Keeping it Real for Policymakers – the Job and
Economic Impacts of Legislation, Lawsuits and
Regulation
The Western Energy Alliance hired John
Dunham & Associates to perform the following
economic analysis:
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Pricing Model for Generic Oil and Gas Wells by
Development Basin
Economic Impact of Oil and Gas Producers in
the 13 Western States
Regulatory Impact Model
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JDA specializes in the development of models
and messages to communicate complex
economic ideas to policy makers and the
public
While these models should not be used to
make financial decisions, they demonstrate
the “impact” of regulations.
This can help the industry as a whole in its
ability to influence and shape the regulatory
and tax environment
Examples of How This Analysis is Used:
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The American Meat Institute used a very similar model to
demonstrate how price controls proposed by GIPSA would cost
consumers well in excess of $100 million
The Auto Alliance used a similar model to demonstrate the
negative economic effects of CAFE standards across
Congressional Districts
DIAGEO has demonstrated the fiscal benefits of reductions in
beverage alcohol controls in Connecticut
Verizon used similar models to show how accelerated
depreciation generates productivity gains for the economy
Altria, MillerCoors and the WSWA have used these models to
document the economic cost of excise tax increase proposals.
‣ Designed to Calculate out the cost components of a generic
oil or gas well – from exploration and leasing to production
and distribution to the supply network.
‣ Model is based on data gathered from the US Department of
Energy, the Bureau of Economic Analysis, and interviews with
dozens of industry professionals
‣ A Revenue model is included that assumes a 20-year well
live with an exponential decline in production (nearly all
production is in first 4 years)
‣Currently the model is state driven but will be broken out to
reflect specific generic well types (vertical v horizontal) and
different production areas (Williston, San Juan, DJ, etc)
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The Economic Impact Model analyzes the footprint of the oil
and gas production industry in the 13 western states
Based on an industry defined as exploration to pipeline
The model is based on actual employment at company
facilities in the states allocated across the region based on
the location of the office/facility and the actual location of
each producing well.
The model uses standard input/output modeling techniques
and the IMPLAN input/output tables for 2010.
Impacts by state and congressional district, and include
supplier and induced impacts in every state and DC.
Data are accessed using an interactive web-based “wizard”
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The model shows that the industry generates
nearly 230,000 jobs all across the country,
paying nearly $15.5 billion in wages.
The total economic impact of the industry is
over $51billion.
Based on our model, the industry generates
over $5.8 billion in business and personal
taxes (not including royalties, severance
taxes etc.)
Economic Wizard Available on
Western Energy Alliance’s Website
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The power of the first two models will be harnessed
through the development of regulatory and tax impact
models in the future.
These models will be used to forecast “shocks” to the
existing system and calculate economic and cost impacts
based on the difference.
For example, taxes, which reduce the demand for products
will reduce the well-head price of oil or natural gas. This
will limit production.
Changes in production will then be translated into lost
jobs, taxes, and economic activity at the national, state and
Congressional district level.
These impacts will ricochet throughout the economy –
impacting Districts in key states like Ohio or Florida
BLM Well Completion Rules:
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A Bureau of Land Management proposal would require that
companies drilling new wells on Federal leaseholds (and those
re-stimulating existing wells) submit a plan outlining the
details of well completion operations for approval prior to
performing them.
The proposed will also require operators to implement a
number of costly “solutions” to a perceived problem of
contaminated groundwater.
Our estimate is that nearly 5,100 wells currently in the
permitting process and about 1,100 wells requiring restimulation in the first year following implementation will be
impacted.
Estimated Oil and Gas Wells Waiting to Be Permitted or Drilled
Estimated Total
State
Arizona
Colorado
Idaho
Montana
Nebraska
Nevada
New Mexico
North Dakota
Oregon
South Dakota
Utah
Washington
Wyoming
Total
Oil Wells Gas Wells
3
1
3,187
5,718
5
398
240
106
11
14
14
4,519
2,564
1,993
6
6
22
2
1,392
2,098
3
685
3,461
12,318
14,129
Estimated Impacted
Total Wells
4
8,905
5
638
117
27
7,083
1,999
6
24
3,490
3
4,146
26,447
Oil Wells Gas Wells
212
380
63
700
99
1
252
380
491
2,480
1,818
3,240
Total Wells
592
63
700
99
1
632
2,971
5,058
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Our estimated costs were significantly higher than the
minor administrative costs outlined in the Agency’s
preliminary benefit-cost analysis of the regulations:
Cost Component Comparison
BLM
Initial Delay Costs
Pre Completion Delay Costs
Administrative Costs
Enhanced Casing Costs
Cement Bond Log Costs
Mechanical Integrity Test Costs
Total Costs
$
$
$
$
$
$
$
3,798,558
44,383,950
10,116,000
58,298,508
Percent
0.00%
0.00%
6.52%
0.00%
76.13%
17.35%
100.00%
$
$
$
$
$
$
$
JDA
56,404,007
38,326,948
2,503,710
439,793,100
736,773,570
10,116,000
1,283,917,335
Percent
4.39%
2.99%
0.20%
34.25%
57.38%
0.79%
100.00%
$
$
$
$
$
$
$
Difference
56,404,007
38,326,948
(1,294,848)
439,793,100
692,389,620
1,225,618,827
Cost Component Comparison per Well
Initial Delay Costs
Pre Completion Delay Costs
Administrative Costs
Enhanced Casing Costs
Cement Bond Log Costs
Mechanical Integrity Test Costs
Total Costs
BLM Estimate
$
$
$
751
$
$
8,775
$
2,000
$
11,526
$
$
$
$
$
$
$
JDA Estimate
11,151
7,577
495
86,950
145,665
2,000
253,839
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JDA will complete the economic impact
analysis including the addition of payments
for government royalties, severance taxes etc.
JDA will include a detailed methodology and
summary of the impact analysis. This will be
completed within 2 weeks.
JDA will next break down the pricing model to
basin specific data. This will allow for a more
detailed examination of targeted regulation
and cost changes. The new data will be
available at the end of Summer 2012
John Dunham
President, John Dunham & Associates
32 Court Street
Brooklyn, NY 11201
Email: jrd@guerrillaeconomics.com
Phone: 212-239-2105