In recent testimony before the Colorado Oil and Gas Conservation Commission, Dr. Martha Rudolph suggested that more onerous regulation of the petroleum industry would have “little impact” on the state’s investment appeal. She was wrong.
Industry executives now rank the state alongside the Ukraine, Pakistan and Indonesia following enactment by the Legislature of more stringent and costly drilling requirements.
According to the Fraser Institute’s newly released 2008 Global Petroleum Survey, Colorado has plummeted from its 2007 ranking as the most favorable jurisdiction overall for investment to a measly 53rd out of 81 jurisdictions worldwide.
This dramatic change in standing may not have been foreseen by Dr. Rudolph, the director of environmental programs for the state Dept. of Public Health and Environment, but it comes as no surprise to executives in the industry.
As one survey respondent noted, “New regulations are extremely onerous to the oil and gas industry, and thus will impact investment.”
Indeed, EnCana Oil & Gas has reduced its planned drilling activity in the state this year by almost 25 percent compared to last year. Williams Production, one of Colorado’s largest producers of natural gas, is considering whether to shift investment elsewhere.
Colorado also ranked among the states with the worst environmental regulations, alongside Florida, New Mexico and Utah. But California’s environmental regulations were judged as the most onerous among the 81 jurisdictions in the survey.
On a more positive note, survey respondents were more impressed with Arizona, Arkansas, Oklahoma, and Texas, which ranked as most favorable for investment.
To the extent Colorado loses investment from the petroleum industry, the Colorado Legislature is largely to blame. Passage last year of House Bills 1341 and 1298 will slow the approval process for drilling permits, reduce access to promising geological formations, and increase regulatory costs.
Equally troubling to investors are the mandated changes to the composition of the nine-member Oil and Gas Conservation Commission, which oversees drilling in the state. HB 1341 reduces the number of commissioners who must have “substantial experience in the oil and gas industry” from five to three.
It also requires the involvement of both the Dept. of Public Health and the Environment and the Wildlife Division of the Dept. of Natural Resources in the review of drilling applications.
The companies represented in the Global Petroleum Survey account for more than one-third of the industry’s total spending on exploration and development worldwide.
Given the intensity of global competition for investment dollars, Colorado’s poor showing should prompt legislators to reconsider their costly regulatory mandates. More prudent policies would be rewarded with the economic growth that accompanies investments in petroleum exploration and development.
Gerry Angevine is Senior Economist in the Centre for Energy Studies of the Fraser Institute, a nonpartisan, non-profit economic research and education institute with locations across North America and partners in more than 70 countries. Graham Thomson is a Policy Analyst with the Centre.
EDITOR’S NOTE: This is an online-only column and has not been edited.
