Colorado, Other States to Reap Windfall from Natural Resources

Published September 1, 2004

While much of the nation expresses exasperation at climbing oil prices, Colorado is leading a group of states in the American heartland that are taking advantage of higher prices to reap a financial windfall. Colorado and other interior states are positioning themselves to gain a greater share of future oil profits.

Colorado Oil Production on Upswing

“Bucking the national trend,” the July 6 Rocky Mountain News reported, “Colorado shows a steady increase in oil production since 2001. If the state energy regulators’ forecast is correct, 2004 will be a very productive year.”

The same Rocky Mountain News story noted Colorado oil production is forecast to be 21.9 million barrels in 2004, a 2.8 percent increase over 2003 production and a 7.4 percent increase over 2002 production. With oil selling at close to $40 per barrel, the state will likely produce more than $800 million worth of oil this year.

Colorado produces less than 1 percent of total U.S. oil production, and it does not rank in the top 10 oil-producing states. However, the state’s 7.4 percent increase in oil production since 2002 means 2004 oil production will generate $50 million more in revenue from Colorado-based wells than would have been the case if the state had leveled off at its 2002 production numbers.

Other States Also Gaining Windfalls

“Rising oil prices may be creating havoc at the gas pumps and making Wall Street jittery,” observed the June 3 edition of, “but it’s a boon for a handful of oil-producing states.”

“Higher prices mean the state gets more revenue,” said Harold Hamm, chief executive officer of Oklahoma-based oil and gas producer Continental Resources, Inc.

That handful of oil-producing states may soon be growing in number. “The biggest U.S. oil producers, Texas and Alaska, reap a windfall, but price increases also boost business in 29 states with smaller and older depleted wells, known as stripper wells,” reported Stateline. (Depleted wells are ones that still produce but no longer at their prior capacity. Stripper oil wells are ones that produce 10 barrels or less per day, while stripper gas wells produce 60,000 cubic feet or less per day.)

The Stateline article continued: “Higher world prices mean that private companies pay more to states in severance taxes for pumping oil found underground. States also get a take if the oil comes from federal lands within their borders. Coastal states such as Louisiana, Texas, and Alabama get royalties from oil drilling in waters off their shores.”

According to Stateline, oil production tax revenues for several states are substantial and increasing:

  • Kansas, which ranks eighth among oil-producing states, estimates the recent rise in oil prices will gain the state $2.4 million in budget revenues in 2005 above and beyond its prior projections.
  • The state government in Louisiana estimates oil taxes and royalties will produce $109 million in state revenues for fiscal 2005.
  • Oklahoma figures the recent rise in oil prices will net the state an additional $28 million in oil revenues above and beyond its prior projections for 2005.
  • Texas, the largest U.S. oil producer, has collected $32 million more in oil-production taxes than last year at this time.
  • Alaska, the country’s second-largest oil producer, collected $599 million in oil severance taxes in 2003.
  • Like Colorado, Wyoming is benefiting from recent hikes in natural gas and oil prices. State officials estimate every $1 increase in the price of a barrel of oil adds $6.1 million in state severance taxes, federal mineral royalties, and corporate property taxes. Similarly, an increase of just 10 cents in the price of natural gas adds nearly $18 million to state revenues, according to Jim Robinson, a senior economist at the Wyoming Department of Administration and Information.

For states that produce significant amounts of oil and natural gas, high prices mean still more revenue for state citizens and state government. In Louisiana, for example, oil proceeds account for roughly 15 percent of the state government’s revenues, according to Stateline.

Bipartisan Support for Oil Production

As potential revenues increase, citizens and legislators from both parties in states blessed with such resources tend to strongly favor increasing production.

In Alaska, for example, the 2004 Senate race between Republican Lisa Murkowski and Democrat Tony Knowles has turned into a referendum on who can best muster national support for new oil production inside state boundaries. Knowles campaigns that, as a Democrat, he will be more effective than a Republican at convincing East Coast and primarily Democratic senators to reverse their opposition to oil production in the Arctic National Wildlife Refuge (ANWR) and other state sites. Murkowski, by contrast, argues Knowles’ affiliation with the party of vocal ANWR opponents such as Edward Kennedy (D-Massachusetts) and John Kerry (D-Massachusetts) means Knowles cannot be trusted to argue strenuously enough for opening up ANWR for oil production.

In Oklahoma, Democratic Senate candidate Brad Carson has argued he should be elected because “we need more Democrats in the Senate willing to work across the political aisle” in advocating greater domestic oil production. “Having Democrats willing to stand up for strong energy policy will make a difference,” Carson added. He supports oil production as a matter of national policy, not just in Oklahoma. “We have to take the partisanship out of the issue. While there are no guarantees, our voices are really important if ANWR is going to happen.”

Chris John, a Democratic candidate for Louisiana’s open Senate seat, has similarly come out for increased domestic oil production. John has promised that if he is elected, he will use his Democratic affiliation to convince ANWR opponents to change their vote.

James M. Taylor ([email protected]) is managing editor of Environment and Climate News.