Gas companies still cautious after defeat of Colorado’s severance tax proposal
Glenwood Springs correspondent
Aspen, CO Colorado
GLENWOOD SPRINGS ” One of the largest natural gas producers in the county is questioning how much it will invest into Garfield County even in the wake of the defeat of Amendment 58 at the polls.
EnCana Oil and Gas (USA) is going to be “very cautious” in how the company spends its investments in the area, said Doug Hock, a spokesman for the company, a few days after the ballot initiative suffered a stinging defeat at the polls.
“We were pleased with the outcome,” said Hock, adding that the company is currently drafting its capital budget for the next year. “But (the Piceance Basin) still is an area that is where the economics are sensitive so we have to be real careful as we make decisions about how we invest our capital next year.”
Amendment 58 would have substantially raised the amount of severance taxes oil and gas companies had to pay through the removal a property tax credit. Supporters said repealing the property tax credit would have brought Colorado’s severance tax rate in line with other energy-producing states in the region and helped compensate for the effects of record natural gas drilling.
EnCana and Williams Production RMT each put up $1 million to help defeat Amendment 58, according to the Rocky Mountain News.
Hock said EnCana and other oil and gas companies had argued that if Amendment 58 passed, it may have “weighed against” future company investments in the Piceance Basin.
“The Piceance Basin is one of the most economically sensitive areas in which we operate, in terms of cost,” Hock said. “The rate of return on our investment is much more sensitive to changes in the economy and to changes in taxes than some of the other areas where we operate.”
The company has previously said proposed rules for the state’s oil and gas industry and the possibility of an increase in severance taxes led the company not to spend a portion of the $500 million in capital investments in Colorado this year. The vast bulk of the company’s operations in the state are located in the Piceance Basin.
Like EnCana, Williams is currently drafting its budget for capital investments in the areas it operates, said Donna Gray, a spokeswoman for the company. She said the company is currently on track for moving forward with its three-year plan to drill 500 more wells in the area next year.
In the wake of Amendment 58’s defeat, Gray said Williams is “very open to having discussions about severance taxes” with Gov. Bill Ritter. The largest hang-up the company had with the ballot initiative was the removal of the property tax credit.
“We definitely would like to have that discussion, and sooner than later,” Gray said. “There’s probably a good chance that will come up on the ballot again.”
Many officials in the oil and gas industry celebrated the defeat of Amendment 58, but they are still worried about proposed rules for the state’s oil and gas industry and what a future Barack Obama presidential administration and more Democrats may mean for them.
Keith Rattie, chairman president and CEO of Questar Corp. told participants at the Colorado Oil and Gas Association’s annual conference that the industry is likely to be on the defensive, as Democrats may push for caps on carbon emissions from burning fossil fuels and environmentalists may use federal laws to further an anti-drilling agenda.
While some in the oil and gas industry say there may be difficult times ahead, the number of drilling permit applications in the state continues to surge. However, an increase in permitting activity does not necessarily translate into immediate drilling.
The Colorado Oil and Gas Conservation Commission (COGCC) issued 831 drilling permits in October, according to the agency’s latest records. That figure is a COGCC record.
So far this year, the COGCC has issued about 6,700 drilling permits ” with two months still left in the year. And since March, the COGCC has received about 700 new drilling permit applications each month.
“These are certainly tough times for businesses and consumers,” said Theo Stein, communications director for the Colorado Department of Natural Resources. “The oil and gas industry is an important contributor to our economy.
“We are concerned as an industry about the potential impacts of an economic slump, but the data suggests that the interest in developing Colorado’s gas remains strong. This bodes wells for the Western Slope and the state as a whole.”
The COGCC is expected to conduct final deliberation of its new rules for the oil and gas industry in early December.
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