News last week that ConocoPhillips is offering its extensive natural gas and oil extraction development for sale rightly has those in the San Juan Basin of La Plata and San Juan counties wondering what comes next. ConocoPhillips is an international company with breadth and depth in the fossil fuel energy world, and is one of the two big players in La Plata County. BP is the other.
Adding and subtracting divisions and geographical areas, and changing direction, is a part of the energy business. Energy companies for whatever reasons decide their skills and their capital can be better deployed in other aspects and components of the industry or in another state or country. Nonenergy companies do the same thing, of course, but there does seem to be something about the culture of energy companies that has them making major changes.
While it is uncertain what ownership will replace ConocoPhillips here – the company has said it may take a couple of years to complete a sale, if at all – the wells will continue to produce. That means that the tax revenue on both the production and on the associated facilities will continue; so will royalties continue to be paid.
What has come to a halt here is new drilling. Other parts of the country have shown to have lower costs associated with their production. The industry moved to Mesa County, then into Pennsylvania, then into the Dakotas with fervid exploration, and then moved on. The economic appeal of expanded coal-bed methane is gone, perhaps forever. While natural gas wells peak and then decline in production, a good deal of production continues, certainly enough to make them economically viable. Wells have to be reworked on occasion, and transportation facilities maintained, but those expenses do not compare to the costs (and the uncertainty) associated with new drilling.
If the Southern Ute Tribe is the eventual purchaser of some of the ConocoPhillips holdings, that may present a challenge for local governments. Tribes do not have to pay the taxes that corporations pay, and their payments-in-lieu may well be lower than what has been received.
The tribe has recently purchased the holdings of Samson Corporation, which had conventional wells in La Plata County which pre-date coal-bed methane and which draw limited amounts of gas from deeper geologic formations. Samson went bankrupt after the severe drop in energy prices a few years ago. There may not have been many buyers for Samson’s limited production, and it may have been an easy decision for the physically overlapping and larger Southern Ute operation.
The tribe has extensive gas and oil production ownership which it has skillfully developed and managed, both in partnerships and alone. Will it want to expand that fossil fuel component of its revenue-generating portfolio? Or does it believe it makes more sense to continue diversifying into other businesses and real estate ventures, as it has? The answer may not be clear for some time.
La Plata County has been extraordinarily fortunate to benefit from about 30 years of natural gas development. Tax revenues have declined in recent years as prices and to some extent production have dropped, but the industry is not shutting its doors. The successor to ConocoPhillips will continue to offset the tax burden that otherwise would entirely fall on commercial and residential property owners.
