Oil and gas update: Wins for oil industry in Colorado and Nebraska, while Wyoming faces hard times
May 17, 2016
It was a win for the oil and gas industry in Colorado last week. It's been a hard month for the oil and gas industry in Wyoming, and Nebraska is still seeking a resolution for a problem that arose in 2014.
Two Colorado Supreme Court decisions favored the oil and gas industry, with one leading to a last-minute bill in the Colorado Legislature.
Senate Bill 218 passed May 11 on the final day of the legislative session — three days after it was proposed.
The bill provided a solution to a Colorado Supreme Court decision, which means the state is expected to pay back an estimated $115 million in severance tax revenue to the companies, according to the Associated Press.
"It's a wild decision," said Rep. KC Becker, D-Boulder. "It was very unexpected because the lower courts ruled in the state's favor."
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The ruling said oil and gas companies paid too much in severance tax, so state representatives had only a few days to draft, proposed and vote on a solution to pay back the $115 million, plus find a way to account for the estimated $19 million decrease in severance taxes to the state — a tax exclusively for those working on removing nonrenewable resources, like oil.
The decision was based on a loss of capital the oil and gas companies had by investing in oil and gas rather than something else.
"Let's say you had invested in apple juice, the money that you would have been able to make over there that you're not making here because you're investing in oil and gas — that return in capital, you now get to deduct," Becker said.
What SB 218 did was set a plan to pay back and prepare the decrease in the taxes. Half of the money will come from reserves, which will need to be paid back, and the other half will come from the severance taxes that do go to the state. The money brought in by the taxes would have gone to municipalities across the state. Becker said Colorado's 1.5 percent rate is one of the lowest in the country.
Becker attempted to push another bill through to clarify the law to the interpretation lower courts had, and therefore, preventing that projected $19 million decrease, starting in fiscal year 2017, from happening. Becker said her bill would have passed had there been more than a day to discuss it.
Oil and gas had another win before the tax ruling, when the state supreme court said Fort Collins and Longmont violated state law when the two cities attempted to ban and delay fracking practices, respectively.
But those opposed to fracking are not giving up without a fight. Tricia Olson of Yes for Health and Safety over Fracking told the Associated Press the ruling should show a limit within municipal power against the state.
"It can only help us because it shows that communities don't have many rights right now when industry wants to drill," Olson told the AP.
Olson's group wants to get two measures on the November ballot.
The state is seeing the largest amount of orphan wells in recent history, according to Bob King, orphan well project manager for the Wyoming Oil and Gas Conservation Commission. King said there are usually 50-100 orphan wells a year, sometimes less.
King is contracted by the commission to overlook orphan wells, and that responsibility hit an all-time high, with 3,464 orphan wells in the state. Orphan wells have no operators, usually because the operator ran out of money.
"Once they become orphan wells and the operators are no longer able to operate in the state, then the state's required to plug the wells and use whatever bonding money that has been forfeited towards that program," King said.
The wells closed in Wyoming once belonged to BW Oil and High Plains Gas, Inc., and more than 3,000 of them are coal bed methane wells, which are used to extract gas from coal beds.
"The price of natural gas is the main driving factor as to why the wells are shutting down," King said.
However, even with the already larger than average orphan wells, King said there should be more added to the list this year.
Gov. Pete Ricketts signed one bill into law March 30 that puts few changes in place for oil and gas companies.
Ken Winston, legislative aid for Sen. Ken Haar, said the bill that passed — Legislative Bill 1082 — was the least-imposing of three bills to go through the state government. With the bill's passage, the Nebraska Oil and Gas Conservation Commission's advocacy role was eliminated since it also regulates the industry.
"If you're the regulator and the cheerleader, you're wearing two separate hats," said John Hansen, president of the Nebraska Farmers Union.
Now, it is no longer the responsibility of the commission to promote the oil and gas industry.
As for LB 1070 and 1085, there was one factor Winston said hurt the chances of passing: the oil and gas industry's opposition. LB 1085 would have added a tax credit for renewable electric generation facilities, promoting the use of renewable energy sources.
LB 1070 would have required $1 million insurance for all wells used for injection and disposal of produced water. This bill is a direct result of a Colorado-based company going to Nebraska with the intent to inject produced water into wells in Sioux County. ❖