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GEM Professor prepares testimony on impact of statewide setback regulations

February 26, 2013
Michael Orlando

Michael J. Orlando

The Global Energy Management Program’s financial management professor, Michael J. Orlando, was recently consulted by law firm Beatty & Wozniak for his expertise on energy regulatory policies. The law firm represents Anadarko, Noble, Encana, and PDC Energy. These companies were eager for Professor Orlando’s testimony regarding the economic impact of revisions to statewide setback regulations which are currently under consideration by the COGCC.

This coalition of firms has a substantial footprint in the Wattenberg field, located to the northeast of Denver, and many of the firms were concerned that the setback rules under consideration could have a significant impact on their ability to develop their existing leases.

“I developed a well-cash-flows model to estimate the direct impact to parties with a financial stake in well expenditures — mineral rights owners, employees, and state and local governments,” Orlando said. “I also modeled indirect implications — looking at impacts through several levels of the well drill and production supply chain. I estimate that these indirect effects add 40 percent to the magnitude of the direct effects.”

Orlando further provided a qualitative assessment of “induced effects,” categorized as other economic impacts not directly related to the well drill and production activity. Such effects are among the consequences of ordinary expenditures by employees and communities.

“The total impact of these rules depends, obviously, on the specifics,” Orlando said, “and those remained in flux throughout the rule making hearing. But, roughly speaking, for the 500′ setback rule under consideration, I estimated that the first five years of a new rule would have a maximum potential impact to employee income of about $1.5 billion, representing earnings from approximately 4,300 jobs; and to state and local tax revenues of about $450 million. Those public finance impacts would be particularly acute in Weld County, where ad valorem tax revenues make up a significant fraction of their county and school budgets.”

The Commissioners considered Orlando’s testimony in their deliberations over the new rules that were adopted on February 11. And, since the testimony is public record, meaning it can be downloaded from the Commission website, submitted testimony may be referenced by other interested parties. For example, the Weld County Board of County Commissioners included Orlando’s report in a subsequent resolution they filed with the Oil and Gas Conservation Commission. The report has been circulating at the capitol, as the findings are also relevant to the upcoming debates over tracking legislation.

This was Orlando’s first time submitting formal testimony to the Colorado Oil and Gas Conservation Commission. In the past, he has consulted for the Commission, directly; and for energy companies facing issues in front of other state energy commissions. “Generally speaking, my consulting practice focuses on financial and political risks at the nexus of business and government,” he said.

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