Report: High oil prices driving the shift away from gas drilling

The oil and gas industry is leaving states like Colorado to invest in oil production in states like Texas and North Dakota, due to the strength of crude oil prices compared to natural gas, according to a new report by Headwaters Economics.

The report was released this week at a news conference in Grand Junction.

Researchers analyzed Colorado's oil and natural gas industry including production volume and value, drilling activity, and the role of energy production in the state's economy.

Headwaters is a nonprofit, independent Montana-based organization that researches issues important to the West, concerning energy, planning, natural resources, tourism, recreation and public lands.

The report found that Colorado's oil and natural gas industry is performing in line with national trends and has recovered a significant share of pre-recession drilling activity, particularly on the Front Range due to the availability of oil and natural gas liquids.

?We looked at six Rocky Mountain states, including Colorado,? research economist Mark Haggerty said. ?The big take-away is all industry activity is driven by price. There's been a big shift between natural gas and oil prices. Oil prices are high so the industry is reducing its investments in natural gas and leaving states for Texas and North Dakota,? where there are proven oil fields.

Researchers looked at both the fossil fuel and renewable energy industries to determine changes that have occurred and how that has affected the economy.

Oil and gas extraction in Colorado accounted for 1 percent of employment in 2010, although the report did not break that statistic down by county. Employment with the industry is more significant in Mesa and Garfield counties.

The report found Colorado has strong competitive advantages in the renewable energy sector, and investment could be important for diversifying the state's economy and energy portfolio. ?Green jobs,? of which renewable energy is a part, accounted for 2 percent of all employment, according to the Brookings Institute.

The report also showed that Colorado's effective tax rate is lower than most energy-producing Western states, meaning Colorado collects less tax revenue than its peers. Colorado will collect $700,000 less from each new well compared to Wyoming, the state with the highest effective tax rate.

Geology, the price of oil and gas, and available technology is what drives industry decisions on where to invest, the report found.

?So we don't see taxes affecting where the industry goes,? Haggerty said.

David Ludlam, executive director of the Western Slope Colorado Oil and Gas Association, disagrees.

?The thrust of the report is the time is right to raise taxes on the industry,? Ludlam said. ?We believe the opposite. All of the industry pays their fair share. We do, and more.?

Colorado not only has a lower tax rate than most of the other Western states, it also ?takes the longest time to collect revenue, with the last revenue coming 13 months after the end of the three-year production period. By comparison, North Dakota and Montana collect revenue within one to four months after the production period ends,? the report states.

Colorado's revenue from resource extraction is more volatile than in other states due to its low tax rate and longer collection lag period, Haggerty said.

?We think that has consequences for communities that need to have [money] to mitigate impacts, and benefit from the resources,? Haggerty said.

Headwaters Economics does not lobby or support legislation.

?Our goal is to promote information and discussion on these important issues,? Haggerty said.

The full report can be viewed at http://headwaterseconomics.org/energy/western/colorado-oil-and-gas/.

ssullivan@gjfreepress.com

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