A surprising new economic impact study of oil and gas production in Colorado shows that the industry is a valuable contributor to the state’s economy, and that E&P efforts have shifted to the western basins.
The new oil and gas study, conducted by the Colorado Energy Research Institute (CERI), concluded that the oil and gas industry contributed $22.9 billion to the state’s economy in 2005 – or 6.1 percent of the total gross state product.
The industry, both directly and indirectly, generated about 70,000 jobs or 2.2 percent of the state’s employment and 3.2 percent of the total earnings, according to the report.
It also documented the industry’s shift to the western basins, said Dag Nummedal, AAPG member and institute director.
“It’s not entirely unanticipated,” Nummedal said, “but it’s changed over the last three to five years once gas prices really started growing.
“The Denver Julesberg Basin is still big, but the Piceance and San Juan Basins are growing, along with the Paradox Basin,” he said.
Growth in the San Juan Basin has continued and is even stronger since it is coupled with the increase in coalbed methane production there.
Come and Go
Of the state’s five major oil and gas basins, the biggest economic impact came from the San Juan and Paradox basins in the state’s southwestern section. They contributed $3.9 billion to the economy, according to the report.
In northwest Colorado, the Piceance Basin ranked second with a $3.4 billion impact.
The 111-page report, released in late June, was designed to provide an overview of the industry’s economic and fiscal contributions and to be a model to estimate the annual benefits.
Natural gas is by far the dominant contributor to the industry’s growth in Colorado, the report said.
Another surprise finding was that Denver has become a regional hub for several producing gas companies.
“There’s a tremendous economic output by these companies,” Nummedal said. “Many produce gas in Utah, Montana or Wyoming, but they have their regional headquarters in Denver – they do all their project management and exploration on the Rocky Mountain region from here.”
Until the early 1980s, all the major energy companies operated offices in Colorado. When the industry slowdown occurred, they began pulling out of Denver, with most corporate headquarters moving to Houston, he said.
Now many have re-established regional offices in Denver and that has made a significant economic impact on the city, he said.
The oil and gas industry paid $870.5 million in business, personal, state and local taxes in 2005. It spun off jobs in government, professional services, retail, health and social services.
“It’s certainly one of the largest industries in the state,” Nummedal said.
The report noted that a total of 30 percent of Colorado counties now have at least 200 wells. Weld County has the largest number with almost 10,000, followed by both Rio Blanca and La Plata counties, each with 2,000 wells.
Nummedal noted that the report just covered the oil and gas segments of the energy industry and did not include the rapidly growing renewable energy industry or the power industry.
“It’s the first time that there was a comprehensive study by getting original data and analysis. There were some shorter studies three to seven years ago, but obviously the industry grew enormously in the last five years,” said.
“The magnitude of the growth was a surprise to some people.”
Checking the Results
Looking ahead, Nummedal said he expects energy prices to stay high and will continue to exert pressure on development in the Colorado area.
“If you compare the run-up in energy prices in the late 1970s and early 1980s to what we’ve seen now, it was a very different cause then,” he said. “There’s a shortage of home energy supplies now, but the spike was political then.”
The report was designed and produced by CERI, Colorado School of Mines and consultants Booz Allen Hamilton in Denver.
This marks the first major report by CERI, which was established in 2004. It took more than a year to complete and cost about $250,000, he said.
Booz Allen was the primary contractor and spent much of its time interviewing oil and gas company personnel for grassroots information. “We went to their offices and did a lot of basic interviewing,” Nummedal said.
Nummedal said the institute is working on a number of other projects, but this has been its only economic study so far.
“We’ll see how useful people and the state find it and will determine if it should be repeated later,” he said.
CERI is part of the Colorado School of Mines in Golden, Colo., and its funding comes from many sources including grants. A special appropriation from the state legislature helped fund this study, he said.
CERI was established three years ago to develop research and education programs involving government, industry and the public. It works to ensure that Colorado has adequate energy supplies at a reasonable cost as well as mitigate the environmental impact of energy development.