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Fueling Economic Growth: The Impact of Colorados Oil and Gas Industry

By: Brian Lewandowski

Colorado is home to one of the fastest growing, most lucrative energy markets in the United States. With ten of the nations top 100 natural gas fields, and three of the countrys largest oil fields, Colorado has proven to be a formidable producer and competitor. According to the Independent Petroleum Association of America, Colorado ranked 7th in both natural gas production and number of natural gas wells drilled in 2010. The state also had the 12thhighest crude oil production, and in terms of number of crude oil wells drilled, it placed 18th. As the nations energy needs continue to grow, Colorado remains a key player in the development of economically beneficial, cleaner alternative energy sources. With its vast supply chain that includes surveyors, drillers, extractors, transporters, and refinery workers, the oil and gas industry is a significant employer in the state of Colorado. The industry is a major contributor to household wealth, the standard of living, and to state and local government revenues. The purpose of this study, conducted by the Business Research Division of the Leeds School of Business at the University of Colorado at Boulder, was thus to provide unbiased, third-party research on these economic and fiscal impacts of Colorados ever-evolving oil and gas industry. Through such analysis, the study found that the oil and natural gas industry was a source of $31.9 billion in economic activity in Colorados economy in 2010, including direct, indirect, and induced.
COLORADO OIL AND GAS TOTAL ECONOMIC IMPACT, 2010 Source
Drilling Extraction Petroleum Refineries Transportation Gasoline Stations All Other

Employment
9,237 57,757 9,682 3,493 16,617 10,770

Wages (Millions)
$584.5 $4,088.8 $610.4 $249.1 $412.8 $618.9

Value Added (Millions)


$1,498.8 $8,851.1 $1,911.3 $383.3 $778.7 $1,001.8

Output (Millions)
$3,334.5 $17,344.8 $7,503.7 $895.4 $1,161.9 $1,679.7

Total

107,566

$6,564.4

$14,425.0

$31,920

The oil and gas industry, along with nearly all extraction industries, inherently provides significant economic benefits that stem from its integrated supply chain, high wage jobs, and propensity to sell nationally and globally. It brings in outside investment and often operates in more rural areas where high wage jobs are scarce and industry is fleeting. In 2010, for example, the top five oil- and gas-rich counties in Colorado were Garfield, Weld, La Plata, Rio Blanco, and Las Animas, which together accounted for 88%, or nearly $8.1 billion, of the states total oil and gas production value of $9.2 billion. The industry as a whole supported nearly 22,400 direct drilling, extraction, and support jobs in 2010, with average annual wages in excess of $103,000. Coupled with the oil and gas supply chain within Coloradotransportation, refining, wholesalers, parts manufacturers, and gasoline stationsdirect employment totaled more than 43,800 jobs, with average wages roughly 51% higher than the state average for all industries.
2012 Colorado Oil & Gas Association. All rights reserved.

1660 LINCOLN ST., SUITE 2710, DENVER, CO 80264 Phone: 303.861.0362 WWW.COGA.ORG

Collectively, the industry contributed nearly $3.2 billion in employee income to Colorado households in 2010, which equated to approximately 2.6% of total salary and wages in the state. An additional $596 million is estimated to have gone to private land owners in 2010, conservatively assuming they are able to capture royalty and lease terms similar to those of the government. These figures thus offer clear insight into the highly valuable contributions Colorados oil and gas industry provides to the state economy through employment, wages, and overall industrial activity. Companies, owners, and workers, however, are not the sole beneficiaries of these impacts of Colorados oil and natural gas industry: the industry also contributes significantly to state and local government coffers. Through sales and use taxes, property taxes, royalties, leases, and fees, the oil and gas industry offers a substantial source of revenue for governments throughout the state of Colorado. In 2010, public revenues from the oil and gas industry totaled more than $1.1 billion, $572 million of which was derived directly from severance taxes, public leases, public royalties, and property taxes. Furthermore, the oil and natural gas industry is subject to taxes and assessments beyond those which other industries contribute. Ad valorem taxes, for example, are three times higher for oil and gas production than for commercial property within the state and eleven times higher than for residential property. Oil and gas property taxes thus topped $360 million in 2010. Severance taxes paid by the industry totaled $63.7 million in 2010, while another $123.8 million was paid to the state government in the form of royalties. While the industry has a broad scope of operations on state and federal lands, a vast majoritymore than 71 percenttranspires on private lands. From the remaining 29 percent, however, the state of Colorado received a record high $16.5 million in public lease revenue in 2010. The relatively volatile oil and gas prices that persisted throughout much of the last decade are expected to stabilize moving forward, primarily due to technological improvements in drilling and extraction and greater reserve estimates. This increased price stability should lead to less fluctuation in government revenues based on production value year to year. The oil and natural gas industry thus plays a pivotal role not only in bringing substantial economic benefits to Colorado companies and households, but also in providing significant fiscal benefits for local governments and the state as a whole. Regardless of the intricacies involved in formulating energy policy, it cannot be denied that the oil and natural gas industry continues to have a significant impact on Colorados economy. From its employment of tens of thousands of Coloradans, to its substantial contributions to local and state government revenues, the oil and gas industry will continue to be a key component of the states economy. As the United States continues its rather tenuous recovery, Colorados burgeoning energy sector will help provide a sound foundation on which to promote further economic diversity and growth moving forward.

2012 Colorado Oil & Gas Association. All rights reserved.

1660 LINCOLN ST., SUITE 2710, DENVER, CO 80264 Phone: 303.861.0362 WWW.COGA.ORG