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How Colorado’s oil and gas industry helps and hurts the economy

Economic benefits, like jobs and tax revenue, weigh against costs, like clean-up of environmental damage
Oil and gas operations near neighborhood
Posted at 5:08 PM, Aug 30, 2023
and last updated 2023-08-31 08:21:33-04

DENVER — When the Foard family bought a home in Aurora’s Southshore neighborhood, they never expected the sprawling grasslands nearby would be drilled and fracked by an oil and gas company.

“They have immense resources at their disposal, and we are just your average middle-class families trying to protect our kids,” Tisha Foard said.

Tisha, her husband Bill and their 9-year-old son Aiden expect drilling next door will make the company richer. But they’re worried how it will affect their community’s health and the environment.

“Where is the benefit for us? Doesn't seem like there is one. Seems like we'll be paying the cost,” Tisha said.

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Aurora community fights against oil and gas drilling near their homes

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8:24 PM, Aug 03, 2023

As Colorado's oil and gas industry plans to drill hundreds of new wells along the Front Range in the coming years, families like the Foards want to know how the financial benefits and costs of those operations will affect their lives. The answer is complicated, and not all economists agree.

Colorado is one of the United States’ top producers of both crude oil and natural gas, ranking fifth and eighth in the nation respectively, according to the U.S. Energy Information Administration.

“Colorado really is leading the way in trying to have responsible development, as opposed to no development,” said Ian Lange, an economics professor at the Colorado School of Mines.

But with much of the new oil and gas production planned near residential areas, Lange said Colorado will need to decide, “how do we balance new oil wells, cleanup of old oil wells, and then this new housing development?”

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Lange said companies are finding ways to operate more efficiently. Over the last decade, the industry has more than quadrupled its production of oil in Colorado, mostly as a result of increased horizontal drilling and hydraulic fracturing, better known as fracking.

“As they've been getting better at getting oil out of the ground, they drill less holes, but get more production,” Lange said.

Another industry shift started during the COVID-19 pandemic.

“Wall Street and other investors have been asking firms to do things differently,” Lange said.

In the last few years, Colorado’s oil and gas industry has consolidated, largely through mergers and acquisitions. Earlier this month, Chevron finalized its purchase of PDC Energy and became Colorado's biggest operator. Civitas, another major operator in the state, was formed by combining several of Colorado’s top operators into one.

Many of these companies are now prioritizing freeing up cash, paying down debt and providing share buybacks and dividends.

But are higher returns for investors leading to economic gains for Coloradans?

“Any way that you slice it, it's pretty obvious that we contribute significantly to both the Colorado gross domestic product and jobs,” said Kait Schwartz, president of the Colorado chapter of the American Petroleum Institute. “The premise that we have to choose between public health and safety and the economy is false in my mind,” she said.

The town of Frederick on Colorado's Front Range has hundreds of low-producing or inactive wells.

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The American Petroleum Institute commissioned the industry’s most recent study of its economic impact in Colorado. The industry-sponsored study found that “Colorado’s natural gas and oil supports more than 303,000 jobs, provides over $34 billion in wages and contributes more than $48 billion to the state’s economy.” But not all economists agree.

“The industry is smaller than people think,” said Chris Stiffler, a senior economist with the Colorado Fiscal Institute.

He noticed that most existing studies, like the one commissioned by API, were funded by the industry and only looked at the benefits.

“It's like playing basketball and calling your own fouls,” Stiffler said.

The industry studies also rely on estimates of “indirect” and “induced” economic effects, which can exaggerate potential impacts, he said.

“If you actually look at the total jobs, it's less than 1% of total jobs. It's about 20,000 jobs directly employed in the oil and gas industry in Colorado,” Stiffler said.

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Earlier this year, the Colorado Fiscal Institute published a report examining how the economic benefits from the industry, such as jobs and tax revenue, weigh out against costs like environmental damage, water use and capping of abandoned wells.

"A vibrant economy is important for all Coloradans,” Stiffler said. “But so are things like snowpack and forest fires. And we know fossil fuel burning is contributing to climate change."

Pollution caused by the industry will likely cost Colorado taxpayers $13 billion in damages between 2020 and 2030, the report projected. There are also costs associated with cleaning up spills and releases, capping abandoned wells and other environmental impacts.

When it comes to economic benefits from the industry, gross domestic product (GDP) and tax revenues top the list. In 2021, oil and gas contributed $14.5 billion to Colorado’s GDP, accounting for 3.3% of the economy. In the same year, oil and gas companies contributed roughly $930 million in property and severance taxes.

But even with those benefits, Stiffler said the COVID-19 pandemic showed that Colorado's economy can grow without the oil and gas industry.

During the pandemic lockdowns, “total GDP continued to grow, total property taxes continued to grow and total jobs continued to grow, at the same time the oil and gas components shrunk significantly,” Stiffler said.

Nonetheless, if the oil and gas industry were to continue scaling back and replaced by alternative energy sources, Stiffler said Colorado will need to fill gaps in tax funding.

“Any discussion about phasing out the oil and gas industry has to find a way to backfill or find that funding source for schools, local governments and fire protection districts,” Stiffler said.

That economic shift would be welcomed by families like the Foards in Aurora, who are worried about the potential impacts of new oil and gas development.

“I know a whole heck of a lot of parents that would fundraise till the cows come home to keep our kids safe and get funding that way,” Tisha said.

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