Billion dollar discounts on state oil and gas reserves

Release Date: October 9, 2007

Contact:
Elise Jones
Colorado Environmental Coalition
303-534-7066 x 1504
Contact:
Keith Lambert
Mayor - Rifle, CO
970-319-3758

DENVER, CO: Colorado is selling off its natural resources at bargain basement prices, resulting in the loss of more than a billion dollars in revenues that could have been used to offset the negative impacts of the energy boom, according to a new report released today.

The report, "Torched and Burned: Why Does Colorado Subsidize the World's Most Profitable Industry?", found enormous disparities between Colorado’s severance tax policies and those of its neighbors. The difference between Colorado and Wyoming is especially striking, the report found. If Colorado's oil and gas wells were located a few hundred miles to the north in Wyoming, the state would have collected $1.3 billion more in severance taxes between 2002 and 2006.

"We are offering up our natural resources to the oil and gas industry at blue-light special prices," said Randy Udall, Director of the Community Office for Resource Efficiency in Aspen. "Our neighbors in Wyoming, Oklahoma, and New Mexico are charging a fair price for the same oil and natural gas we are giving away almost free in some Colorado counties."

The state legislature imposed a severance tax in 1977 on industries extracting natural resources in Colorado. The state’s nominal severance tax rate is 5 percent, but the effective rate falls to just 2% after deductions and exemptions, according to the nonpartisan Legislative Council Staff. For example, in 2005 Colorado collected $132 million in severance taxes on the $6.5 billion of oil and gas produced in 2004. An identical amount of production would have generated $382 million in Wyoming and $479 million in New Mexico.

The report also found that:

Fully three-quarters of Colorado’s producing oil and gas wells pay no tax at all, thanks to the state’s “Stripper Well” exemption. The exemption was designed to encourage producers to continue operating older, less profitable wells. This was fair back when oil was $15 per barrel and natural gas was $1 per thousand cubic feet. Since 1999, however, prices have quadrupled. As a result, stripper wells, which provide 60% of Colorado’s oil and 20% of its natural gas, have become very profitable.
Between 2002 and 2006, Weld County oil producers paid just 0.13 percent of their revenue as severance taxes. Some Colorado oil wells now produce $400,000 worth of oil severance tax-free.
The coal industry in Colorado produces 50% as much energy as the oil and gas industry, but accounts for just 4.3% of state severance taxes.

Representatives of West Slope local governments and Colorado conservation organizations expressed support for the report’s conclusions. While not blaming extractive industries for taking advantage of the cheap prices set by Colorado, they said the report showed a clear need to raise the state severance tax, to reduce tax subsidies on an industry that’s making record profits, and get a fair return on the sale of finite public resources. The recommendations closely mirror those made by the Colorado State Auditor in a 2006 report on the shortcomings of the state severance tax system.

"Coloradans pride themselves on fiscal discipline and common sense," said Elise Jones, Executive Director of Colorado Environmental Coalition. "Yet as we struggle to fund education, transportation, conservation and health care, our state is in effect leaving hundreds of millions of dollars on the table each year. These subsidies don't benefit our communities, but instead line the pockets of an industry that earned $9.6 billion in revenues in 2006 alone."

While the oil and gas industry is quick to tout the economic activity generated by the energy boom, the 10 counties that produce most of Colorado’s oil and gas are struggling to deal with the increased strain placed on their communities and government service providers. Overcrowded schools, degraded roads, poor air quality, and housing shortages are now a part of everyday life for many residents of western Colorado towns like Rifle, CO. And the burden this drilling activity places on the state’s communities is only going to increase as the pace of drilling escalates in the coming years.

"The oil and gas industry is purchasing state resources at an extreme discount while leaving communities like mine struggling to keep up with the needs in all sectors of city services. The impacts being caused by the extractive industry need to be paid for by that industry," said Mayor Keith Lambert of Rifle, CO. "Its high time we ask a fair price for a valuable commodity."

For a copy of the report, please visit www.ourcolorado.org/media-center/reports/torched-and-burned.pdf

###