Assessment of Oil and Gas Industry Economic and Fiscal Impacts in Colorado

Written by Brian Lewandowski and Richard Wobbekind on . Posted in Volume 1 - Issue 1

Commodity Prices 2000–2012The oil and gas industry, along with nearly all extraction industries, inherently provides substantial economic benefits due to its integrated supply chain, high-wage jobs, and propensity to sell nationally and globally. It brings in outside investment and often operates in rural areas where high-wage jobs are scarce and industry is fleeting.

Much of Colorado’s oil and gas is sold outside of the state, contributing wealth to owners, employees, governments, and schools, all of which are beneficiaries of oil and gas revenues. In 2011, Colorado’s oil and gas industry recorded $10.5 billion in production value, accounting for some 27,300 direct drilling, extraction, and support jobs with average annual wages in excess of $105,000. Coupled with the oil and gas supply chain within Colorado—transportation, refining, wholesalers, parts manufacturers, and gasoline stations—direct employment totaled nearly 49,400 jobs, with average wages over $80,000, which is 65% higher than the state average for all industries. Collectively, this industry contributed nearly $3.8 billion in employee income to Colorado households in 2011, or 2.9% of total Colorado salary and wages. In addition, $664 million went to private land owners in 2011, assuming private land owners capture royalty and lease terms similar to those of the government.

The oil and gas industry contributed substantial public revenues in 2011—totaling nearly $1.5 billion, of which $861 million was derived directly from severance taxes, public leases, public royalties, and property taxes. This industry is subject to taxes and assessments beyond what other industries contribute. Ad valorem taxes, for instance, are 3 times higher for oil and gas production than for commercial property within the state and 11 times higher than residential property. Oil and gas property taxes exceeded $510 million in 2011. Severance taxes paid by the industry totaled $130.7 million in 2011. The industry also paid $282.9 million in royalties to state and federal governments in 2011, of which $150.4 million stayed within Colorado. The State of Colorado received almost $64.7 million in state lease revenue from oil and gas in 2011, a record high. Oil and gas prices tended to be relatively volatile from 2000–2011, causing government revenue driven by production value to fluctuate year to year. Price stability is expected moving forward, primarily due to technological improvements in drilling and extraction, and greater reserve estimates.

While this industry has substantial operations on state and federal lands, a vast majority—more than 69%—transpires on private lands. The oil and gas industry is dominated by gas production, with natural gas accounting for 64% of sales-based value in 2011, oil accounting for 32%, and carbon dioxide, 4%.

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