Data Sources and Methods

How Local Governments Receive Revenue
From Unconventional Oil and Natural Gas Production
Data Sources and Methods
March 2015
This document describes the data and methods used to generate the interactive data tool, “What Do Local
Governments Receive from Oil and Gas Production Taxes?”
(http://headwaterseconomics.org/interactive/oil-gas-local-governments-production-tax-revenue)
The interactive first describes well performance in terms of monthly and cumulative oil and natural gas
production of horizontally completed and fractured wells in “unconventional” shale plays across the U.S.
Well performance is defined as high, average, and low for each play and production value is estimated by
adding recent commodity prices for oil and natural gas.
Next, the interactive describes production revenue by applying each state’s fiscal policy to the well
performance data specific to each unconventional shale play(s) in that state. Total production tax revenue
is estimated for wells completed on private, state, and federal land. How these revenues are distributed
between state and local governments, the amount investing in permanent savings, and the value of tax
expenditures are also estimated. Tax expenditures are defined as direct incentive to industry and as
production tax revenue used to lower other taxes, including property and income taxes.
WHY IS IT IMPORTANT?
The benefits communities receive from oil and natural gas production depends on fiscal policy often set at
the state level. Tax revenue that accrues to local governments depends on well performance, commodity
prices, state fiscal policies, and the land ownership where wells are drilled.
Unconventional oil and natural gas is extracted from tight shale formations using horizontal drilling and
hydraulic fracturing technologies. Unconventional oil and natural gas plays require more wells to be
drilled on a continuous basis to maintain production than comparable conventional oil and natural gas
fields. This expands potential employment, income, and tax benefits, but also heightens and extends
impacts on communities and public costs.
Fiscal policy plays an important role in delivering revenue to local governments in the time, location, and
amount necessary to mitigate the impacts associated with drilling activity and related population growth.
Revenue is volatile over time, responding to changing prices and levels of production. Fiscal policy can
moderate or exacerbate exposure to boom and bust dynamics.
The interactive explores how the differences between state fiscal policies have an impact on the amount,
timing, location, and predictability of returns to communities. This work contributes a method for
comparing fiscal returns to local governments from unconventional oil and natural gas that can inform
more detailed studies related to community outcomes.1
RELATED RESEARCH
Headwaters Economics has compared state fiscal policies in a recent series of reports and defined a series
of Fiscal Best Practices. We have also studied long-term economic performance of energy dependent
counties.
1
Selection of Unconventional Oil and Natural Gas Plays
The interactive shows data for 16 of the most active shale plays across the U.S. in 11 individual states.
The plays were selected because they currently rank among the most productive unconventional oil and
natural gas plays in the U.S.
Most shale wells completed in the U.S. produce a mix of oil, dry natural gas, and natural gas liquids
(NGLs). We also selected plays in a single state that represent predominantly oil or natural gas plays so
that we could compare how state fiscal policies may differ as they apply to these two important fossil fuel
resources. For this reason, we include four plays in Texas and two each in Colorado and Pennsylvania.
Table 1: Characteristics of Selected Major U.S. Shale Plays
State
Arkansas
Colorado
Colorado
Louisiana
Montana
New Mexico
North Dakota
Oklahoma
Pennsylvania
Pennsylvania
Texas
Texas
Texas
Texas
Utah
Wyoming
Play
Fayetteville shale
Piceance basin
Niobrara shale
Haynesville shale
Bakken/Three Forks shale
Permian basin
Bakken/Three Forks shale
Woodford shale
Northeast Marcellus shale
Southwest Marcellus/Utica shales
Barnett shale
Haynesville shale
Permian basin
Eagle Ford shale
Uintah basin
Green River basin
Predominant
Resource Type
Dry gas
Dry gas
Oil, NGLs, Dry gas
Dry gas
Oil
Oil, NGLs, Dry gas
Oil
Dry gas
Dry gas
Dry gas, NGLs
Dry gas
Dry gas
Oil, NGLs, Dry gas
Oil, NGLs, Dry gas
Oil, NGLs, Dry gas
Dry gas
Reservoir
Fayetteville
various
Niobrara-Codell
Haynesville
Bakken, Three Forks
Bone Spring, Delaware, Wolfcamp
Bakken, Three Forks
Woodford
Marcellus
Marcellus, Utica
Barnett
Haynesville
Bone Spring, Trend, Wolfcamp
Eagle Ford
Wasatch-Mesa Verde
Lance
Production: Monthly and Cumulative Production Curves
SAMPLE OF PRODUCING WELLS
Methods: Data on region-specific production was collected through DI Desktop, a proprietary oil and
natural gas industry data source.* For each region, we collected monthly oil and gas production levels for
individual wells completed after January 1, 2007. We chose 2007 because it allowed us to access
relatively recent data, which is important due to the rapid technological advancements that continue to
occur. Using 2007 as a starting point also allowed us gather at least five years of production data with a
fairly large sample size of producing wells (see Table 2).
The number of wells in each region represents one well producing for at least one month. Data are
normalized to align the starting month of each well regardless of the actual start date. In several plays,
including Pennsylvania Northeast, Texas Eagle Ford, and Utah Uintah, drilling activity began more
recently than other plays examined here. As a result, data for later years of production from these plays
are based on a small sample size. As a result, data for the tail end of the monthly and cumulative
production curves are less reliable compared to production data for other regions which are based on
larger sample sizes throughout our 60-month window.
*
We thank DI Desktop for the use of their data in this paper and the Energy Initiative at Duke University for
invaluable assistance.
2
Table 2: Number of Producing Wells in Selected U.S. Unconventional Oil and Natural Gas Plays,
2007-2013.
State
Arkansas
Colorado
Colorado
Louisiana
Montana
New Mexico
North Dakota
Oklahoma
Pennsylvania
Pennsylvania
Texas
Texas
Texas
Texas
Utah
Wyoming
Play
Fayetteville
Niobrara
Piceance
Haynesville
Bakken
Permian
Bakken
Woodford
Northeast
Southwest
Barnett
Eagle Ford
Haynesville
Permian
Uintah
Green River
Number of Wells
Producing (One
Month)
1,507
3,053
8,748
1,134
954
1,430
1,303
1,209
1,182
1,053
1,237
14,973
812
1,812
1,057
1,493
Number of Wells
Producing (60 Months)
315
687
3,427
36
553
131
93
226
5
92
559
845
38
337
5
462
Table 2 shows that the sample of wells in the Colorado Niobrara shale includes 3,053 wells2 completed
and producing for at least one month beginning on January 1, 2007.3 The sample drops to 687 wells that
have been producing for 60 months.
Data Source: Drillinginfo’s DI Desktop. “Drillinginfo” and “DI Desktop” are trademarks of Drilling Info,
Inc. and, along with the Drillinginfo data reproduced herein, are used with permission.
OIL PRODUCTION
Methods: For each play, we created three profiles: an “average” production profile (arithmetic mean), a
“high” production profile (the well that produced oil and gas at the 90th percentile), and a “low”
production profile (the well that produced oil and gas at the 10th percentile).
Table 3 shows oil production statistics for the average well in each of the selected unconventional plays.
The average production profile represents a production figure for which half of wells in the sample
exceeded, and half of the wells in the sample fell below.
3
Table 3: Monthly Oil Production from an Average Well in Selected U.S. Unconventional Oil and
Natural Gas Plays, 2007-2013
State
Arkansas
Colorado
Colorado
Louisiana
Montana
New Mexico
North Dakota
Oklahoma
Pennsylvania
Pennsylvania
Texas
Texas
Texas
Texas
Utah
Wyoming
Play
Fayetteville
Niobrara
Piceance
Haynesville
Bakken
Permian
Bakken
Woodford
Northeast
Southwest
Barnett
Eagle Ford
Haynesville
Permian
Uintah
Green River
Initial Oil
Production
(Bbl/Month)
1
1,503
105
8
6,668
9,101
11,609
753
0
239
5
49,996
54
3,666
263
667
Oil Production
Month 12
(Bbl/Month)
0
507
40
2
3,438
2,098
4,967
246
0
261
2
26,391
18
2,454
84
314
Oil Production
Month 60
(Bbl/Month)
0
148
10
2
1,245
224
2,256
8
0
28
1
8,704
29
2,319
11
100
Cumulative
Production
After 60
Months (Bbls)
1
108
0
0
150,089
65
223,497
0
0
7,678
0
319,833
2
1,659
0
0
Percent
Production
Decline After
One Year
100%
66%
62%
72%
48%
77%
57%
67%
NA
-9%
53%
47%
67%
33%
68%
53%
Percent
Production
Decline After
Five Years
100%
90%
91%
74%
81%
98%
81%
99%
NA
88%
73%
83%
46%
37%
96%
85%
Table 3 and Figure 1, for example, shows that oil production from the average well in the Colorado
Niobrara peaked initially at 1,503 barrels per month, declined to 507 barrels per month after one year—a
66 percent decline in the first year—and to 148 barrels per month after 60 months—a 90 percent decline
after five years. Cumulatively, the average Niobrara well produces 21,412 barrels of oil over five years.
Figure 3 shows how the Niobrara well compares to average wells in 15 additional shale plays across the
U.S.
Data Source: Drillinginfo’s DI Desktop. “Drillinginfo” and “DI Desktop” are trademarks of Drilling Info,
Inc. and, along with the Drillinginfo data reproduced herein, are used with permission.
NATURAL GAS PRODUCTION
Methods: For natural gas production, we construct the same average, high, and low production profiles
for each play. Table 4 shows production in Mcf (thousands of cubic feet) of natural gas.
Table 4 and Figure 1, for example, shows that natural gas production from the average Colorado Niobrara
well peaked at 3,876 mcf per month, declining to 2,179 mcf per month after one year—a 44 percent
decline in the first year—and to 995 mcf per month after 60 months—a 74 percent decline after five
years. Cumulatively, the average Niobrara well produces 94,324 mcf of natural gas over five years.
Figure 3 shows how the Niobrara well compares to average wells in 15 additional shale plays across the
U.S.
Data Source: Drillinginfo’s DI Desktop. “Drillinginfo” and “DI Desktop” are trademarks of Drilling Info,
Inc. and, along with the Drillinginfo data reproduced herein, are used with permission.
4
Table 4: Monthly Natural Gas Production from an Average Well in Selected U.S. Unconventional
Oil and Natural Gas Plays, 2007-2013
State
Arkansas
Colorado
Colorado
Louisiana
Montana
New Mexico
North Dakota
Oklahoma
Pennsylvania
Pennsylvania
Texas
Texas
Texas
Texas
Utah
Wyoming
Play
Fayetteville
Niobrara
Piceance
Haynesville
Bakken
Permian
Bakken
Woodford
Northeast
Southwest
Barnett
Eagle Ford
Haynesville
Permian
Uintah
Green River
Initial Natural
Gas Production
(Bbl/Month)
30,214
3,876
25,310
240,738
2,920
21,634
10,140
78,065
73,306
43,590
72,044
11,711
184,486
5,743
46,719
70,395
Natural Gas
Production
Month 12
(Bbl/Month)
26,154
2,179
10,889
92,451
2,582
10,247
4,462
36,498
118,772
54,591
27,023
5,806
61,348
5,383
14,180
34,691
Natural Gas
Production
Month 60
(Bbl/Month)
6,033
995
3,256
4,833
1,460
2,770
1,654
9,854
3,178
4,012
9,715
363
9,530
5,626
4,810
11,789
Cumulative
Production
After 60
Months (Bbls)
1,031,957
94,324
455,396
3,373,136
124,865
426,286
187,843
1,507,876
3,319,361
1,432,196
1,206,802
273,840
2,328,953
334,911
665,002
1,450,404
Percent
Production
Decline After
One Year
13%
44%
57%
62%
12%
53%
56%
53%
-62%
-25%
62%
50%
67%
6%
70%
51%
Percent
Production
Decline After
Five Years
80%
74%
87%
98%
50%
87%
84%
87%
96%
91%
87%
97%
95%
2%
90%
83%
COMPARING PRODUCTION PROFILES
For the purposes of comparing production profiles between plays that have unique production
characteristics and different mixes of oil, natural gas, and natural gas liquids, we convert natural gas from
thousand cubic feet (Mcf) to barrels of oil equivalent (Boe). This calculation is based on average energy
content estimates provided by the U.S. Energy Information Administration.4 The average energy content
of one Mcf of natural gas is 1.025 million British thermal units (MMBtu), and the average energy content
of one barrel of oil is 5.8 MMBtu. Therefore, we use a conversion factor of 5.658 Boe per Mcf of natural
gas produced.
Figure 1 shows an example of monthly and cumulative production of oil and natural gas based on barrels
of oil equivalency.
Data Source: Energy Information Administration (EIA). Energy calculators, natural gas conversion
calculator (Btu) and crude oil conversion calculator (Btu).
Figure 1: Monthly Production for Average (p50) Well; Niobrara, CO
5
Figure 2: Total Monthly Production by Productivity; Niobrara, CO
Figure 3: Monthly Production by Play (Niobrara, CO is Highlighted)
The decline curves shown in Figures 1 and 2 are consistent with other assessments of unconventional oil
and natural gas plays. The U.S. Energy Information Administration provides analysis of decline curves
from unconventional plays each year as part of the Annual Energy Outlook, finding that wells in the
Bakken in Montana and North Dakota, the Eagle Ford in Texas, and the Wolfcamp in New Mexico and
Texas, among others, demonstrate relatively high initial production with subsequent steep declines.5
In reality, no two wells are identical. Wells with different production and cost profiles will return different
amounts of revenue and effective tax rates within a single state’s tax structure. The shape of the
production decline curve (how quickly production declines) and the rate (size) of initial production affect
the estimated ultimate recovery (EUR) of each well. The EUR is equivalent to cumulative production
over the life of the well. The shape of the production decline curve also has bearing on how drilling
incentives, stripper well exemptions, and other components of tax policy affect the effective tax rate and
cumulative tax revenue. Because of these issues, the interactive includes the high and low production
wells in each play.
In the next section we apply commodity prices to the decline curves to estimate the production value of
wells in the selected U.S. unconventional oil and natural gas plays.
6
Estimating Production Value
Methods: To estimate the value of production from wells in each play, we applied an average constant
price for oil and natural gas over the entire five-year production period. Although oil and gas prices
fluctuate over the lifetime of a well, affecting the cash flow and associated government revenue stream,
we use constant prices for each region to identify the policy factors (as opposed to fluctuations in price)
that affect government revenue from a given production profile.
Table 5: Cumulative Oil and Natural Gas Production, prices, and Total Production Value, 20072013
State
Arkansas
Colorado
Colorado
Louisiana
Montana
New Mexico
North Dakota
Oklahoma
Pennsylvania
Pennsylvania
Texas
Texas
Texas
Texas
Utah
Wyoming
Play
Fayetteville
Niobrara
Piceance
Haynesville
Bakken
Permian
Bakken
Woodford
Northeast
Southwest
Barnett
Eagle Ford
Haynesville
Permian
Uintah
Green River
Average 2014 Oil
Price ($/Bbl)
$69.31
$68.68
$68.68
$76.53
$65.46
$67.32
$67.26
$72.83
$62.53
$62.53
$70.45
$70.45
$70.45
$70.45
$66.00
$67.52
Average 2014
Cumulative
Natural Gas
Cumulative Oil
Natural Gas
Price ($/mcf) Production Value Production Value
$4.68
$81
$4,829,558
$4.62
$1,470,557
$435,776
$4.62
$114,394
$2,103,931
$4.58
$7,797
$15,448,963
$4.66
$9,824,804
$581,872
$4.64
$5,832,631
$1,977,966
$4.66
$15,032,436
$875,347
$4.59
$647,221
$6,921,149
$4.19
$0
$13,908,121
$4.19
$445,844
$6,000,901
$4.68
$5,473
$5,647,836
$4.68
$86,664,054
$1,281,574
$4.68
$83,617
$10,899,500
$4.68
$10,834,997
$1,567,382
$4.66
$238,221
$3,098,907
$4.66
$879,424
$6,758,883
Total Production
Value
$4,829,639
$1,906,334
$2,218,325
$15,456,760
$10,406,675
$7,810,597
$15,907,783
$7,568,369
$13,908,121
$6,446,745
$5,653,309
$87,945,627
$10,983,117
$12,402,378
$3,337,128
$7,638,307
Table 5, for example, shows that the average price of oil extracted in Colorado in 2014 was $68.68 per
barrel based on the U.S. Energy Information Administration’s annual average first purchase price for
Colorado,6 and for natural gas a price of $4.62 per mcf based on proprietary regional pricing data from
Natural Gas Intelligence.7 Applying these prices to cumulative production value from wells completed in
the Colorado Niobrara, the cumulative production value is Niobrara well is $1.9 million over five years.
Oil contributes $1.47 million to the total value, and natural gas contributes $435,766.
Figure 4: Cumulative Total Production Value by Play (Niobrara, CO is Highlighted)
7
Data Source: U.S. Energy Information Administration’s annual average first purchase price for Colorado.
U.S. Energy Information Administration, crude oil first purchase price by area.
http://www.eia.gov/dnav/pet/pet_pri_dfp1_k_m.htm. Based on proprietary regional pricing data from
Natural Gas Intelligence. Natural Gas Intelligence Shale Daily, May 2014.
http://www.naturalgasintel.com/about_ngidata.
Revenue: State Production Tax Structure
TYPES OF PRODUCTION TAXES
Revenue from the direct production of oil and natural gas accrues to state and local governments from a
variety of sources: state severance taxes, local government property (ad valorem) taxes, impact fees and
regulatory fees and governmental royalties.




State severance taxes: In general, a "severance tax" is a production tax levied on the value or
volume of oil and natural gas extracted or “severed” from the earth. Severance taxes based on
value typically levy a tax rate on the value of production at the wellhead. Severance taxes based
on volume levy an indexed fee per barrel of oil or mcf of natural gas.
Local government property taxes: In many states, including Colorado, Wyoming, and Texas,
local governments levy property taxes on the production value of oil and natural gas. Property
taxes are also called ad valorem taxes, which means “by value.”
Impact fees and regulatory fees: Pennsylvania is the only state in our selected plays that does
not levy a severance tax. Instead, the state levies an impact fee per well, indexed to prices. Most
state regulatory agencies also levy a modest fee to fund the agencies activities. These fees can
either be on the value or volume of production.
Governmental royalties: Royalties are production taxes paid to the owner of the resource,
including federal, tribal, state, and private landowners. Federal and state royalties are common,
particularly in the Western U.S. We include royalties in this analysis because royalties are often
an important source of revenue for local governments. Companies also pay bonuses (a premium
paid to win a leasing contract to drill in a specific area) through the competitive leasing process,
and fees or rents to maintain a lease.
Production taxes, royalties and fees are levied in addition to other taxes that form the general tax structure
of each state. Drilling related activity are subject to sales and income taxes in the same way these taxes
apply to all economic activity in each state. Other aspects of the general tax base are not included in this
analysis, however they can also be important sources of revenue in some states.
For each type of production tax in each state, we estimate total revenue collections and the government
take (or the effective tax rate). The general formula to estimate production tax revenue is:
Revenue = (tax base – (deductions + exemptions)) * (base tax rate – (tax incentives + tax exemptions))
The discussion below provides a general overview of our methods. To make these estimates, we have to
understand how the tax base is defined, what the base tax rate is, what incentives, deductions, and
exemptions are offered, and the timing of revenue collections.
TAX BASE
Methods: The tax base is typically production value or production volume at the wellhead. Production
taxes levied on production value are most common. Production value is volume times price. Because the
resource is often sold at a point downstream from the wellhead (at a pipeline hub or to a consumer
including refineries), transportation and processing costs between the wellhead and the point of sale are
often deductible from the first market price. Some production is also exempt from the tax base. Many
8
state severance tax policies exempt the royalty interest in production from the tax base. Resources used on
site are also exempted—for example, natural gas extracted from the well that is used to power equipment
at the well site.
The tax base can also be the volume of the resource. Typically applied to natural gas, indexed prices are
used per mcf of natural gas extracted. Some state conservation fees are also based on a per-barrel or permcf basis.
In some states, local governments define the taxable value of oil for property tax purposes as the value of
reserves in the ground, not based on production as it occurs. The so-called income approach applies local
property tax levies on the expected value of production over the life of the reserve. For example, local
property taxes in Texas are based on the income approach.
Pennsylvania applies an impact fee that is based on the productivity of the well, and is indexed to prices.
BASE TAX RATE
Generally, states apply a single tax rate for each specific production tax. However, base tax rates can vary
with price (North Dakota), the income of the producer (Colorado), and for the working and non-working
production interests in each well (Montana). For property taxes, the tax rate varies across each jurisdiction
based on local mill levies. To estimate revenue derived from property taxes we apply the average mills
levied by county governments and school districts that have significant unconventional oil production.
For taxes based on indexed prices, the tax rate can be calculated as the effective rate, or the indexed tax
per unit divided by the price of the resource at the wellhead.
TAX INCENTIVES AND DEDUCTIONS
Tax incentives provide for rate reductions for a variety of purposes, with the intention of inducing more
drilling activity and production, promoting adoption of new technology, or encouraging conservation
measures. The largest incentives specific to unconventional production include reductions in tax rates on
newly completed horizontal wells for a defined period of time or until costs are recovered (sometimes
called “tax holiday” incentives). Incentives in some states are only active when prices fall below
established price thresholds (North Dakota), while other states provide for permanent incentives without
regard to price (Montana).
TAX EXEMPTIONS
Exemptions typically include lower rates or no tax requirement for production from “stripper wells,”
defined as wells producing less than a threshold amount of oil. Wyoming does not exempt stripper wells,
while the most generous exemption is in North Dakota where stripper wells are defined as wells
producing less than 30 barrels per day. Exemptions can also be tied to price thresholds (Montana).
States have various other exemptions and deductions that are not applicable to new unconventional
production. For example, new vertical wells, orphaned wells brought back into production, and various
types of secondary and tertiary production all receive various exemptions and deductions. This
comparison is focused specifically on new horizontally completed wells, so these aspects of state policies
are not considered here, but may warrant additional attention as secondary production becomes more
important in unconventional plays.
TIMING OF TAX COLLECTIONS
In general, state severance taxes are collected on a monthly basis. However, some states collected
severance taxes quarterly (Montana) or annually (Colorado). By comparison, local government property
9
taxes are based on annual assessments, with tax assessments and collections occurring in the following
year. As a result, local government property tax collections lag production typically by two years.
COMPARING CUMULATIVE TAX REVENUE
The interactive displays tax collections as a “curve” that shows the amount of revenue collected by each
type of production tax, and the timing of collections based on five years of production from
unconventional wells in each state. Figure 5 illustrates the tax curves for a single play—Colorado
Niobrara. Figure 6 shows a comparison of cumulative revenue from all production taxes for all the
selected plays.
Figure 5: Monthly Cumulative Revenue by Type; Niobrara, CO
Figure 6: Monthly Cumulative Revenue by Play (Niobrara, CO is Highligted)
In Figure 5, the slope of the cumulative revenue curve reflects the timing of revenue collections. Colorado
levies a state severance tax and local property taxes on an annual basis. As a result, in Colorado no
revenue is collected in the first year of production for wells completed and revenue thereafter is stepwise.
Figure 6 shows the revenue curves for each play. It shows that compared to revenue generated in the
Niobrara in Colorado (dark red line), revenue generated from the Bakken in North Dakota (second tax
curve from the top) assesses production taxes monthly, represented by the relatively smooth curve with
the steepest slope in the first several years when production from the typical well is greatest.
10
Revenue: State Revenue Distribution Policy
In general, state distribution polices treat every dollar of revenue in exactly the same way. However, in
some cases, additional dollars of revenue are allocated in new ways. Allocating revenue in states that fall
in the first category using strict proportional distribution systems is straightforward. The revenue
generated from each well, regardless of its productivity or when it is drilled, is allocated in exactly the
same way based on the allocation formula.
In states that change allocations as additional revenue is collected, it is impossible to know exactly where
revenue from any single well ends up. Instead, we summarize how cumulative revenue collections over
an entire tax period (fiscal year or biennium) are distributed. The total annual distributions are illustrated
in the context of a single well by assuming that revenue from the average well would be distributed in the
same way.
To simplify comparisons between states, we group distributions into four basic categories: state share,
local share, permanent savings, and tax expenditures.
STATE SHARE
State share is any production tax revenue collected and retained by the state government for any
governmental purpose. Many states deposit a share of production tax revenue into the General Fund, or
allocate revenue to a variety of state agencies and purposes.
LOCAL SHARE
Local share is any revenue received by local governments, including direct property tax collections at the
local level, direct distributions from state production tax collections, and impact grant programs funded
with production tax revenue. It does not include state assistance that may be provided from other sources
of governmental revenue.
PERMANENT SAVINGS
Permanent savings include allocations made to trust funds that have constitutionally or legislatively
protected principal. A number of states have severance tax trust funds, or invest a share of production tax
revenue into existing funds established for budget stabilization, school funding, or other purposes.8
TAX EXPENDITURES
Tax expenditures are defined as the value of production tax incentives and tax relief funded with
production tax revenue.
Figure 7 shows the distribution of production tax revenue to state government, local governments,
permanent savings (trust funds), and tax expenditures in a single play—Colorado Niobrara. Figure 8
compares these same revenue distributions for all the 15 selected plays.
11
Figure 7: Distribution of Production Revenue; Niobrara, CO
Figure 8: Distribution of Revenue by Play (Niobrara is Highlighted)
CONTACT INFORMATION
Mark Haggerty, Headwaters Economics
Mark@headwaterseconomics.org | (406) 570-5626
ABOUT HEADWATERS ECONOMICS
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Endnotes
1
This same approach is used by other analysts. See, for example, Ernst & Young LLP. 2012. Analysis of
Ohio Severance Tax Provisions of H.B. 487. Prepared by Ernst & Young LLP for the Ohio Business
Roundtable. http://jobs-ohio.com/images/Ernst-Young-Severance-Tax-Analysis-Prepared-for-the-OhioBusiness-Roundtable-5-15-12.pdf. Also see Montana Department of Revenue. 2012. Oil and Gas
Production Tax Comparison: Montana and North Dakota. Helena, MT.
http://revenue.mt.gov/content/committees/legislative_interim_committee/oil_and_gas_prod_tax_comp_ju
ly_rtic.pdf.
12
The data are not explicit as to which wells are horizontal or vertical. Since it’s a shale play, it’s likely
that most are horizontal, however, Drillinginfo does not report this for Colorado (it does for other states),
presumably because CO does not require this information as part of its reporting guidelines.
3
Drillinginfo’s DI Desktop. Average (P50), high production (P10), and low production (P90) well
profiles based on monthly production data from over 1,000 individual wells starting production in the
Niobrara and Piceance basins between 1/1/2007 and 12/31/2013. “Drillinginfo” and “DI Desktop” are
trademarks of Drilling Info, Inc. and, along with the Drillinginfo data reproduced herein, are used with
permission.
4
Energy Information Administration (EIA). Energy Calculators, Natural gas conversion calculator (Btu)
and Crude oil conversion calculator (Btu).
http://www.eia.gov/kids/energy.cfm?page=about_energy_conversion_calculator-basics. There are other
conversion factors used as well. See for example: The California Centre for Energy uses six
(http://www.centreforenergy.com/FAQs-All.asp?template=1,12&qcID=50&qID=308#FAQ);
The Oak Ridge National laboratory, U.S. Department of Energy uses 6.089
(http://cdiac.ornl.gov/pns/convert.html#4);
The Society of Petroleum Engineers uses 5.658 (http://www.spe.org/industry/docs/UnitConversion.pdf).
5
EIA 2013a. NEMS Model Documentation.
6
U.S. Energy Information Administration, crude oil first purchase price by area.
http://www.eia.gov/dnav/pet/pet_pri_dfp1_k_m.htm.
7
Natural Gas Intelligence Shale Daily, May 2014. http://www.naturalgasintel.com/about_ngidata.
8
Wirtz, R.A. “Saving for a rainy, oil-free day.” fedgazette. Federal Reserve Bank of Minneapolis.
September 3, 2013.
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