$13.5 billion in GDP, $1 billion of public revenue supporting schools, social assistance programs, parks and water infrastructure are in question

A new study from the University of Colorado Denver Business School’s Graduate Energy Management program itemizes the significant economic impact from Colorado’s oil and gas upstream and midstream subsectors, calling oil and gas “a critically important spoke in the wheel of the state’s diverse economy.”

The study uses U.S. Bureau of Economic Analysis data from 2017, which is the most current and complete year on record. It was paid for by the Colorado Oil & Gas Association.

The dollars injected into economy by oil & gas

As of 2017, the upstream and midstream subsectors alone were responsible for providing 89,000 direct and indirect jobs, $13.5 billion of the state’s gross domestic product, and $1 billion of public revenue that supports Colorado schools, social assistance programs, parks and water infrastructure, the study found.

“This report demonstrates how a strong oil and gas sector is a net positive, not only because of the jobs and economic impacts it provides, but also because public revenue generated from oil and natural gas activity play a vital role in ensuring that everyone in the state has access to good schools, infrastructure to meet a growing population and the great outdoors that makes Colorado exceptional,” the expanded executive summary says.

At issue is the idea that Colorado’s energy overhaul bill now making its way through the legislature, SB 19-181, has the potential to take a big cut out of these long-established revenues by changing the permitting rules and allowing local governments the full authority to either approve or deny drilling locations.

Theories range from the possibility that multiple moratoria could be initiated by municipalities across the state’s oil producing areas—mainly in the Wattenberg field in northern Colorado, the state’s most robust oil producing region. Or outright bans could be put in place by local jurisdictions that are negative to oil and gas development—Boulder County, for instance.  Or the new COGCC could slow down the permitting process to the point where drilling permits could be mired by a lengthy process of new rulemaking required by SB 19-181.

If the law goes into effect, and, based on the speed at which it is motoring through the statehouse, it is likely to pass and be signed in record time, it contains a provision to stop permitting while newly required regulations and rulemakings are figured out, ironed out, and carried out.

The CU Denver Business School’s new economic impact study says, “According to data from 2017 the upstream and midstream subsectors in Colorado account for 89,000 direct and indirect jobs, and $10.8 billion in local employee income. The numerous taxes and fees account for $1 billion of public revenue. Severance tax revenues are used by the Department of Natural Resources to manage Colorado’s 42 state parks and more than 300 state wildlife areas. Severance tax dollars are also sent to the Department of Local Affairs for grants, loans and direct payments to local governments.”

CU Denver Business School Study Itemizes $ Billions in Paychecks, Colorado Schools, Services from Oil & Gas Drilling and Production

Economic Impact on Colorado – Oil & Gas – Source: CU Denver Business School GEM study

The production and severance tax income probably wouldn’t be felt for a year or two, as many drilling permits have been issued already during 2018 and 2019. But if new well permitting slows or stops for any extended period of time, production decline rates will take their toll on state income. Meantime, when the already-issued drilling permits for those wells are initiated and the wells have been drilled and fraced and put on production, the manpower needed in the form of drilling crews and completion crews for new wells will go away.

The comment in the executive summary that references Colorado’s “challenging political environment” in 2014 rings true with SB 19-181 barreling down the path toward law, as prior efforts to slow down drilling, change the setback rules and hand over permitting to local governments were in the form of ballot initiatives that were defeated by the electorate.

Bill 19-181 only needs a Democrat majority to pass in each house, and it has already demonstrated strong likelihood to succeed based on partisan votes in committee and the Colorado Senate. The Colorado House has a wider Democratic majority than the Senate, and Governor Polis is a strong proponent of replacing fossil fuels with renewables.

For all those reasons, the political climate for oil and gas could take a turn for the worse, more so than at any time in recent memory. The elevated political risk is a disincentive for oil and gas companies or banks or other financial institutions to put faith or money into Colorado’s oil and gas landscape.

Significant revenues for K-12 education from oil and gas production

Colorado’s BEST program (Building Excellent Schools Today) receives $100 million annually from lease payments made to the State Land Board. This program serves school children in the neediest parts of the state using revenue generated from oil and gas statewide.

That money helps communities that don’t have the tax base to support the repairs of existing facilities or fund the construction of state-of-the-art schools, including with the poorest communities in Colorado.

“Oil and gas is responsible for at least seven distinct streams of public revenue, and the assessment rate on oil and gas lands value is 75 percent to 87.5 percent, as compared to 29 percent for the general assessment rate for corporate property. The state receives royalties for oil and gas production from state and federal lands and severance taxes on all production in Colorado,” the report says.

Read the report here.

 


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