On the day the Senate Finance Committee heard Senate Bill 181, the Protect Public Safety Oil and Gas Operations bill, the Denver metro area had an air quality index reading of 152, or unhealthy. That’s three times worse than Beijing, China on the same day. Bad air comes from cars at 50 percent and oil and gas drilling at 50 percent.
The number of wells in Colorado is a guess. Some estimate 80,000 – 90,000 wells, with 60,000 or so active and 20,000 closed. The Colorado Oil and Gas Conservation Commission (COGCC) has 6,000 permit applications currently stacked up that came in before the November election on Proposition 112.
A recent analysis in the news media outlines some of the risk variables in energy economics: oil caps from OPEC; demand from China and the rest of the world; chaos in Venezuela; controls on Iran, and cautious funding sources in the U.S. The article does not mention SB19-181 and its potential regulations to make drilling and operations safer.
Senate Republicans, particularly Paul Lundeen from Colorado Springs, are very concerned with economic uncertainty and the energy business. Lundeen worries that local communities sitting on top of the large oil and gas reserves in the state will impede, even prevent drilling. SB19-181 gives localities more control over well siting, pollution controls, noise, and other drilling impacts. The COGCC will also exercise different control, emphasizing public safety as a deciding factor before authorizing permits.
On the other side, residents of towns near or on top of energy development take on the most risk, relying on the industry to follow safety procedures and avoid waste from leaks and flaring. This risk is heightened by the fact that the state doesn’t know where all the wells and lines and pipes and plugs are located. One requirement of SB19-181 is to map and make public the location of current and past drilling operations.
The Senate Finance Committee heard a great deal about taxes and energy development. Two taxes are particularly pertinent: the severance tax that the state collects and divides in proscribed ways and ad valorem or oil and gas property taxes collected by counties. Severance and ad valorem taxes are based on the premise that oil and gas under Colorado and its localities are resources that belong to the people of the state. When the resources are depleted, the state and localities where the resources derive deserve compensation.
Severance taxes vary by year, depending on oil and gas production and ad valorem impacts, as the oil and gas property tax is deducted from severance tax liability. According to a Colorado Legislative Council study, severance tax averages .06 percent and combined severance and ad valorem taxes average 6 percent. This 6 percent places Colorado in sixth place among 10 nearby energy producing states. It’s below Texas, Wyoming, North Dakota, New Mexico, and Montana.
Coloradans are now on the hook for the cost of plugging orphan wells at an average cost of $82,000 per well, depending on well depth, according to the COGCC. There’s additional risk to taxpayers in the per-well bonding amount paid by companies. The industry puts up $6,000 to $10,000 per well, with total bonding per company at $100,000. At the most generous calculation, that’s about $600 million of bonding for 60,000 active wells. But the more likely cost is about $5 billion just for active wells. Who’s going to make up that difference and more for remediating many closed wells?
The auto industry resisted seat belts and air bags as too expensive, but most people today wouldn’t put their kids in cars without those features. The auto industry experiences many risks, just as oil and gas does. But making cars safer has turned into a winner.
SB19-181 passed the state Senate Wednesday with amendments. It now moves to another set of hearings in the House.
Paula Noonan owns Colorado Capitol Watch, the state’s premier legislature tracking platform.