Oil wells have costs and, if all goes well, revenues. Ownership of an oil well is divided into two classes – working interest owners and royalty interest owners. Working interests are the people who drill and operate the well. Royalty interests are the mineral owners who grant the working interest owners the limited rights to mine minerals from their property.
All owners share in revenues from proceeds from the well according to a percentage called a division of interest [DOI]. All revenue interest divisions add up to 100% across both working interests and royalty interests.
Working interest owners also have a separate cost division of interest that adds to 100% for cost allocations. The working interest class of ownership pays all the costs incurred by the well from the cost of mineral rights acquisition through well construction, drilling, completion, and ongoing operations.
The working interest portion of the revenue DOI comprises the lions share of the total revenue division because the working interests take all the risks and incur all the costs. Income from well operations must first satisfy well costs — the oil or gas well must break even — before revenue begins to be available for revenue distribution across the entire revenue DOI.
Only when earnings from the well exceed costs does money become available for distribution across the revenue DOI ownership.
Adding costs to the oil well raises the breakeven point for the well, and reduces money available for return to revenue interest owners.
Regulation that unnecessarily increases the cost of well development, acts like a hidden tax levied against all of the well owners. It is a very selective tax, not born by the citizenship at large, and especially not born by the parties who promote it.
Elbert County is about to enter into a regulatory regime that duplicates much of the regulatory realm already covered by the Colorado Oil and Gas Conservation Commission, or COGCC. County regulations will unnecessarily add millions of dollars of cost to oil and gas well development. They will create pressure to add county jobs to administer all of the waivers from county regulations. They will turn potential revenues to DOI owners into well costs. A whole scheme of fees will divert potential revenue money into the county bureaucracy to cover new Elbert County administrative costs.
Worse still, it is not the citizenship at large who clamor for this regulatory regime. Clamoring comes from a minute percentage of environmental activists who not only don’t represent the citizenship at large, but they have no significant percentage in the stakeholding ownership of this industry in Elbert County.
Even worse still, is that they sell a regulatory regime on the myth of improving the health, safety and welfare to Elbert County citizens, when the regulations do nothing beyond what the COGCC already successfully does to guide environmentally sound oil and gas development, and in fact will probably create new devices masking problems in to-be-discovered bureaucratic imponderables.
The only citizens whose health, safety and welfare will be improved work for Elbert County government. This is a make-work jobs program for the Elbert County Community and Development Services Department, and the assorted consultants and counselors they will have to hire to provide industry knowledge.
These oil and gas regulations also create a deep well of Green v. Humanity subject matter to grease planning commission and BOCC meetings for the foreseeable future.
Who are the winners? Bureaucrats, politicians, environmental activists.
Who are the losers? Everyone else.
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