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Severance tax hike talks facing tough resistance

Oil, gas producers united in opposing any increase

Gargi Chakrabarty and Todd Hartman

Published April 8, 2008 at 12:05 a.m.

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Gov. Bill Ritter's efforts to get the oil and gas industry to agree to a severance tax hike may have hit a wall.

In the past several weeks, the governor's office has contacted various groups and energy companies, including BP - Colorado's No. 1 natural gas producer - to amicably discuss a way to increase the state tax on oil and gas production.

"We have been asked for reactions to various severance tax proposals by the governor and others, and we are evaluating those options," said Jack Rigg, BP's regional manager of government and public affairs. "We haven't seen anything yet that we would not oppose."

BP's strong stance is noteworthy given that the company doesn't tend to engage in the fiery rhetoric more typical of others in the industry in Colorado. And it bolsters the position of the Colorado Oil & Gas Association, which repeatedly has said it will oppose any attempt to increase the severance tax.

"The administration is very anxious to not face a united oil and gas opposition," said Denver pollster Floyd Ciruli. "Not having BP (on board) is a sign of the difficulty they face."

Ciruli said Ritter's strategy may involve trying to find some middle ground with "reasonable" members of the industry in hopes that, at minimum, they won't fight the plan.

"I think they're really anxious to find some support here," Ciruli said.

Lawmakers have long complained that Colorado's severance tax rate is well below those of other energy-producing states.

The move to hike the severance tax has gained momentum, with several groups suggesting a range of ballot measures. Voters in November would have to approve any increase in the tax structure.

Ritter has yet to endorse any of those suggestions.

"Gov. Ritter continues to meet with many stakeholders on this issue, looking at whether this is the right thing to do, the right time to do it, and if so, how best to do it," said Ritter spokesman Evan Dreyer.

"The energy industry is enjoying an unprecedented boom, and it's pretty clear that the people of Colorado are not receiving their fair share, especially when compared with states like Wyoming and New Mexico."

A state analysis last year found that the overall tax burden for oil and gas companies in Colorado was 5.7 percent of production, compared with 11.2 percent in Wyoming and 9.4 percent in New Mexico. Also, drillers in Colorado can credit 87.5 percent of the ad valorem tax (or property tax) they pay against their severance tax, a benefit found in no other state.

Severance tax revenues in past years have been volatile. In 2007, the state collected an estimated $100.4 million, down from 2006's record $211.8 million. But revenues likely will hit $151.3 million this year.

Both lawmakers and interest groups have suggested raising the severance tax rate or eliminating the property tax credit.

"Eliminating the tax credit is a difficult approach because it won't spread the pain equally," said Ken Wonstolen, counsel to the industry. "It will hurt eastern Colorado oil and gas producers more because their property tax rate is higher than western Colorado."

chakrabartyg@RockyMountainNews.com or 303-954-2976

Alternative ballot proposals to hike severance tax

1. Democratic Sens. Abel Tapia and Chris Romer propose raising the severance tax rate from 5 percent to 6 percent and eliminating the property tax credit in a phased manner. Those tax increases - intended to benefit higher education - would take effect, however, only if the industry keeps operating at a healthy pace. The measure would raise $140 million of additional revenues for the state in the first year, $210 million in the second year and $235 million a year thereafter, according to a Legislative Council analysis.

2. Various interest groups have suggested eliminating the property tax credit only, leaving the severance tax rate unchanged at 5 percent. The measure would raise roughly $200 million a year, supporters say. A large portion of those tax dollars - 60 percent - would be channeled into higher education. Of the rest, 15 percent would be invested in renewable energy, 15 percent in wildlife habitat and 10 percent to help communities affected by drilling.