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Proposed 2,500-foot Oil and Gas Setbacks Pose an End to Fossil Fuel Development

On July 14, a partnership of economic development organizations issued a report on the economic impact of 2,500-foot oil and gas drilling setbacks, an initiative likely headed to the November ballot. The partnership commissioned the study from the Business Research Division (BRD) of the Leeds School of Business at CU-Boulder. 

The study used the REMI dynamic econometric model to point to the impacts of a proposed constitutional amendment Initiative 78. If passed, Initiative 78 would prohibit new oil drilling and/or fracking in much of Colorado, beginning in 2017.

The Colorado Oil and Gas Conservation Commission (COGCC)– a state government entity, examined the potential reduction of available land for oil and gas production should Initiative 78 pass. This past spring, COGCC reported that voter approval of Initiative 78 would eliminate oil and gas production in 90.2 percent of all land in Colorado.

This prompted the Metro Denver Economic Development Corp. (Metro Denver EDC) and its partners Denver South Economic Development Partnership (Denver South EDP), and Common Sense Policy Roundtable (CSPR) to commission our fourth research paper on the future of the oil and gas economy.

Fossil fuels are part of the Metro Denver EDC’s cluster strategy to bring new jobs to Metro Denver. We have nine innovation employment clusters, each of which has a high concentration in Metro Denver and thereby grants us a unique competitive advantage – one that drives our marketing effort for jobs. The energy cluster is a combination of fossil fuels and cleantech. Both have demonstrated strong job growth (4 percent annually since 2013), reinforcing their value in the marketplace.

Study Findings

Wheeling off the COGCC report, this study examined the economic impact of a hard stop on new oil and gas production in 2017. The next fifteen years, to 2031, would result in a loss of 104,000 jobs that would either be eliminated or not created if Initiative 78 passes. GDP would lose $14.5 billion in the same period. 

A further examination by the Metro Denver EDC of oil and gas well depletion schedules, including well depletion curves, determined that the stoppage of any new drilling beginning in 2017 and the depletion of existing wells would result in the cessation of all oil and gas operations in Colorado by 2050 to 2060.

The state and local governments would lose significant tax revenue if Initiative 78 passes. This industry is heavily regulated and taxed. The BRD examined the annual taxes and fees paid by oil and gas to the state of Colorado and local communities. The total, annual revenue stream to governments in 2014, from oil and gas was $1.2 billion (this is not a multiplier number – it’s real money). Oil and gas property taxes exceeded an estimated $400 million in 2014. Severance taxes totaled $330 million in the same year. And the industry paid $315 million in royalties and rents – over half of which went to the federal government.

In 1984, OPEC forced down the world’s price of oil to $25/barrel as part of its effort to kill off the rapidly growing oil shale industry; much of which was on the Western Slope.

Downtown Denver and the Denver Tech Center housed major concentrations of employees in virtually all the major national oil companies. The shutdown of the oil shale industry forced Colorado into another of its resource based recessions. All the major companies moved back to Houston. The “Oil Bust” of the 1980s was Colorado’s second-largest recession in the 20th century and it gave way to the beginning of our stronger, more diverse, and less vulnerable economy of today. 

Today, oil and gas are an important partner in our energy cluster, bringing greater economic security for our nation and partnering with cleantech in wind and solar to deliver one of the most sustainable energy delivery systems in the nation. 

But, reviewing the findings of this report, and anticipating a challenging election on Initiative 78, reminds me of Forbes Magazine’s writer, John P. Grier, who opined, “Every person has, each year, our moment of madness, when we tie a rope around our neck, hand the end to our worst enemy, and says, ‘Pull’”. 

OPEC did it to us once. Let’s not do it to ourselves.

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About Phil Kalin

Phil Kalin joined Pinnacol Assurance as CEO in 2013. He has served as the chief executive of both public and privately-backed companies, including large hospital systems, as well as organizations focused on health care data, technology and education. He has been active nationally on health care topics related to insurance, data analytics, technology innovation, cost improvement and risk mitigation. Phil is providing an informed opinion on what we see in the Monthly Economic Indicators.

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About Pinnacol

Pinnacol Assurance is the Metro Denver EDC's Research Sponsor. Pinnacol is Colorado’s leading provider of workers’ compensation insurance. Pinnacol provides comprehensive, competitively priced coverage; immediate attention to claims; a highly qualified network of medical providers; and proactive safety programs to more than 55,000 Colorado businesses. Annually, Pinnacol supports nearly $500 million of Colorado’s economic activity, spends over 35,000 hours keeping Colorado worksites safe and provides compassionate care to over 40,000 Coloradans injured on the job.

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