Since the inauguration of Governor Bill Ritter two years ago, the Governor and his Administration have focused on building a “New Energy Economy.” While the Administration’s “if you build it, they will come” approach should be applauded as a means to support the growth of the burgeoning industry, the Administration and the General Assembly’s Democrat majority should be applying the same supportive approach to the oil and gas industry. Instead, the Administration and the Democrat majority have taken an unjustifiably adversarial approach towards the industry. This approach has and will continue to have devastating effects on our State’s families and communities.
As I opined in the recent article entitled, “Give Them a Reason To Stay and Invest: Stop Burdening and Penalizing Colorado's Growth Industry”, rather than turning a cold shoulder to the State's primary growth industry, the Administration should be focused on providing the oil and gas industry a reason to stay and invest. In a period of time when the oil and gas industry is being negatively affected by tight credit markets and falling oil and gas prices, the Administration and the General Assembly should be exploring ways to strengthen the State's largest industry (i.e., 6 percent of the State's economy). As recent newspaper accounts have vividly illustrated, many Colorado families and communities are virtually dependent on this industry that operates in at least 42 of Colorado's 64 counties.
Unfortunately, the Administration and the Democrat majority appear intent on approving adversarial and burdensome regulations adopted by the Colorado Oil and Gas Commission (COGCC). In late 2008, COGCC passed approximately 100 unprecedented and overly restrictive rules that will have detrimental economic effects on the industry’s operations and future investments in Colorado. Even though the regulations have met well articulated and thoughtful opposition by Republican legislators, the Democrat majority is likely to approve the new regulations in their current form.
There is a chance that Democrat support for the regulations may erode based on a recent report by the Associated Press. According to the Associated Press, the Administration may have provided the General Assembly misleading fiscal data prior to the approval to rewrite the oil and gas regulations. Specifically, the Administration told the General Assembly that developing the oil and gas regulations would cost less than $7,000 in the first year. However, a conflicting internal Administration document that estimated the cost of implementing the regulations at $1.2 million in fiscal year 2007-2008 was not provided to the legislative council research staff responsible for the General Assembly’s fiscal impact statements. Recently, in addition to requesting the Colorado Attorney General to review the legality of the Administration’s actions, Republican legislators have also argued that the new information should persuade the Democrat majority to revive Senate Bill 4 (i.e., proposed postponement of the implementation of the controversial and burdensome new regulations). Based on the recent Associated Press report and current economic conditions, the prudent course is to revisit Senate Bill 4 or explore an alternative that effectively postpones the implementation of the regulations.
The oil and gas industry is one of the few economic sectors in Colorado that actually created high-paying jobs in the past year. However, with the likely application of the State’s new regulatory burden combined with the tight credit markets and decrease in oil and gas prices, the industry has already begun cutting operating budgets and cancelled future investments in Colorado. Specifically, layoffs and hiring freezes are common across the oil and gas fields in recent weeks as rigs are either tore down or idled. Even those employees lucky enough to avoid layoffs off are feeling the economic bite, as many companies are reducing employee hours, demoting employees to lower paying positions or rescinding raises. The list of companies laying off employees or scaling back development is a virtual who’s who of industry leaders, including Delta Petroleum, Chevron, Cyclone Drilling Inc., Williams Energy, Questar Corp, EnCana Oil & Gas, Bill Barrett Corp., Berry Petroleum, and Williams Production RMT.
According to some recent reports, companies have already shut down at least one out of every 10 drilling rigs in Colorado. In the coming months, industry sources predict that the number of rigs will drop by between 40 and 60 percent. For example, EnCana Oil & Gas is decreasing it operations in the Piceance Basin from 15 rigs to five and Williams Production has idled six of its 26 rigs. Each rig that shuts down costs the State critical tax revenues and well paying jobs. With the State’s unemployment rate at 6.1% and the national unemployment rate even higher, the Administration and the Democrat majority must finds ways to ensure that the jobs in this critical industry do not erode any further.
In summary, the Administration’s “if you build it, they will come” approach for the State’s “New Energy Economy” should also be applied to the oil and gas industry. As such, before the Democrat majority approves the Administration’s new burdensome oil and gas regulations, they should take a step back and seek a wiser, more economically beneficial approach. There is still time to change course. Colorado families and communities deserve better than simply turning a cold shoulder the State’s top industry.
