Low prices and high anxiety
Swooning oil and gas revenues are hitting schools, communities and hospitals hard.
KERSEY » Gavin Amen is getting squeezed twice by cratering oil prices.
The 17-year-old junior at Platte Valley High School in Kersey is in the family business, Amen Oilfield Service, which has keenly felt the sharp decline in the price of a barrel of oil. The company’s yard is filled with equipment that used to be out in the field, setting tanks and cutting pipe forwell operations.
“It’s affecting us pretty hard,” said Amen, who sent sparks cascading across the floor as he sliced pipe with a blowtorch flame in his school’s shop room last week.
The energy downturn— which has seen the price of a barrel of U.S. crude plummet from a peak of $107 in June 2014 to $33.62 at the close of markets Friday — is also hurting Amen’s school.
Platte Valley School District Superintendent E. Glenn McClain said current projections indicate there will be a 30 to 50 percent drop in assessed property value in the 1,200-student district by the end of the year — a direct reflection of the slowdown in oil and gas production.
Because 97 percent of Platte Valley’s budget comes from taxes paid on mineral production and equipment — a property tax known as ad valorem — McClain said his district could be looking at a budget reduction between $300,000 and nearly $1 million next school year.
How that plays out in terms of potential cuts or program-impacts is yet to be seen, he said.
“You’re always concerned about your folks,” McClain said. “You worry about it taking the forward momentum and positivity out.”
It’s not just schools that are suffering. Municipal budgets, local businesses and even hospitals in mineral-rich pockets of Colorado are watching closely to see how long prices remain depressed.
Aside fromdecreasing ad valorem tax collections across the state, Colorado’s Office of State Planning and Budgeting projects a whopping 72.3 percent drop in the severance tax revenue it will collect from energy producers in fiscal year 2015— that’s $77.6 million this year compared with $280 million last year.
As a result, the state’s direct distributions of those proceeds to cities, counties, towns and schools will be reduced froma little more than $40 million in 2015 to just $11.9 million this year.
Don Warden, finance director for Weld County, said sustained low oil prices spell trouble for Colorado’s most prolific energyproducing county. At an assumed, and still-depressed, price level of $38 a barrel two years from now, Weld County’s annual revenues would fall to $114 million — $1 million less than what the county spends on day-to-day operations.
“At that level, we’re getting down to where our core services are,” Warden said.
In Fort Lupton, a 94-room extended-stay hotel catering to oilfield workers was supposed to break ground in 2015. ButCityAdministratorClaud Hanes said falling oil prices scared away financing for the project.
Impacts are also being felt at Grand RiverHealth, a rural hospital in Rifle, which foresees a $5 million hit to the $15million in annual taxes it typically receives fromthe oil patch. Although those taxes are generated mostly from natural gas production, not oil, lingering low prices for that commodity echo the troubles in the broader energy sector.
The fallout? The intensive care unit the hospital wants to build may get delayed.
“It’s either going to have towait orwe’re going to have to go to the people and vote on a bond issue for additional money,” said Grand River CEO Jim Coombs. “It’s going to impact our ability to grow as the community grows. And if an organization is not growing, it’s not a healthy organization.”
Colorado Oil and Gas Association executive director Dan Haley doesn’t play downthe troubles for his industry and those who depend on it for jobs and business.
“These prices make for very challenging times,” he said.“We’ll continue to see a tightening in the job market and moremergers and acquisitions.”
Permits to drill have gone down by more than 25 percent in the past year, from4,190 issued by the Colorado Oil and Gas Conservation Commission in 2014 to 2,987 last year. The rig count in the state likewise dwindled in 2015, starting at 72 last January and ending the year with just 28.
Just last month, oil services firm Halliburton Co. reduced its worldwide workforce by 4,000 people.
But Haley cautioned that today’s price trough is not as severe as the one that plagued the state 30 years ago, when Colorado was far more dependent on the energy sector.
“We’re not seeing the hollowing out of downtown Denver like we saw in the 1980s,” Haley said.
Richard Werner, president and CEO of Upstate Colorado Economic Development, said the state’s economic landscape is far more diverse today.
“While growth has slowed, it is important to note the Front Range and northern Colorado have seen growth in all industry sectors, which helps keep unemployment numbers lower,” he said.
Colorado’s unemployment rate of 3.5 percent is at a historic low. And late last week, the U.S. Bureau of Labor Statistics released data showing Colorado to be the best among oil patch states for job growth in 2015.
Weld County Commissioner Mike Freeman said he’s not “seeing a huge impact on the ground” from the industry’s woes. Operators have long cited the massive Denver-Julesberg Basin, northeast of Denver, as a highly productive field that is easier and cheaper to drill than others in the country.
Freeman said oil and gas companies, especially the larger ones such as Anadarko Petroleum Corp. and Noble Energy, have made big investments in the D-J Basin and won’t just cut and run. Instead, they will hunker down and do maintenance on pipelines and other infrastructure while they wait for prices to bounce back.
“I think it’s pretty apparent that our bigger operators are here to stay,” he said.
A spokeswoman with Anadarko declined to comment. Reba Reid, a spokeswoman for Noble, said the company has approximately 830 employees in Colorado and 400,000 acres in the D-J Basin.
“Regarding our workforce in 2015, we adjusted the size of the organization to reflect anticipated activity levels and the ongoing price environmentwhile preserving long-term opportunities,” she said.
While the industry waits for prices to rise and stabilize, challenges will continue where energy development has been active in Colorado. For already-strapped school districts dependent on mineral money to operate, it means more paring and streamlining, according to Leanne Emm, associate commissioner for the School Finance and Operations Division of the Colorado Department of Education.
“For those districts primarily funded by oil and gas revenues, they will have some budgetary pressures,” she said.
Such pressures will largely come in the form of shortfalls in state funding for education. Districts that used to be able to fund their entire budgets with local tax revenues will nowhave to supplement those depleted revenues with state money.
The problem there is that the state often funds districts with a balancing budget concept known as the “negative factor,” which allows the state to pay districts less than the school funding formula dictates. Over the past four years, the state has cut school districts’ budgets nearly $3.7 billion this way, according to the Colorado School Finance Project.
Forty-five miles north of the PlatteValley School District is tiny PawneeSchool District, which also gets most of its yearly budget from oil and gas severance taxes.
Superintendent Bret Robinson projects that the 87-student district — northeast of Fort Collins and just south of the Wyoming border — will get $92,000 less this school year because of declining mineral production. Pawnee has a $1.2 million annual budget.
“If (oil prices) stay like this, I don’t think we’ll have any choice but to reduce our force,” Robinson said.
They might also have to combine some classes to create a larger student/teacher ratio.
In Parachute and Battlement Mesa, the heart of natural gas country in Colorado, Garfield School District 16 recently presented voters with a property tax increase to offset the negative factor in state funding. It passed.
But Superintendent Ken Haptonstall doesn’t want to place any more of the burden on residents and businesses to pay the district’s bills. He said the 1,000-student district has been “very prudent about having solid reserves” to cover difficult periods like this one.
That’s a common refrain from those who say this rough patch is just another round in the age-old boom-and-bust cycle of energy production in Colorado.
Upstate’sWerner said there’s no doubt that equipment operators and suppliers “are seeing effects” of the price drop, but that won’t permanently cloud the future.
“Operators are adjusting to price realities, butmost are experienced in dealing with the cyclical nature of this industry,” Werner said.
InKersey, Amensaid his father’s company has been around for several decades and has been through tough times before. Demand for the company’s services may be slack now, but he has no doubt that will turn around in due time.
“This has been one of the more rapidly declining years (for oil prices), butwe always get through it,” he said. “We’ll stick around— it’ll come back up.”
Gavin Amen, 17, works on welding steel pylonsMonday to be used in building a floor for a greenhouse in his construction trades class at Platte Valley High School in Kersey. School districts such as Platte Valley have a great portion of their revenue coming from the oil and gas industry.
The rig count in Colorado dwindled in 2015, starting at 72 last January and ending the year with just 28.