Colorado oil, gas industry braces for tough 2009

DENVER - Energy company executives are cheering Colorado voters' rejection of a severance tax ballot measure, but they warn that uncertainties about the economy, new state rules and a new president could reduce investment by the industry.

Those concerns were aired Wednesday at the Colorado Oil and Gas Association's annual meeting, one day after Colorado voters defeated a proposal to end a property tax credit that critics say makes the state's severance taxes the lowest in the region.

Proponents, led by Gov. Bill Ritter, said the initiative would have raised $321 million in severance tax revenue, most of which would have gone to college scholarships.

Fueled by more than $11 million contributed by oil and gas companies, opponents waged an ad campaign calling the proposal a tax increase that would be passed directly to consumers.

The oil and gas association, a trade group, helped spread the message that lifting the credit would drive investment out of the state, said Keith Rattie, chairman president and chief executive of Questar Corp.

"It would've driven up the cost of doing business and would have had the unintended consequences of driving down state revenues," Rattie said.

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 the record natural gas drilling in the state.

Rattie warned that the industry in Colorado and across the country faces other challenges as Colorado revamps its oil and gas regulations and Democrats take over the White House and expand their control in Congress and state legislatures.

"What will (a Barack Obama) presidency mean to energy? Only time will tell," Rattie said.

The industry likely will be on the defensive, Rattie said, as Democratic leaders push for caps on carbon emissions from burning fossil fuels and environmentalists use federal laws to further an anti-drilling agenda. He said uncertainty about Colorado's new oil and gas rules is discouraging investment in new pipelines to ship the region's gas to other markets.

Questar plans to cut its capital spending from $2.6 billion to $1.6 billion next year.

"For the first time in our country's 80-year history, we're going to be allocating more money for drilling outside the Rockies than we are in the Rockies," Rattie said. "That will likely be the case until we get more pipeline capacity and regulatory certainty."

Colorado regulators are expected to finalize the new oil and gas rules in December. They have been working since January with the industry, environmental and wildlife groups, landowners and others on the regulations, which are intended to consider environmental, wildlife and public health concerns when approving oil and gas development.

Pete Morton, an economist with the regional office of The Wilderness Society, disputed Rattie's contention that uncertainty about the regulations is curtailing investment.

"Capital spending is down due to the credit crunch, the drop in natural gas prices and the recession," Morton said in a written statement.

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