Face The State Staff Report
As Gov. Bill Ritter targets Colorado's energy sector with a controversial tax proposal, industry leaders are alleging that even the threat of passage is causing top producers to leave the state. The effect, they charge, could have a devastating impact on an industry key to helping ensure that Colorado avoids much of the economic turmoil plaguing the rest of the nation.
Jack Dagley/Dreamstime
According to Doug Hock, a spokesman for EnCana Oil and Gas, the company has already diverted $500 million in investments to Wyoming and Texas where he says the regulatory and tax environments are not so uncertain. Proponents of Ritter's measure argue that even if it is passed, industry taxes will still be lower than those of neighboring states. Hock disagrees, saying that such analysis is an "apples to oranges comparison."
EnCana is one of Colorado's largest energy operators with an in-state workforce of approximately 1,000. According to Hock, wells in Wyoming are generally twice as productive as wells in Colorado. He says this fact allows for companies to remain profitable while still paying higher taxes. The Piceance basin in Colorado, where EnCana does most of its drilling, is one of the most expensive places to drill in the lower 48 states.
“EnCana’s investment dollars flow to the areas where there is an ability to see a good return on our investment,” said Hock. "This tax will reduce our ability to operate.” Hock also expressed concern about the soundness of raising taxes during a period of slow economic growth. “Unemployment is the highest its been in 18 months, and it doesn’t seem like the right time to be imposing a tax like this on one of the biggest economic drivers in the state,” he said.
Last week, Ritter announced that he will pursue a citizens initiative to ask voters to raise Colorado's total effective tax on the state's oil and gas industry from 5.7 percent to about 8 or 9 percent. Ritter says the impact would be an additional $200 million annually, of which 60 percent would go to need-based college scholarship. In addition, 15 percent of the additional revenue would go toward clean water projects in western portions of the state impacted by the energy boom, and the remaining revenue would be split between wildlife protection and development of clean energy sources.
Ritter's proposal is in addition to a number of initiatives proposed by environmental groups which also seek an increase to the severance tax. At least 76,000 valid signatures must be submitted to the Secretary of State by August 4 for a question to appear on November's ballot.
As Face The State previously reported Ritter’s decision on how to divide the money was based on internal polling which indicate voters were most likely to support a tax increase that would benefit families struggling to pay tuition.
But western business leaders are now speculating that Ritter's revenue projections may be hampered by the fact that other major producers are considering joining EnCana in investing elsewhere. The impact, they allege, could be devastating on the state's economy.
According to Reeves Brown, executive director of Club 20, a prominent business coalition for 22 western slope counties, "oil and gas fuels our whole economy." Reeves believes that Colorado’s economy is doing better than most states in large part because of its booming energy sector. Ritter’s proposal, he adds, threatens to drive away an industry that is insulating Colorado from an economic nosedive.
In 2007, Colorado produced a total of 20,754,356 barrels of oil. The four largest western Colorado counties - Garfield, Mesa, Moffat and Rio Blanco - are responsible for more than one third of that total, yielding 7,247,509 barrels in 2007.
“The influx of capital that is keeping Colorado’s economic head above water will dissipate,” said Sen. Josh Penry, R-Grand Junction, who worries that the tax increase will be passed along to the consumer when energy prices are already at all time highs.
Colorado did not always have a strong energy economy. Record low profits in the 1980s and 1990s kept major industry leaders from seeking out Colorado as a target for exploration. According to Rhonda Deimer, the state's fields were seen as small and difficult to access. Deimer, who has spent almost 30 thirty years in the industry and is a land manager at Ellora Energy Inc., in Boulder, attributes technological improvements over the last decade together with better transportation and increased pipe capacity as a major reason why Colorado has become a more cost effective and efficient investment.
Deimer believes that a prejudicial view against the industry is driving much of the current debate. "[Oil and gas] companies do a lot of good,” she said, “I'm not saying they can't do more, but the industry is very proactive in trying to be a good citizen and a good neighbor.”
Brown expressed frustration that the proposed tax would only divert 15 percent of total revenue generated to impacted areas. “We have not seen the effects of the recession and that is almost entirely due to the oil and gas industry,” said Brown. “Lots of young people have been moving [to the Western Slope], who are making great salaries and putting that money back into our economy.” While the rest of the nation is struggling with foreclosures, Brown points out that housing units in Garfield, Mesa, Moffat and Rio Blanco counties cannot pop up fast enough to meet demand of workers moving there for jobs. The City of Rifle alone reports it needs $60 million for sewer and road projects to keep up with growth.
“If it’s a priority of the Governor to mitigate those impacts then that’s where the money should go since that is where it is coming from,” said Brown. “The severance tax proposal was crafted by education and environmental interests. The local communities were left out of that discussion.”
When asked how he expects local communities to react to a tax increase they are going to see little of, Browns says, “We’re voting no.”