Lawmaker Curry looks to improve oil and gas audits

State Rep. Kathleen Curry, a Western Slope Democrat who in the past has spearheaded legislation aimed at the state’s oil and gas industry, told The Colorado Independent recently that she’s not looking to introduce new regulations this session. Instead, she will seek to strengthen the Mineral Audit Program, which is tasked with making sure the industry is paying all of the taxes it owes to Colorado.

Rep Kathleen Curry (MBO; Flickr)
Rep Kathleen Curry (MBO; Flickr)

The Gunnison natural beef rancher said the downturn in natural gas drilling brought on by the global recession and subsequent plunge in commodity prices makes this an ideal time to let last year’s new environmentally tougher drilling regulations take effect. Passing those regs last session made for tempestuous times at the state Capitol. Curry is expecting no similar fireworks come January.

“I think we need to let the oil and gas rules, which were pretty comprehensive, work for a while before we take any more steps. But that’s just me,” Curry said.

Watching the FRAC Act

Curry said state lawmakers are closely watching U.S. Rep. Diana DeGette’s Fracturing Responsibility and Awareness of Chemicals (FRAC) Act in Washington. Failure of DeGette’s federal water quality measure could prompt some state lawmakers to try and strengthen Colorado’s rules on “fracking,” or hydraulic fracturing of gas wells, but Curry said she is not one of them.

Some of the new and amended state rules that went into effect last spring deal with that issue and need to be allowed to work once drilling picks up again, she said.

“[The state] got part way down the road and definitely took some positive steps to make sure that the information that health officials would need if there was any kind of event or problem, that the state had access to that information,” Curry said. “We have to be always thinking about letting that work, seeing if that helps and then if that proves to be inadequate, then looking at something more stringent.”

An industry trade group, the Colorado Oil and Gas Association, has sued to block the new regulations on the general principle that they do not adequately weigh the financial burdens imposed by the new rules.

In a recent interview, David Neslin, executive director of the Colorado Oil and Gas Conservation Commission, which oversees oil and gas drilling in the state, agreed with the assessment that the new state rules should be allowed to take effect and deal with any problems stemming from fracking.

“We don’t have any verified examples of fracking contaminating groundwater in Colorado,” Neslin said of the common industry practice, which injects water, sand and chemicals into gas wells to fracture tight geological formations and free up more gas. “We have investigated allegations and complaints alleging that there was such contamination and we’ve not been able to verify in any instance that fracking caused contamination.”

Neslin has previously told The Colorado Independent that U.S. Environmental Protection Agency oversight of fracking could overburden his staff with permitting requirements that might take them away from other oversight obligations. Still, he said the COGCC took public concerns into consideration when drafting the new rules.

“Our commission nevertheless during the rulemaking devoted a great deal of attention to this issue and developed a number of new or amended requirements to try to provide additional protection for groundwater and the public,” Neslin said. “This includes the chemical disclosure rule, the drinking water protection rule, the braden head testing rule and the coal-bed methane rule. Our commission believes, as do I, that those rules provide appropriate and responsible protection to Colorado.”

Raising the money to collect money

Fracking and other legislation aside, Curry did, however, say she’s planning to introduce one bill aimed at the industry that could result in more funding for other state programs. She wants to find a way to directly fund the Colorado Department of Revenue’s Mineral Audit Program (MAP) using oil and gas severance taxes so that it can more closely scrutinize severance tax returns being filed by the industry and make sure more money is coming to the state.

She said a 2006 audit of MAP showed that millions of dollars in potential severance tax revenues — the money oil and gas companies pay the state to “severe” minerals from the ground — were being missed out on because of the complexity of the tax returns and inadequate staffing to deal with the thousands of returns coming in during peak production several years ago.

MAP only has between 1.2 and 4 full-time equivalent (FTE) staff members, Curry said, which only allows them to process a handful of returns each year. Because MAP is funded through the state’s general fund, which has been continually slashed of late, she said the program can’t possibly keep up once drilling activity picks up again.

“If you spend $100,000 on an FTE and bring in a million, to me that’s a million less we have to cut out of education or human services that’s owed to the state of Colorado,” Curry said.

The ad valorem property tax credit granted the industry at the local level and originally implemented in the 1970s to attract oil and gas drilling complicates severance tax returns because property tax assessments are only conducted at the county level every two years. Last November, Gov. Bill Ritter unsuccessfully campaigned to eliminate the ad valorem credit and use that money for higher education, wildlife and renewable energy programs.

Curry said she doesn’t foresee similar efforts in the legislature this session, but she would like to make sure the state gets its fair share of severance tax revenues.

“I don’t support that credit but, it is built into [the industry’s] business models, so if we’re going to have to live with it, then I want the staff to audit these complex returns,” Curry said. “The industry knows that the ad valorem — because it’s unique in this country — it does lead to a much more complex tax process, and so if we’re going to keep that on the books, I want to make sure we provide the resources to make sure it’s all accounted for properly.”

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