Low prices and high anx­i­ety

Swoon­ing oil and gas rev­enues are hit­ting schools, com­mu­ni­ties and hospi­tals hard.

The Denver Post - - FRONT PAGE - By John Aguilar

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.”

“Chal­leng­ing times”

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.

Bud­getary pres­sures

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.

“Price re­al­i­ties”

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.”

He­len H. Richard­son, The Den­ver Post

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.

He­len H. Richard­son, The Den­ver Post

The rig count in Colorado dwin­dled in 2015, start­ing at 72 last Jan­uary and end­ing the year with just 28.

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