The Canada Pension Plan has a track record of questionable investments – now it's sunk $609 million USD in oil and gas drilling operations in rapidly growing suburban areas north of Denver despite a storm of local opposition
This scene has been repeated around the world in Nigeria, Ecuador, Indonesia and elsewhere. In what economists call the “resource curse,” countries with minerals or oil are exploited by foreign powers and end up with damaged land, poisoned waters and sullied air.
In a new twist to an old tale, however, the foreign power in this case is Canada, and the indebted nation is the United States. Specifically, Boulder County, Colorado.
It began in October 2015, when the Canada Pension Plan Investment Board (CPPIB), the $368 billion behemoth that invests payroll withholding taxes from Canada’s workers on behalf of 20 million contributors, announced a $609 million USD deal to purchase all of the oil and gas assets in the Denver-Julesburg Basin owned by Canadian oil and gas giant Encana.
Many of Encana’s holdings were located in rapidly growing suburban areas near homes and schools north of Denver astride the Interstate 25 corridor between Colorado’s capital and its fourth-largest city, Fort Collins. Others were in communities that had banned hydraulic fracturing, or fracking, such as Broomfield and Boulder counties. The oil and gas industry challenged those bans, and the legal fight reached the Colorado Supreme Court as the Encana deal was being negotiated. The fracking bans were overturned, and when the dust settled, CPPIB had picked up a chunk of sub-surface Colorado real estate and wells producing approximately 30 per cent less than had been announced just months earlier.
It was moving full-steam ahead into a Colorado firestorm of opposition. With all the investments in the world available to them, why would widows in Winnipeg, retirees in Richibucto and teachers in Toronto choose to invest in Colorado’s escalating fracking wars?
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Crestone’s 15-well Wooley Sosa development.
It may simply be that the CPPIB was willing to go where other companies wouldn’t – the pension board thought they scored a deal from a distressed seller that would yield strong long-term results for their beneficiaries.
The fact that the CPPIB created a new oil and gas company in Colorado, the CPPIB-registered Crestone Peak Resources LLC, rather than simply investing in an existing Canadian-owned one added another quizzical twist to the deal.
John Bennett, a senior policy advisor at the environmental group Friends of the Earth Canada, suggests it may be because fracking is highly controversial in Canada, where three of 10 provinces have banned the practice.
“I don’t think they would ever have invested in a fracking company in Canada,” says Bennett. “Most Canadians would be surprised to know they own a fracking oil company in Colorado.”
Denise Melanson, 70, is one such Canadian. A retired medical social worker who lives in Richibucto, New Brunswick, Melanson had been involved in passing the moratorium in the province. Melanson also receives two pensions from the CPPIB: one that she paid into during her years of employment, and the other she calls an “old-age” benefit that she started receiving when she was 65.
When she learned that some of her benefits might be coming from fracking operations in Colorado, she said in a phone interview, “I was horrified. I’d much rather not be receiving money that was earned by making other people miserable.”
Most Coloradans would also be surprised to know that Canadian pensioners are invested in drilling operations in suburban backyards.
“I have to wonder if the beneficiaries of the pension fund’s investments understand what they’re investing in,” says Boulder County Commissioner Elise Jones. As far as she knows, virtually every elected official in the county – including those from its municipalities – as well as the overwhelming majority of people who live here, oppose the kind of residential drilling plans Crestone is proposing.
Concerns range from the planned drilling around homes and schools, to negative health effects from the industrial facilities’ emissions, to the oil and gas industry’s impact on the Denver metropolitan area’s persistently poor air quality.
FOLLOWING THE MONEY
Along with its purchase of these controversial assets, Crestone was also invested in Colorado’s 2018 election.
Oil and gas issues figured prominently up and down the ballot, from the governor’s race to several ballot initiatives. And Crestone contributed $607,500 to support groups that directly or indirectly opposed Proposition 112, the failed initiative that would have required new oil and gas development to be placed at least 2,500 feet from homes and schools.
Crestone, for example, donated to the pro-industry group Protect Colorado, which campaigned to defeat 112, and other political groups backing Republican state legislature candidates that unswervingly support the oil and gas industry.
Austin Graham, legal counsel for the Campaign Legal Center in Washington, DC, reviewed Crestone’s contributions for their legality.
Federal law requires that foreign-owned companies’ contributions to state campaigns meet a two-part test: the contributions must be drawn from money made from U.S. operations and the person making the decision to donate must be a U.S. citizen.
But since Crestone is a privately held, Canadian-owned company, it is not obvious where the money came from or who made the decision to contribute to the election.
Crestone states in an email that it follows all state and federal laws, and as a company operating in Colorado, “Crestone allocates a certain amount of funds each year to dedicate to organizations and initiatives that are important to our team. Crestone leadership ultimately makes the decision on which organizations these funds are donated to.”
Those organizations include “independent expenditure committees,” which are also allowed to receive contributions from foreign-owned corporations.
“Regardless of whether any laws were broken,” says Graham, the CPPIB “spent a substantial amount of money trying to influence Colorado voters.”
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A home was blown up by a gas leak from a severed gas line killing two people in Firestone, Colorado in 2017.
RESIDENTIAL IMPACTS OF OIL AND GAS DEVELOPMENT
Crestone has applied for a Comprehensive Drilling Plan (CDP) to move into Boulder County, but the applications for drilling permits are still awaiting approval from the Colorado Oil & Gas Conservation Commission (COGCC), which is slated to meet about Crestone’s CDP in late April in Boulder.
If approved, the plans will have to survive an ongoing lawsuit filed by Boulder County that a judge recently ruled must wait for the COGCC’s final approval to move forward. The company will be subject to Boulder County’s new oil and gas regulations that went into place in March 2017. A bill that would impose greater regulation upon the industry, in part by beefing up local control of drilling, may bolster Boulder County’s position. However, industry representatives have vowed to develop their mineral rights in accordance with whatever Colorado law permits.
Although Boulder County has not seen any new drilling since its ban was lifted in 2016, the impacts of residential oil and gas development are plain to see.
In Weld County, there are 21,694 active wells, according to COGCC. At the same time, new homes have been built within 120 feet of existing oil and gas facilities.
Pressure has been mounting for years around the state to put some brakes on the industry. There have been repeated fires at oil and gas sites, as well as a deadly explosion in 2017 from an abandoned pipeline located less than 200 feet from a home in Firestone, which killed two people. Recent scientific reports state that Weld County’s hydrocarbon production is sullying Boulder County’s air and contributing significantly to pollution in the Denver metro region, which has placed Colorado in the crosshairs of the Environmental Protection Agency for its worsening “non-attainment” of federal clean air standards.
Map showing the location of oil and gas assets in the Denver-Julesburg Basin. There are some 21,694 active wells in Colorado’s Weld County alone.
WELCOME TO “EERIE”
Perhaps no place illuminates these conflicts better than Crestone’s operations in Erie, a former farming community in Boulder and Weld counties with a population of about 2,000 that has grown to a bedroom community of about 25,000 residents today. The first citizen complaint against Crestone’s operations with the COGCC was filed just three months after the CPPIB/Encana deal was finalized.
Noise from a drilling operation smack in the middle of Erie was so loud it was “like a huge semi truck parked in our driveway,” according to one complaint. Others reported rumbling and shaking of Erie homes, pictures falling from walls and disturbing vibrations night and day for weeks on end. Dank smells emanated from the drilling sites, which were just a few hundred feet away from rows of homes, parks, schools, a skate park and even the city offices. Residents joked that their town should be renamed “Eerie.”
Monica Korber who works from her Erie home as a consultant, recalls trying to sleep while her bed was shaking through the night. Soon dozens of people were sharing stories on social media and asking what Crestone was doing to rattle their lives so viscerally. “We never got a straight answer,” Korber said.
After the rumblings stopped the project, Crestone pressed on. Soon, Erie residents were complaining at COGCC meetings and on the agency’s website about noxious smells, leaks, nosebleeds, headaches, industrial noises and lights burning all night outside their bedroom windows.
Erie’s experience with Crestone isn’t isolated. More than 1,000 complaints against Crestone’s operations were filed with the COGCC between November 2016 and February 2019 – almost twice as many as the next five oil and gas companies conducting business in Colorado combined.
Crestone spokesperson Jason Oates has repeatedly stated that residents have abused the complaint process in Erie by organizing complaining campaigns.
In its email response to my questions, Crestone’s public relations department says that, “while none of the complaints resulted in a violation of state standards by the COGCC or the CDPHE [Colorado Department of Public Health and Environment], we knew we needed to make some changes in our operations. We took an above-and-beyond approach to further lessen the temporary impacts that we may have on neighbouring communities.”
One flurry of complaints came after Crestone’s operations caused a release of toxic gases at a site in Erie just 25 yards from the Aspen Ridge Preparatory School playground in September 2017. Crestone was plugging and abandoning a set of wells, and had been venting large quantities of volatile organic compounds before a resident smelled noxious fumes and complained to the COGCC. Those toxic emissions wafted directly onto the school playground of the Kiddie Academy Childcare Center and the elementary school, according to the COGCC’s report on the incident.
The COGCC ordered Crestone to cease operations until the problem was fixed, but parents say they didn’t hear about the leak for months. Mark Kadlececk, who has three children who attended Aspen Ridge, found the “Notice of Alleged Violation” posted on the COGCC website more than six weeks after the violation.
The COGCC fined Crestone $10,000, according to Mike Leonard, the agency’s community relations manager.
Christiaan van Woudenberg, one of Erie’s newly elected trustees, says that when companies like Crestone come into small communities such as Erie, dangling potential tax revenue and arguing (as Crestone spokesman Oates told a community meeting) that there are “no health impacts” from fracking, it is almost impossible not to be steamrolled. He says local elected officials are also hamstrung by state laws that limit their ability to say no to new oil and gas development.
“Erie is fracked,” van Woudenberg says. “We lost. We’re the cautionary tale.”
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Crestone’s oil and gas operations in Weld county includes 16 wells and 40 oil tanks.
Besides the fact that Crestone is seeking to operate in communities that oppose it, there’s a larger question for the CPPIB: is residential drilling in Colorado a smart investment?
Crestone continues to face legal challenges that are increasing the cost of doing business in Colorado. The company has been involved in lawsuits, protests, leaks and alleged violations of state regulations in multiple communities. Crestone, in turn, has sued the state and at least one other oil and gas company, alleging interference in its operations.
While Crestone is private, there are several clues that the CPPIB’s Colorado investment may be problematic. As of last month, the CPPIB’s website stated that the value of the investment had dropped to $543 million from the purchase price of $609 million.
Analysts are also divided about the future of shale development, with some predicting slow growth in 2019 and others convinced that many parts of the industry are burdened with debt and uncertainty regarding future regulatory regimes, international price fluctuations and the increasingly competitive cost of renewable energy technology. Other investors remain bullish on oil stocks but are moving away from riskier investments in politically volatile countries such as Venezuela, Russia, and Saudi Arabia, and are looking to U.S. fracking operations as a safer alternative. Both Noble Energy and Anadarko reported record Colorado oil production in 2018.
Then there’s climate change. Canada, a signatory to the Paris climate agreement, faces some cognitive dissonance with the CPPIB’s fossil fuel portfolio. Financial and legal analysts as well as climate activists point out that Canada cannot export its fossil fuel investments and still claim it is moving to reduce its carbon footprint.
In a report released in January entitled Time To Act, Canadian law professors Janis Sarra (University of British Columbia) and Cynthia Williams (Osgoode Hall Law School at York University) conclude that, “The CPPIB has enormous potential to help shift governance practice to meet the issues discussed in this report.”
That potential has yet to be unleashed, says Williams in an interview. Canada is heavily invested in the oil and gas sector, and all recent indicators are that those investments “already have a lot of risk,” she says, partly exemplified by the drop in value of the Canadian dollar and declining returns from oil and gas investments in comparison to other sectors. “Why would the CPP double down on oil and gas developments?”
Various organizations in Canada have tried to push the CPPIB towards a more sustainable, lower-carbon portfolio, without much success, says Bennett. The CPPIB has expressly avoided committing itself to environmental, social and governance (ESG) investments, stating that, “Consistent with the CPP Investment Board’s belief that constraints decrease returns and/or increase risk over time, we do not screen stocks or eliminate investments based on ESG factors. The CPP Investment Board considers the securities of any issuer all of whose businesses are lawful, and would be lawful if carried on in Canada, as eligible for investment.”
As many of the affected residents have noted, what is lawful in Colorado isn’t necessarily admirable. Many state laws were written in an earlier era of oil and gas exploration. They never anticipated new horizontal drilling and fracking techniques that allow companies like Crestone to build pads of 10, 20 and 30 wells and drill underneath hundreds of people’s homes for miles in every direction. These well pads are accompanied by rows of storage tanks, condensers, combustors and separators, as well as thousands of truck trips a day in and out of these mini-industrial complexes.
BURNING UP THE PLANET
Groups looking to aggressively address climate change are targeting pension funds around the world. As concerns resonate across the globe, investments in fossil fuel companies are increasingly seen as bad bets. Viable alternatives are emerging – with better financial rewards.
In the U.S., the divestment movement has made great strides in the past few years ever since Stanford University made headlines by selling off its coal stocks in 2014. Clara Vondrich, global director of DivestInvest – a philanthropic movement that encourages large institutional investors to move away from fossil fuels in favor of more sustainable investments – says that since 2014, more than 1,000 institutional investors have committed to fossil-free investments, with growth of capital investments rising from $52 billion to more than $8 trillion today.
Various backdated investment comparisons such as those done by the U.S. divestment advocacy group As You Sow confirm that portfolios without fossil fuel investments would have performed better than those with them. Says Vondrich: “These are underperforming assets that are also burning up the planet.” Now, she says, the CPPIB and other large investors “increasingly have a fiduciary duty to explain why they don’t divest, rather than the other way around.”
Ted Wood/The Story Group
Crestone’s Pratt site flanks neighborhoods.
At a January 2019 conference hosted by the Rocky Mountain Mineral Law Foundation, Crestone’s Oates told the audience that the company had met all of the requirements laid out by the COGCC for its drilling plans, and Crestone would forge ahead into Boulder County despite resident and local governments’ objections. “It is how, not if, we are going to drill,” Oates told the audience.
Sara Loflin, executive director of the League of Oil and Gas Impacted Coloradans, attended the conference and was taken aback by the “arrogance” of Oates’ remarks. In response to multiple communities’ concerns ever since it started doing business in Colorado, Loflin said, Crestone has only proposed moving “closer to homes, in higher risk areas, in larger scale developments.”
In its email to this reporter, Crestone disputes this and says it aims “to operate safely, responsibly, efficiently and with minimal impact on local communities, while acting as good stewards for the land, air and water. This is a priority for us because as Coloradans, we value these natural assets, and we live here, too.”
Back in Erie, grandmother Monica Korber says that she and her neighbors suffer not just the proximity of the industrial operations, but also from the discord that they have unleashed on her community. She has joined a lawsuit against her elected officials for not doing more to protect Erie citizens.
Korber’s message to the CPPIB? “Why don’t you drill next to the homes of the people where you’re sending those retirement checks?”
Daniel Glick is a Boulder, Colorado-based journalist who has written about fracking for many years. This article is his latest for the independent multimedia outlet The Story Group. A different version of this story also appeared in the Boulder Weekly.