Diminishing gas revenues haunt county
Local economy could take long-term hit as reserves dwindle

by Will Sands

A well continues on with its perpetual pumping along Highway 160 east of Durango. A recent study commissioned by La Plata County found that the county revenues from natural gas well property taxes dropped by 11 percent last year and will continue to drop over the next few decades to 7.5 percent of current levels./Photo by Todd Newcomer.

There is a fixed amount of natural gas beneath the ground and local drilling will not go on forever. La Plata County recently received the results of a study on area drilling that shows steadily diminishing revenues from natural gas, a factor that offers little environmental benefit but threatens to hit local economies hard.

Last year, La Plata County commissioners retained a Texas firm to conduct a $30,000 study to determine how much natural gas remains locally. The study was kicked off with the understanding that the fuel is a finite resource and that several local governments have grown dependant on property tax revenues from the industry. The study was released to the county in September of last year. However, it didn’t see daylight until last week after the Friends of the Animas Valley filed a Freedom of Information Act request.

The findings point to an 11 percent drop for the county in oil and gas revenues from property tax in the last year. That trend is also expected to continue according to the report, and would render revenues a mere 7.5 percent of their current levels by the year 2025.

Commissioner Josh Joswick said that the county has expected the drop-off but did not know when it would begin. “We knew that at some point in time, it would start dropping and we know we’ve benefited from the industry in the past, but there’s been a false security,” he said.

Joswick commented that the end of this false sense of security has caused him concern. “Personally, I think it’s something we’ve got to start paying attention to,” he said.

The county has considered the additional tax somewhat of a bonus and spent the money wisely, according to Joswick. However, he added that the loss of dollars will still be a hit.

“We’ve been really good about where we’ve put bonus revenues,” Joswick said. “We haven’t put ourselves too far out on a limb. But roads still wear out and buildings need repairing.”

Curiously, the amount and price of natural gas being produced by local gas wells are not going down, according to retired petroleum engineer Bob Aitken. “I see no signs of a decline up through 2003,” he said.

The shaft rises, drops and repeats on a gas well near Elmore's Corner. Three-hundred new wells are being proposed for national forest land in the HD Mountains, near Bayfield./Photo by Todd Newcomer.

With steady value and production, Aitken said that the only way to lose value would be if wells are being taken off of the tax rolls, as would happen if they were purchased by the Southern Ute Indian Tribe. With strong pricing and production in mind, Aitken commented, “I’d say (the La Plata County study) is very pessimistic.”

If the forecasted loss in revenue plays out, the county can either cut expenses or ask the public to raise revenues. “The only real options we have are to redirect the finances we have or ask people to raise taxes,” Joswick said.

This potential new burden is what pushed the Friends of the Animas Valley to make the FOIA request in the first place. Renee Parsons, Friends of the Animas Valley president, said that the group first became concerned during the county’s April 28 approval of the La Plata Archuleta Water District. As proposed, the system would provide drinking water to residents in a 400-square-mile area in southeast La Plata County and be funded largely by property tax from the natural gas industry.

“Our first concern is that the water district was approved and is going to be built on speculative financing,” Parsons said. “Now we’re wondering if the county has done any contingency planning for when the bottom falls out.”

Alan Cathcart, also of Friends of the Animas Valley, characterized his view of the county’s planning for the contingency, saying, “There seems to be a ‘We’ll cross that bridge when we come to it’ mentality.”

Dan Randolph, oil and gas organizer for San Juan Citizens’ Alliance, said that his group has always viewed natural gas extraction as a boom-bust cycle for La Plata County.

“The end of the reserve doesn’t necessarily mean that there will be fewer surface impacts,” he said. “It does mean that there will be fewer benefits to the 4 community in terms of royalties and taxes to the various government entities.”

Randolph added, “This has been a short term benefit and is really a temporary situation. We’ve been saying for years that this is a boom-bust cycle.”

One government entity that could be hardest hit is the 9-R School District. The district is largely dependent on property tax revenues and has seen them drop over the last two years. Diane Doney, director of business services for 9-R, remarked, “If oil and gas revenues go down, another piece of the puzzle has to go up. In the past couple years, we have seen a significant increase in the amount of revenue we’re getting from the state for operating expenses.”

An $84.5 million bond issue was approved by voters in 2002 to upgrade all of the district’s schools and facilities and would also be impacted by a drop in revenues. Doney said that the bond will be paid back over 20 years and it is hoped that the oil and gas industry will contribute revenues during that time.

“When the industry goes away, it’s hoped that the bond will be gone,” she said.

Environmentally, the end of the oil and gas industry may appear to be beneficial. However, Randolph said that it’s not necessarily the case. Because the San Juan Basin was the first place in the nation to have commercially viable, natural gas drilling, it will also be the first to lose the resource, he said. In the case of the oil industry, efforts to get the last of the reserve have been especially damaging.

“What we’ve seen with oil extraction is in order to get the last bits of the reserve, companies can use some of the most damaging practices,” Randolph said. “Trying to wring the last drops out of the towel can take the most work.”

Much of the damage also has largely been done, according to Randolph. “Humpty Dumpty never goes back fully together,” he said.

This month, the Forest Service plans to release a draft Environmental Impact Study for 300 proposed wells in the HD Mountains west of Bayfield. However, Randolph said that he is not concerned about diminishing revenues encouraging drilling in the pristine area. In fact, he said that the coming bust is an argument for not drilling in and damaging the HDs. “We’d counter that it’s an argument for why not to drill in the HDs,” he said.

Instead he suggested that the people of La Plata County should be asking themselves a hard question about the natural gas industry. “The benefits are really short term,” he said. “Some of the consequences are really long term. Is this a trade-off that really makes sense?”