By Lindy Browning | Contributing Writer, Rocky Mountain Voice
In an informational work session, Chris Clark of Laramie Energy gave Mesa County Commissioners Cody Davis and JJ Fletcher an update concerning how ever-increasing regulatory policy in Colorado is not only impacting smaller oil and gas companies, but also cutting into the county budget.
Energy producing counties have relied on their share of the severance tax, a tax that is extracted from fossil fuel energy developing companies that is designed to cover infrastructure impacts like water development, roads and local entities.
In the past, severance tax dollars paid for local libraries, hospital wings, firefighting facilities and equipment, municipal water line replacements, and funded upgrades to local schools, among many other local infrastructure projects.
Clark used an example from Plateau Valley School District 50 to make his point to Mesa County.
“Plateau Valley School District will be impacted by significant changes to Colorado’s regulatory environment. So significant are the impacts that the recently voted on and approved new school construction and bond are likely to default unless the locals pay upwards of four times their property tax, as opposed to what they paid prior to the bond was approved,” he said.
Continuing, he said Plateau Valley School District relies heavily on natural gas extraction for tax revenue. Natural gas is in the middle of a very depressed market and Colorado, from a regulatory and cost burden perspective, has become the second most difficult state to do business in.
Because of ever increasing cost burdens, operators on the Western Slope have to decide if it’s fiscally viable to continue as growing businesses, he said. The loss of jobs and revenue will negatively impact local communities that rely on the industry.
According to Clark, there is a huge risk for permanent rural community impoverishment.
“Ultimately, and most significantly, Colorado tax and regulatory policy has shifted from taxable value to the counties first and state second, to ‘the state comes first’ priority. It’s a ‘county gets what is left over’ after the state takes a big bite methodology,” Clark summarized.
Mesa County was once a hub for oil and gas development. Currently there is only one drilling rig operating in the county.
According to Clark, Laramie Energy is the only company on the Western Slope that is going to be developing wells: “Virtually all operators have gone out of business or are dormant,” Clark said.
Regulatory changes that are highlighted in Clark’s presentation are just a small representation of the ever-increasing regulatory burden with which companies across the state are doing their best to comply.
A newly imposed “enterprise fee” will take effect in 2025. That fee will be equivalent to 1 percent of the production revenue.
In addition to the enterprise fee, another change in the cost of regulatory burden comes from a new fee to fund orphan wells in Colorado. While there is a significant increase in orphan wells, many people will argue that the increase in abandoned wells is a direct result of the regulatory burden being so costly that companies are being driven out of business.
The cost of the bond on each well has risen, depending on the classification of the operator, as much as $130,000 per well. If the operator has a large number of wells, that number can be more than $100 million.
New regulations that fall under this category of “not making sense” to Western Slope operators, include regulations that mandate that operators electrify production equipment using the electric grid. To an operator, that is miles from any electric infrastructure, this may seem not only ridiculous on its face, but the glaring definition of inefficiency.
Currently, remote operations during early-stage development, power their equipment with generators; once a well is completed, they have equipment that allows the gas they are producing to energize the production facility. It makes no sense to have them run electricity from the electric infrastructure, when, in many cases, more than 20 miles through dry forests (fire risk) to power what they are already safely able to provide without creating temporary and risky, and expensive power lines.
According to estimates provided by Laramie — projecting the increasing fiscal impact to Mesa County — a 14.4% decrease in tax revenue could be realized, not including the severance tax reductions, because the state is taking their money out of the generated revenue first, in order to pay for, what Clark says, is “overreaching regulatory burden and cost.”
In 2024, Laramie Energy paid almost $8 million dollars in tax revenue to Mesa County. In 10 short years, according to financial projections, Mesa County will only receive just more than $4 million from Laramie Energy.
“I think that what you are doing in giving us this update is a good thing,” Davis said. “That long runway gives us insight into forward impacts.”