Coloradans are paying the price while oil and gas companies pocket the profits.
Loophole #1: Close the Stripper Wells Exemption!
In oil & gas states, the severance tax is what drillers are supposed to pay for taking our public resources. Colorado’s tax is gutted by a big special break: the stripper well exemption. This exempts oil & gas severance tax on wells that produce less than 15 barrels a day, aka a “stripper well.” In 2022, that meant almost 55% of oil wells, and 71% of methane wells were NOT paying their fair share of taxes on OUR public resources! Colorado is missing out, on average, over $17.8 million dollars of potential revenue from the oil & gas industry EVERY year. Wouldn’t those funds be helpful under our TABOR-restricted statewide budget?
The original purpose of this tax exemption comes from the 1970’s when our government wanted to incentivise low producing wells to continue producing so we didn’t have to rely on foreign oil. That may have made some sense back then, but now when the US is a top exporter of oil & gas, it makes no sense to incentivize low-producing wells to stay open. There should be no tax breaks for keeping old oil & gas wells open and spewing methane and carcinogens into our air!
Loophole #2: End The ‘Ad Valorem’ Tax Credit!
Another type of tax break for oil & gas is called an “ad valorem” tax credit. Oil & gas companies are allowed to subtract their local property taxes from the amount owed to the state in severance taxes. Let’s do an example together:
| Description | amount |
| Gross income from well | $1,000,000 |
| Severance tax rate | 5% |
| Severance Tax owed before the credit | $50,000 |
| County property tax paid previous year | $45,000 (for example purposes) |
| Ad valorem credit (87.5% of county property tax paid previous year) |
|
| Severance tax owed after credit: | $10,625 |
So, in this example the severance tax collected by the state was reduced from $50K to $10.6K. Why are oil & gas companies allowed to do this?
In some years, these credits wiped out over 90% of gross severance tax liability statewide. That’s one big reason Colorado’s effective taxes on oil & gas is the lowest of all the 9 major oil & gas producing states and about ten times lower than New Mexico’s, even though Colorado bears the same environmental risks and harm. In 2026, the calculation method of the ad valorem tax credit will change but the effect remains the same – oil & gas companies get a tax break that Coloradans pay for.
Meanwhile, communities foot the cleanup bill.
When wells are abandoned or companies go bankrupt, the state has to plug them and restore the area to protect our air and water. Colorado estimates it costs about $92,700 per well site on average. Regulators spent nearly $15 million last year handling 95 orphaned wells, a record number of “orphaned” sites and yet 948 orphaned wells remain on the list. Independent watchdogs warn that, even after recent rule changes, Colorado’s financial-assurance system still leaves large gaps, risking a multi-billion-dollar shortfall that could land on taxpayers. That is NOT fair and it is NOT fiscally responsible.
We pay. They profit.
Currently, when a company wants to start a new fracking project, they must first show they have financial assurance for cleaning up the site: a bond. Some oil & gas companies in Colorado are only required to post bonds of $1,500 per well. When an oil & gas company goes bankrupt, that money is nowhere near enough to pay for the clean up, so the state and taxpayers are the ones to pay to plug orphaned wells. In 2022, the industry filed plans to pay only a total of about $459 million in financial assurances to plug all of their wells statewide, but that doesn’t come close to making up for the total liabilities created by decades of drilling. The true cost of plugging all the wells in Colorado would be $7 Billion. If companies can’t afford to clean up their own wells, they shouldn’t be allowed to drill new ones!
What we can do now:
It’s time to end special tax breaks for oil & gas, require full-cost bonding for every new and existing well, and phase out issuing permits for new fracking wells so we’re not adding to the cleanup tab our kids will inherit. That’s the fiscally conservative, pro-community choice.
FCSG is proud to stand with the Safe & Healthy Colorado Coalition to protect our land, air, and wallets from paying for industry’s mess.
👉 Add your name to the Open Letter supporting a phase-out of permits for new fracking in Colorado by 2030. Let’s stop subsidizing pollution and start investing in a clean, accountable energy future.
