Coal Methane Wealth from the HD Mountains? Part Two

Coal Methane Wealth from the HD Mountains? Part Two

Bruce Andersen | 11/3/06

The numbers seemed to go right through me.

“Could you repeat that, please?” Unfamiliar jargon nearly glazed my eyes over. “So, let me see if I understand, …” And, how does that change if Ballot Issue 1A passes, or doesn’t pass?

“It depends,” seemed the answer to most of my questions.

So it went at a Halloween Day meeting with Archuleta County Finance Director Bob Burchett and Special Projects Manager Sheila Berger.

After some careful research for Part One of this story, I came to understand the basic environmental tradeoffs of drilling for methane gas in the coal beds of the HD Mountains in western Archuleta County. I felt the need to understand the financial aspects of drilling in order to truly comprehend the depth of the issue and how it may affect me and things and people I care about.

Sheila had warned me, when we set up the interview appointment, that she may not look normal since she would be in costume for Halloween. When I arrived, the “witch” welcomed me in and led me to the “warden’s office.” It seemed an odd setting to talk about money, lots of money.

Bob led off, having changed out of his warden uniform and into accountant garb, “They plan to drill about 300 coal bed methane wells in area of the HD Mountains. Roughly half of those will be in Archuleta County and half in La Plata County. The production value of the gas over the 40-year life of the project is around $200 million.” I tried to imagine what 200 million dollars looked like, or what it could buy.

“So, how much is really gonna come to Archuleta County?” he mused. “It depends.”

The short answer is $2.5 million over the life of the gas drilling project. But, twice that or five million dollars if the de-Brucing, or de-Taboring, ballot issue passes. More on that in a minute.

There are two sources of tax revenue tied to pumping oil, or methane gas, in our county. The first and much larger portion comes from property taxes on the gas produced from under the ground. The second is the personal property tax on the equipment used to extract the gas. We’ll focus on the former.

Since this project could continue for up to 40 years, simple calculations like “$5 million worth of gas in one year times 40 years of operation equals the total value, $200 million, of gas over 40 years” don’t work. There are variables like inflation, productivity of wells, percentage of wells pumping, how much they’re pumping, etc. But, for our discussion’s sake and in not boggling my simple mind, Bob simplified the math. “The total estimated production after calculating for a straight-line 4% inflation over the 40 years is $247 in today’s dollars. Amortized over 40 years, that’s $6.175 million actual valuation of the gas produced annually.”

I asked one of my many clarification questions and realized this is the value of the gas produced not the money coming to our county. The money man continued, “At 85% assessed value, that translates to $5.2 million of assessed valuation. And, that translates to $100,000 of property tax revenue, in today’s dollars.” And now I need a translation!

“In Year 1, which would be assessed in 2007 and available in 2008, the estimate is $2.5 million of gas production value in Archuleta County. At 85% assessed value, that’s $2.24 million in taxable property. Currently, our mill levy is 18.233 mills, which equals $40,000 in tax revenue.” I was starting to understand.

“Let’s look at the 40-year straight line amortization of $6.175 million of gas production value a year. At 85% assessed value, that’s $5.2 million [on which to apply the mill levy]. At 18.322 mills, that’s about $100,000 in revenue a year, or $4 million over 40 years. It could be as much as $5 million, and that’s the number we’re using, $5 million generated property tax revenue.”

All of this assumes Ballot Issue 1A (aka de-Brucing, de-Taboring, exempting the County temporarily from TABOR — the "Taxpayer Bill of Rights") passes. TABOR, passed by Colorado voters in 1992, limits the amount of tax that can be collected by the County based on a specific formula tied to the amount of tax collected last year, local growth and specific Denver area statistics. The money the county doesn’t get is called a “temporary tax credit.” It’s money that could be collected if not restricted by TABOR.

“Should A1 not pass,” Bob continued, “What would be the tax credit issued back to the oil companies? About $725,000 for ’07 collections and $2 million in ’08, including the HD gas revenue.” Now, I’m really getting it. Should 1A not pass, the $5 million in potential tax revenue would be limited to about half that — $2.5 million.

When I asked Bob how that new revenue might be spent, whether it’s $5 million or $2.5 million, he directed me to the Board of County Commissioners Letter of Commitment to the residents of Archuleta county signed in September, 2006 that laid out priorities for these additional revenues should the Property Tax Rate Stabilization ballot issue 1A pass: 40% roads, 20% staff training and technology, 20% parks and recreation, and 20% planning a new jail and sheriff’s facilities.

I kinda felt like I got handed a Get Out of Jail Free card when I headed out of the “Warden’s Office” and headed downstairs to do my early voting. I encourage everyone to get out and vote.

Read Part One

Pagosa Springs Daily News: Coal Methane Wealth from the HD Mountains? Part Two