Paying to pump

Missing oil and gas severance tax revenue


Denver was number three in a survey of the top 10 oil-and gas-cities in the world done by Rigzone, an industry employment and data clearinghouse.

The list comes from a poll of 8,000 industry executives and engineers focused on the places with oil-and-gas industry growth and opportunities.

Colorado’s opportunities lie in tight sands and shale formations — especially the oil-rich Niobrara shale. Niobrara may hold a reserve the equivalent of as much as 2 billion barrels of oil, according to industry estimates. The number one city in the survey was Dubai, United Arab Emirates; followed by Calgary, Alberta; Denver; Singapore; and Jakarta, Indonesia.

Colorado is rich in natural resources but we don’t benefit too much. The late energy analyst Randy Udall said Coloradans think of themselves as smart progressives as opposed to the dumb rednecks of Wyoming. But “we are playing the rube” and being seriously screwed by the fossil fuel industry. Udall devastatingly documented this in a 2008 report called “Torched and Burned: Why Does Colorado Subsidize the World’s Most Profitable Industry?” (You can view it at In 1977, Colorado imposed a “severance tax” to capture some of the wealth that is lost when non-renewable natural resources are extracted from the earth.

Although the state assesses a nominal 5 percent severance tax on oil and gas producers, there are many exemptions and deductions which reduce the effective rate to 1.9 percent. This is about one third of what the energy industry pays in nearby states. Udall noted that Colorado producers would have had to pay $1.3 billion more in taxes between 2002 and 2006 if their oil and gas wells had been located in Wyoming.

Colorado — unlike other states — allows energy companies to deduct the county property taxes they pay from their severance tax bill. This loophole — the “ad valoreum” deduction — currently costs the state $200 million or more each year. Three-fourths of Colorado’s wells pay no severance tax at all. These “stripper” wells, which provide 60 percent of the state’s oil and 20 percent of its natural gas, have become extremely profitable.

Udall stressed that “mineral riches can be viewed as a windfall to squander or as an inheritance to conserve.” In the 1960s, Norway and Britain each discovered 30 billion barrels of oil in the North Sea. The British spent most its proceeds each and every year while Norway established a special reserve called the Petroleum Fund which has grown to $315 billion, which provides about $70,000 for every man, woman and child in that country.

The nations of Kuwait and the United Arab Emirates have similar “rainy day” permanent funds. So do the states of Alaska, Wyoming and New Mexico. Udall noted, “The Alaskan fund is valued at $40 billion. Each resident of the state received a check of $1,600 this year. High school graduates in Wyoming get free college tuition, thanks to the $3 billion in that state’s fund. The Navajo Nation, which sprawls across parts of Utah, Arizona, and New Mexico, has put aside $1 billion into their permanent fund.”

He asked, “If they can do it, why can’t we?” In 2008, Udall supported Gov. Bill Ritter’s statutory Amendment 58 which would have eliminated the ad valorem tax credit and would have changed how the tax-exempt “stripper wells” are defined. Sixty percent of the new revenue would have funded college scholarships. Fifteen percent would have helped alleviate the local impact of the oil and gas industry on transportation and water quality. Fifteen percent would have been for preservation of wildlife habitat and 10 percent for clean energy projects.

Oil and gas firms such as Exxon Mobil, Chevron, BP, ConocoPhillips, Williams, Noble, and EnCana raised $10 million to defeat Amendment 58 — a record amount for a single issue campaign. By contrast, proponents raised $1.63 million to support the measure and counter the lies about the measure increasing utility bills and pump prices.

Amendment 58 was rejected by 57.9 percent of the voters. Nevertheless, Shane Davis, a leader of Colorado’s antifracking movement, says it’s time to raise the issue again. We need the revenue given our constitutional TABOR straightjacket and the prediction that the general fund will run dry by 2025.

Tell the oil and gas bullies — pay up! 


This opinion column does not necessarily reflect the views of Boulder Weekly.