your thoughts on this topic!

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