Economic Armageddon or dawn of a better day?

Question: Is the sky falling yet?

Answer: It’s too soon to tell, but it’s not likely.

On April 1, new oil and gas rules went into effect that were designed to protect Colorado’s environment while still allowing the oil and gas industry to make a decent profit.

The new rules were developed after more than a year of meetings, hearings and compromises between the big players in the debate, primarily the state, environmental groups and the oil and gas industry.

The rules call for more protection of sensitive wildlife habitat, notification of nearby landowners before drilling, drinking water protection, odor control and consultation with state health and wildlife agencies, among other requirements.

Industry officials and mostly Republican backers in the state legislature have repeatedly warned that the new rules will slow oil and gas development and extraction and result in lost jobs and the exit of many drilling companies to more friendly states.

John Swartout, a spokesman for the Colorado Oil and Gas Association, said after the the new rules had been adopted that they would create in Colorado “the most expensive, time-consuming and burdensome regulatory environment in the nation.”

And Senate Minority Leader Josh Penry, R-Grand Junction, declared before a final approval vote on the rules by the legislature in late March that they would “kill jobs.”

There’s no doubt that Colorado’s rich supplies of oil and natural gas – and the jobs they provide – are a big contributor to the state’s economy. A 2007 study by the Colorado Energy Research Institute shows the total impact of the oil and gas industry on the state’s economy was $22.9 billion and the employment of about 71,000 people.

The study further notes that for every job in the industry, another 1.67 jobs are created while the state collects and distributes about $29.8 million in mineral royalties each year.  

Locally – in the northern Denver-Julesburg Basin that includes much of Weld County – the study estimates there are about 7,000 people employed in the oil and gas industry earning an average annual wage of $64,200. That’s about $450 million in paychecks being spread around the region.

Opponents of the new rules point to a slowdown in oil and gas drilling in the state in late 2008 as evidence that just the anticipation of the new, stricter rules was starting to have an effect. But rule supporters counter that a decline in activity was directly related to the precipitous fall in oil prices after $4-per-gallon gas prices peaked last summer and demand for oil plummeted due to the global recession.

In any case, 2008 was another record year for drilling in Colorado with 8,027 new permits issued – a 26 percent increase over the previous record set in 2007.

Applications down, up

David Neslin, acting director of the Colorado Oil and Gas Conservation Commission, said the number of new permit applications did fall in January 2009 over the same month in 2008. But Neslin notes that the COGCC saw a “big spike” in applications in March and could not say if those applications were filed to avoid an anticipated April 1 deadline for the new rules to go into effect.

Neslin said the state expects there will be a slowdown in permitting activity at least for the next few months as the industry adjusts to the new rules and the economy slowly improves. Another factor in play, he notes, is that oil and gas companies have amassed “an enormous inventory” of permits yet to be drilled.

Neslin notes that many compromises were struck during negotiations to soften the impact on the industry and the jobs it provides. For example, draft rules called for protection of habitat areas of 39 wildlife species and final rules were limited to 23 species.

Further, the new rules are applied to specific areas of the state rather than statewide. “We’ve tried to fit the additional rules to where they’re needed and to be as surgical as we can about it,” he said. “A one-size-fits-all approach is not in the state’s interest.”

Neslin concedes that Colorado rig activity is down about 53 percent over its peak last summer, but rig activity is down across the nation. He notes that activity is down by 72 percent in Utah, 61 percent in New Mexico and 92 percent in Montana.

“So we’re not seeing any indication that this is attributable to these rules,” he said.

Elise Jones, executive director of the Colorado Environmental Coalition, said environmental groups did not get everything they wanted from the new rules. “(They) could have been stronger, there’s no doubt about that,” she said. “But at the end of the day we celebrated a huge victory because we knew they were probably the strongest set of rules we could have gotten through with the support of the (COGCC) commission.

“There’s absolutely no question they’re light years better than what we had.”

Steve Porter covers agribusiness for the Northern Colorado Business Report. He can be reached at 970-221-5400, ext. 225, or at sporter@ncbr.com.

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