How Much Money will Expanded Drilling Produce and is it Worth it?

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On Sunday morning my former home town paper the Akron Beacon Journal, had a strongly worded editorial against the governor’s plans to expand oil and gas drilling in state parks. The administration argues that the funds generated from the royalty fees will go towards helping pay for the backlog of projects that the Department is currently facing. I was interested in learning how much money the administration was estimating the state could make each year from the expanded oil and gas drilling on state park land proposed in the administration’s budget.

In all the documents relating to the Governor’s budget I was unable to find any revenue estimates based on the proposals in the budget bill, HB 153.  In fact, it seems unclear at this time but HB 153 does not appropriate any funds from the expansion of available lands to generate royalty fees.  If the Governor’s argument is that these funds are going to help the Department of Natural Resources pay for backlogged projects  it seems those projects are going to have to wait until at least 2014 when, presumably, the state will start realizing revenue from this expansion.

Currently there are two companion bills pending in the state legislature, SB 108 and HB 133, which each create an oil and gas leasing board that would lease ALL state owned property to prospective developers.  Remember, the Governor’s proposed budget only deals with land under control by the Department of Natural Resources.

In the fiscal note for HB 133 LSC published a wealth of information regarding potential revenue amounts if drilling were to be expanded to all state owned land.

What the graph above shows are three different possible scenarios based on the expansion of drilling on all state owned land and the projected first year of revenue from oil and gas royalties.  If HB 133 created an increase of 1% new production that would generate around $954,000 for the state. An increase of 5% would generate $4.7 million and a 10% royalties increase would generate near $9.5 million. The LSC fiscal document puts these numbers into even more of a context:

These figures represent estimates of potential revenues from the first year of production only. Actual revenues and their continuation over time would depend on a number of factors, including (1) the amount of land actually leased for drilling, (2) the length of the leases, (3) the number of wells that actually produce oil and gas during the term of a lease, (4) the amount of oil and gas that is actually recoverable and depletion, and (5) fluctuations in the market price of oil and gas during the term of the leases.

What is important about this information is that the graph above only shows the revenue the state would receive if drilling was expanded to all state property.  The Governor’s proposal only extends it to state parks so these numbers would have to be significantly lower. If you assume that this budget proposal will increase production by 5%, which is probably a pretty liberal assumption, then the state can plan on racking in about $4.5 million its first year.

As the Beacon Journal correctly points out, does it really make sense to jeopardize the preservation of our state’s natural resources to generate less than $5 million annually?  These parks are our parks too, and is it right that a Governor elected with less than 50% of the vote thinks he can simply hold a garage sale of state assets for his rich friends?

The underlying trouble is that the drilling conflicts with the parks’ role as havens for enjoyment of the outdoors. Already, state forests and wildlife areas can be tapped. Adding another 174,000 acres sounds impressive. In reality, the limited amounts of oil and gas would have no discernible effect on prices, all while exposing sensitive areas to heavy equipment and the contaminated drilling water that flows back up from fracturing.

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1 Comment

  1. I would not make too much of the fact that Kasich got less than 50% of the vote…. seems to me Bill Clinton never came close to that level. As for “Wealthy friends” any names to go with that reference ?… I assume they are all white, male and mostly out of state!

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