State scales back proposed fee hike on oil, gas industry

The Colorado Oil and Gas Conservation Commission is scaling back a proposed mill levy increase on oil and gas companies after revising its projections of commodity prices and production upward.

The COGCC said Friday that it will consider raising the levy to 1.5 mills from 1.1 mills. The original proposal was an increase to 1.7 mills, the maximum allowed.

The increase, which will be considered in an Aug. 4 hearing, will help cover an anticipated budget shortfall, regulators said. Revenue from the levy has fallen as oil and gas prices and production have slumped.

Raising the levy to 1.5 mills will generate nearly $16 million in the 2020-21 fiscal year, the COGCC said. The agency estimates that companies will pay an additional $3.4 million.

The mill levy, last raised in 2018, is assessed on the market value of oil and gas sold in Colorado. The revenue covers about two-thirds of the COGCC’s budget.

“The refined Mill Levy rate request, along with reducing COGCC expenditures, ensures COGCC can continue to provide services that are protective of public health, safety, welfare, wildlife resources and the environment,” agency director Julie Murphy said in an email.

The COGCC said as the mill levy revenue decreased because of declines in the industry, the agency tapped its reserves for a total of $4.2 million in the fiscal year that ended June 30. Even before the pandemic triggered a drastic plunge in demand, oil and gas companies were struggling because of heavy debt, a glut of oil and a price war by Saudi Arabia and Russia.

Projections showed that costs would again outpace revenue this fiscal year, according to the COGCC. However, updated estimates show that oil and gas prices and production aren’t expected to be as low as first thought, Murphy said.

The COGCC staff predicts that oil production will total roughly 40.5 million barrels from July through September, compared to about 49 million barrels for the same period in 2019.

In written comments to the COGCC, industry associations said the costs of a higher mill levy could further dampen companies’ production. They suggested a smaller increase and then a reduction when prices and production pick up.

The COGCC said raising the mill levy, which functions like a fee, shouldn’t run afoul of the Taxpayer Bill of Rights, a constitutional amendment that, among other things, limits tax increases.