Wednesday, April 15, 2009


Not Robbing Peter to Pay Paul

The revenue to this fair state from oil and gas drilling has been flat, and next fiscal year will fall by a few hundred million. The governor thinks that drop is a result of falling oil and gas prices. I know that falling prices caused some drop off, but in Colorado, as opposed to other nearby states, the drop off is largely a result of the Pixie Dust Energy revolution our governor is pushing and more specifically, the changes in the drilling rules and regulations his hand picked Commission packing ploy picks made, which changes have sent drillers to other states for the foreseeable future. Because of the loss of revenue from oil and gas, and the normal drop off because of the recession, we're short a half billion for running the state next year, which is a problem for a state, now completely controlled by Democrats, which has to balance the budget each year.

So the Democrats planned to raid the reserves of the quasi Governmental workers' compensation insurance provider, called Pinnacol Assurance. The fund was fat with income from overcharged businesses (the 1991 changes in the workers' comp law and replacement of most of the Administrative Law Judges from the earlier era have caused awards in Workers' Comp to plummet, but the premiums of the insurance, well, not so much). It was a very tempting target. And to be fair, if our spending on education is below a certain point, we lose forever some considerable federal funding; so you can see some rational motive to our ever more desperate governor's plans.

Now they have backed off that plan at the same time vowing some pretty serious repercussions to Pinnacol for denying them the use of the extra money to get the fed money. We'll see if anything comes of the threat.


Just so people realize the seriousness of the situation concerning oil and gas drilling in Colorado:

On average, Natural Gas sells at the wellhead in Colorado at a $1.50 discount from NYMEX prices. Gas from larger deposits such as the Haynesville and Barnett shale sell about at par. Gas from the Marcellus Shale in PA sells for a $.50 premium to NYMEX. SO: there is already a large hurdle in the production of natural gas from the Colorado. What made Colorado production worthwhile in the past was a combination of two things 1:lower drilling costs (no longer exists) and 2: lack of supply elsewhere (no longer exists). So, why any gas company would want to produce at a 1.50- 2.00 disadvantage (50% at current prices) is a question Coloradans need to ask themselves, and the Governor.
Do yyou believe the sudden pulling the plug on drilling in Colorado is a result of the costs imposed by the new rules, or the lower cost for all gas or a combination or something else? And if it is a combination, can you rank the causes?

It is a combination, but here is the best way to look at it. O&G is a cyclical indusrty- always has been. Drilling slows when you don't have money, but it comes back because its supposed to be an equal playing field everywhere and you can still make money. What we see now is gas prices sending people back to their offices, but subsequently, more frightening long term regulation sending people packing out of state for good. Now its not an equal playing field- they have a bleak future on the whole in COlorado and now they have no reason to stay in Colorado
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