Blog Post

Oil Production, Government Revenue Grow in the Shadow of the Rockies

Nov 13, 2013 | Daniel Raimi

A drilling rig operates in Weld County, Colo.Weld County, Colorado, lies just 30 minutes north of Denver. It’s been in the national energy community’s spotlight for two recent events: massive flooding in September 2013 that damaged a small amount of oil and gas infrastructure, leading to some relatively minor oil spills, and recent votes in several nearby cities in to impose bans or moratoria on hydraulic fracturing.

Weld County oil and gas production.

While Weld County has been a leading producer of natural gas and oil for decades, recent drilling activity and production have surged due to the application of new technologies to the Niobrara shale formation that underlies much of the county.

The local government officials I spoke with described a positive impact from this surge in development, but effects varied between different jurisdictions. Officials from the city of Greeley and the town of Eaton both saw modest benefits for their fiscal health due to oil and gas severance tax revenue, water sales from the government to oil and gas operators, and several other local sources of tax revenue. While there have also been some increased costs for these governments and additional staff time spent on oil and gas issues, new revenues generally outweighed their new costs.

For the government of Weld County, new revenues have been enormous. For example, property tax revenue from oil and gas property — which includes the actual oil and gas produced plus pipelines, buildings and equipment — increased from roughly $50 million per year in the early 2000s to over $200 million in 2012. (This money is shared between the county, school districts, and other government entities, but not cities or towns.) The county also has received large new revenues in the form of severance taxes distributed by the state, income from oil and gas production on county-owned lands, and grants for projects allocated by the state from oil and gas tax revenues.

Weld County oil and gas property tax revenues.

There are new costs in Weld County, too, primarily from increased heavy truck traffic. One particularly large road construction project will cost the county roughly $35 million over the next 10 years. However, the new revenues have resulted in a very large net benefit for the county government, allowing it to lower property taxes for local landowners and save more money to pay for emergency repairs due to the floods.

A drilling rig operates in Weld County, Colo.

Despite the sizeable revenue, Weld County commissioners I spoke with do not believe the state is equitably sharing oil and gas tax revenues. Since Weld County is by far the largest oil producer in the state, the commissioners argue that more of the tax revenue generated in the county should stay close to home.

A key factor allowing local governments to manage the fiscal impact of growth in oil and gas production is the fact that, although drilling activity has markedly increased, it still makes up a relatively small portion of the region’s economic activity. Unlike some areas I’ve visited, where oil and gas trucks seemed to make up more than half the vehicles on the road, drilling activity in Weld County is just one facet of a large and diverse economy. Only about 5 percent of the Weld County work force is employed in the oil and gas sector, compared with over 20 percent in parts of North Dakota’s booming Bakken region.

This research was carried out at the Duke University Energy Initiative with support from the Alfred P. Sloan Foundation.