Oil prices continue to drop, affecting economies and industries across the world, and Colorado is no different.
Pete Milonas is the minerals Director with the Colorado State Land Board, the division of DNR that issues leases to oil and gas companies.
“It’s still a bit up in the air, this all happened so fast,” said Pete Milonas, the Minerals Director with the Colorado State Land Board, the division of DNR that issues leases to oil and gas companies.
“We’ve gone from $85 dollars a barrel an average price last year and the first part of this fiscal year, down to about half that amount. So certainly that’s going to have a pretty significant effect on our revenues,” he says.
"We've leased much of the most sought after land already"
The state earns royalties from the amount of oil extracted from their lands. Last year they made about $78 million. That money gets used by the government for a few different things, but mostly it goes towards school funding. Revenue in the near future is a little uncertain. Milonas thinks this current fiscal year should be ok.
“Since we had such a positive five or six months of the fiscal year, I think our projections for revenue will not be that far off,” he says, “what I’d be more concerned about is the next full fiscal year.
“I’m not sure what you know about the horizontal niobrara drilling, but these wells have pretty steep declines, up to 80% production volume decline in the first year,” he says.
So not only will the state be making less money off the oil produced, but production may slow down. A key part of that is that percentage: 80% production value decline in the first year. That means if you get, say, 100 gallons of oil from a well the first year of drilling, the next year, you’ll only get 20. The year after that, only 10. So the first year is crucial to make the drilling profitable. It’s not exactly incentivizing if you’re selling at half price that first boom year. There’s also the issue of what’s left.
“We’ve been so busy over the past two or three years with auction activity, we’ve leased much of the most sought after land already. It’s probably a combination the decreased oil price and the lack of available tracks that would affect our auction,” he says.
No one knows the future, but if the price of oil stays at these lows, Milonas thinks it will definitely affect the industry, as well as future royalties and the state budget.
