## August 2008 

# Wyoming Oil and Gas Economic Contribution Study

Prepared for the Wyoming Heritage Foundation Casper, Wyoming 82601Table of Contents
Executive Summa ry .............................................................................................................. ......................... i

1. Introduction................................................................................................................... ....................... 1

2. Objective and Design of the Project............................................................................................ ........ 2
3. Brief Overview of Oil and Gas Indust ry and Activities in Wyoming..................................................... 2

4. Regional Econom ic Model ing..................................................................................................... ......... 8

4.1 Types of Economic Impacts or Economic Co ntribution...............................................................8

4.2 Customizing the IMPLAN Model..................................................................................................9

5. Primary Data Collection and Storage Ap proach ............................................................................... 13
5.1 Operator Data Collection ....................................................................................................... ....14
5.2 Service Company Da ta Collect ion.............................................................................................15

5.3 Data Storage and Quer ying Approach ......................................................................................18

6. Secondary Data Collection...................................................................................................... .......... 19

7. Extrapolation Methods and Estimating th e Direct Oil and Gas Impacts ........................................... 20

7.1 Drilling, Completion, and Reco mpletion Ac tivities .....................................................................20

7.2 Extraction Op erations .......................................................................................................... ......23
7.3 Private Mineral Royalt ies and Payments...................................................................................24

7.4 Extraction Taxes ............................................................................................................... .........25
8. Economic Cont ributio n .......................................................................................................... ............ 26
8.1 Analyzing Direct Impacts thro ugh IMPLAN Model Sectors .......................................................27

8.2 Drilling, Completion, Reco mpletion Acti vities ............................................................................27

8.3 Extraction Op erations .......................................................................................................... ......30
8.4 Private Mineral Royalt ies and Payments...................................................................................31

8.5 Extraction Taxes ............................................................................................................... .........32
8.6 Total Economic Contribution of All Oil and Gas Activities .........................................................33

9. Relative Importance of Wyomi ng’s Oil and Gas Activities ................................................................ 38

9.1 Relative Importance of Oil and Gas Indu stries in the Stat e of Wyom ing ..................................38

9.2 Oil and Gas Industry Compared to t he Travel Industry in Wyom ing .........................................40

9.3 Wyoming and Colorado O il and Gas Acti vities..........................................................................42

10. Fiscal Analysis: Estima te of Sales Taxes....................................................................................... ... 46

11. Conclusion..................................................................................................................... .................... 53 Appendix A: Acronyms........................................................................................................... ..................... 54 Appendix B: Glossa ry........................................................................................................... ....................... 55 Appendix C: IMPLAN Sector 19, 27, and 28 Study Area Da ta................................................................... 57Appendix D: Wyoming Oil and Gas Operat ors Data Collectio n Documents .............................................. 67 Appendix E: Vendor and Servic e Company A llocations ............................................................................. 73 Appendix F: References........................................................................................................ ..................... 76Table of Exhibits

Exhibit ES-1. Total Economic Contribution for O il and Gas Activities in Wyoming (2007$)* .......................iii Exhibit ES-2. 2007 Oil and Gas Activity as a Fraction of the State’ s Economy (2007$) ............................. v Exhibit ES-3. Drilling, Completion, and Facility Expenditures for Wyoming, by Basin (2007$).................. vi Exhibit ES-4. Private Mineral Royalties a nd Lease Payments in Wyoming (2007$)...................................vii
Exhibit 3.1. Distribution of Producing Wells in Wyomi ng, 2007 ................................................................. ..4
Exhibit 3.2. Wells Drill ed in Wyomi ng in 2007.................................................................................. .............5 Exhibit 3.3. Wyoming Drilling and Prod uction Statistics, by Basin, 2007 .....................................................6 Exhibit 3.4. Production by Basin in Wy oming, 2007 .............................................................................. .......7 Exhibit 5.1. Example Well Drilling & Completion Cost Catego ries..............................................................15 Exhibit 5.2. Example Drilling Co mpany Location Allocation ...................................................................... .16 Exhibit 6.1. Secondary Source Data Used to Modify M odel Parame ters ...................................................19 Exhibit 7.1. IMPLAN Sectors for Direct Capital In vestments for Drilling, Completion, and Recompletion Activities ..................................................................................................................... .................................20 Exhibit 7.2. 2007 Well Recompletions, Wo rkovers, and Reactiva tions by Basin ......................................22
Exhibit 7.3. Extraction Vo lumes, Prices , and Revenues......................................................................... ...23 Exhibit 7.4. Direct Impa ct -- Extracti on Operations........................................................................... .........24 Exhibit 7.5. Extraction Taxes Paid by Wyoming Oil and Gas Industry (2007$)..........................................26 Exhibit 8.1. Drilling, Completion, Facility, and Re completion Investments fo r Wyoming (2007$) ..............28 Exhibit 8.2. Drilling, Completion, and Fac ility Investments for Wyoming (2007$) .....................................29 Exhibit 8.3. Drilling, Completion, Facility and Reco mpletion Economic Contribut ion for Wyoming (2007$)

............................................................................................................................... .....................................30
Exhibit 8.4. 2007 Extraction Economi c Contribution for Wyoming ( 2007$)................................................30 Exhibit 8.5. Wyoming Private Mineral Royalties and Lease Payments (2 007$)........................................31
Exhibit 8.6. Economic Contribution of Private Mi neral Royalties and Lease Payments for Wyoming (2007$)........................................................................................................................ ................................32
Exhibit 8.7. Economic Contribution of Extraction Taxes in Wyoming (2007$)............................................32 Exhibit 8.8. State and Local Tax Receipts with a Unit Pric e Change (2007$)............................................32 Exhibit 8.9. State and Local Tax Receipts with a Unit Pric e Change (2007$)............................................33
Exhibit 8.10. Total Economic Contribution for Oil and Gas Activities in Wyoming (2007$)........................34 Exhibit 8.11. 2007 Employment Impacts by Industr y Associated with All O il and Gas Acti vities ...............35
Exhibit 8.12. 2007 Oil and Gas Indust ry Employment in Wyom ing ............................................................36 Exhibit 8.13. Labor Earnings Impact s by Industry Associated with All Oil and Gas Activities (2007$) ......37 Exhibit 9.1. Oil and Gas Industry Activity as a Fraction of the State’ s Economy (2007$) .........................39Exhibit 9.2. Economic Comparis on of Oil and Gas and Travel Acti vities in Wyoming (2007$)..................41
Exhibit 9.3. Total Economic Cont ribution for Oil and Gas Activities in Colorado in 2005 (2007$) .............42 Exhibit 9.4. Comparison of Wyoming and Colorado Economic Indi cators (2 007$)....................................43 Exhibit 9.5. Oil and Gas Employment by Activity in Colora do and Wyom ing .............................................44 Exhibit 9.6. Colorado and Wyoming Employ ment and Labor Earnin gs Multip liers.....................................45 Exhibit 9.7. Comparison of Colorado and Wyoming’s Fiscal Cont ributions (2007$) ..................................45

Exhibit 10.1. 2007 Total Annual Sales and Use Taxes............................................................................ ...47
Exhibit 10.2. 2007 Sales and Use Tax Es timates for Sector s 2111 and 2131 ..........................................48 Exhibit 10.3. Percentage of Sales and Use Taxe s by Ba sin...................................................................... 49 Exhibit 10.4. Estimated Averag e Sales and Use Tax Rates for Basins within Wyoming ...........................50 Exhibit 10.5. Sales Tax Estimates by Ba sin for Wyoming Oil and Gas Acti vities......................................51 Exhibit E.1. Drilling Contract Ex penditure Location Allocations................................................................ ..73
Exhibit E.2. Earthwork and Construc tion Expenditure Locat ion Allocation................................................73
Exhibit E.3. Stimulation and Cement ing Expenditure Locat ion Alloca tion..................................................74
Exhibit E.4. General La bor-Based Service Expenditure Location A llocation.............................................74 Exhibit E.5. Casing and Tubing Ex penditure Location Alloca tion...............................................................74 Exhibit E.6. General Materials and Equi pment Expenditure Loca tion Alloca tion .......................................75

## Acknowledgments

Primary contributors to this report include the following:

Holly Wise Bender, PhD Sheri Donnelley
Jessica Dick
Booz Allen Hamilton 5299 DTC Blvd Greenwood Village, CO 80111-3362 (303) 221-3726

Lisa McDonald, PhD The Louis Berger Group 12596 West Bayaud Ave Lakewood, CO 80229 (303) 985-6613

David ‘Tex’ Taylor, PhD University of Wyoming Department of Agricultural and Applied Economics 2254 1000 East University Ave Laramie, WY 82071-3354 (307) 766-5682

The authors of this report would like to gratefu lly acknowledge the Wyoming oil and gas industry. The industry provided considerable information needed for the accuracy of the modeling effort, without which there would be no credible model or study. We would also like to acknowledge the Review Team, brought together by Wyoming Heritage Foundation, to provide comments on the Draft Report. Lori Becker, Wyoming Chambe r of Commerce Executives Dave Bell, Tegeler and Associates Randy Bolles, Devon Energy Mike Ceballos, Qwest Wyoming Joe Coyne, Wyoming Economic Development Association Mark Doelger, Barlow and Hahn Brent Hathaway, University of Wyoming Bruce Hinchey, Petroleum Association of WyomingRob Hurless, Governor’s Office Dallen Juelfs, First Interstate Bank Mike Matthews, Wells Fargo Bank Buck McVeigh, Wyoming Economic Analysis Division Jim Nielson, Nielson and Associates Mark Northam, University of Wyoming Dave Raynolds, Table Mountain Ranch Bill Schilling, Wyoming Business A lliance and Wyoming Heritage Foundation Randy Teeuwen, EnCana Oil and Gas

We would also like to acknowledge Don Likwar tz, Wyoming Oil and Gas Conservation Commission Supervisor, and Brian Jeffries, Execut ive Director of the Wyoming Pipeli ne Authority, for their review of the Draft Report.Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

ii 

## Executive Summary
This project, commissioned by the Wyoming Heri tage Foundation, was designed to evaluate the economic contribution of the oil and gas industry to the state of Wyoming in terms of employment, income, gross revenues, and taxes. Booz Allen used a regional economic modeling approach to evaluate the economic contribution of the industry. The appr oach included an extensive effort to gather site specific information needed to complete the analysis, su ch as capital investments, expenditures to drill and complete a well, production costs, private royalt y and lease payments, and se rvice company costs. Secondary source data were also obtained, including number of wells drilled and completed for each basin, oil and gas prices, oil and gas production, sector employment, and much more. The primary and secondary data were then used in combination with a common regional economic model, IMPLAN, to estimate economic contributions. Additionally, a fi scal model was developed to estimate sales and use taxes associated with oil and gas activities in Wyomin g. Appendices A and B provide a list of acronyms and glossary for definitions of technical terms, respectively.
The oil and gas industry is generally comprised of two primary activities, development and extraction. Development activities consist of drilling, comp leting, and recompleting wells, which are typically completed in a few of months. Recompletion activities involve restimulating or reactiviting the wells after they have been producing for a period of time. Extracti on or production is the act of removing the oil or gas from the mineral formations, and it occurs co ntinually over a longer period of time. Taxes and royalties are paid to the state on the value of the produc tion. Royalties are also paid to the owners of the minerals from which the production occurs: state gov ernment, Federal government, or private households and businesses. All of these taxes and royalties ar e reported through various state sources except the ones paid to private households and businesses.
Therefore, this report is focused on four oil and gas ac tivities to estimate the economic contribution of oil and gas industry in Wyoming. 1 These are:

1. Drilling, completing and recompleting wells

2. Extraction operations
3. Mineral royalty payments to households and business for access to private minerals

4. Extraction taxes paid to the st ate and counties of Wyoming.
Other capital investments, pipeline investments, and re finery impacts are not captured in this analysis. The analysis indicates that there was an estimated $15.5 billion in total economic output 2 (i.e., both direct and downstream economic impacts) as a result of drilling, completion, recompletion, and extraction activities in 2007, 77 percent of which is attributable to extraction activities (See Exhibit E-1). Including private mineral royalty and lease payments and extrac tion tax payments, total economic output for all oil and gas-related activities within Wyoming is approximately $18.6 billion. Oil and gas activities within the state employ over 73,000 people in direct and down stream jobs. These are model-derived estimates of the total direct (industry), indirect (industry support), and induced (employee-household support)

1 When these activities are aggregated, taxes and roya lty payments were removed from the extraction value to avoid double counting these impacts as described in 7.2.

2 Economic output is also known as economic activity, gross revenues, or gross sales.Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

iii employment generated as a result of di rect employment associated with oil and gas activities. Direct jobs associated with drilling, support indu stries, extraction, wholesale trade, and construction were estimated to be 20,090 (see Exhibit 9.5), of which 17,982 are associ ated specifically with the oil and gas industry. There is considerable government employment associated with oil and gas activities: 25,149 government employees. The estimated employment multiplier is 3.65, as shown in Exhibit ES-1 For example, for all the direct jobs generated (20,090 jobs) as a result of oil and gas acti vities, there are 3.65 times as many total direct and down stream jobs (73,229 jobs). Exhibit 9.5 summarizes these direct and downstream jobs within the various sectors within the economy. Similarly, the earn ings multipliers indicate that every dollar of direct oil and gas employee salary earnings results in an additional $1.57 in indirect and induced salary earnings.

Exhibit ES-1. Total Economic Contribution for Oil and Gas Activities in Wyoming (2007$)*

Type of Impact Drilling, Completion, and

Recompletion Extraction Private Mineral Royalty &

Lease Payments 1 Extraction Taxes 2 Total Economic Contribution

Economic Output $3,513,052,106 $11,963,561,646 $231,827,774 $2,908,623,519 $18,617,065,044

Total Employment 26,701 11,765 1,447 33,316 73,229
Total Labor Earnings $1,458,093,669 $736,813,207 $42,461,473 $1,677,264,966 $3,914,633,314 Earnings per Worker $54,608 $62,628 $29,344 $50,344 $53,457 Employment Multiplier 1.67 2.86 NA NA 3.65 Earnings Multiplier 1.32 1.75 NA NA 2.57

* These figures encompass direct, indirect, and induced economic impacts. 1 These payments to households and companies are treated as all secondary induced impacts; that is, these payments are considered income of which a portion is spent in the economy. 2 These tax payments to state and local governments are treated as all secondary indirect impacts; that is, these payments are considered d ownstream beneficiaries of oil and gas activities.

Oil and gas activities contribute to the economic well-bei ng of many other industri es within the state of Wyoming as well. From all of the oil and gas activities in the state (including extraction taxes and mineral royalty payments), approximately 25 percent of the employ ment is specific to the mining industry (which encompasses the oil and gas industries), while approxi mately 34 percent is in public administration or government (for example, Federal, state, and lo cal government, public elementary, high school and higher education). Due in part to the considerable ex traction taxes paid to the state in Wyoming, oil and gas-related activities account for 38 percent of government employment in the state. Other important sectors that benefit from downstream employment generated by oil and gas activities are retail trade (6.7%), healthcare and social services (5.2%), and accommodations and food service (4.8%). These are the major industries benefited by oil and gas activiti es within the state in terms of employment.Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

iv Exhibit ES-2 summarizes some of the estimates of the economic indicators for oil and gas activities (and generated downstream economic activity) in Wyoming and compares these indicators to state totals. This study indicates that oil and gas activities within Wyoming account for an estimated 32 percent of the state’s total economic output or gross revenues, 20 pe rcent of employment, 25 percent of total earnings, and 43 percent of Gross State Product. 3 In general, the oil and gas activities, including private mineral royalty payments and extraction taxes and the as sociated downstream activity, generate estimated average earnings of approximately $53,000, or 28 percent higher than the state average.

3 Gross State Product measures the value-added of all goods and services in the state. Value-Added is defined as economic output (or gross sales or revenu es) less intermediate inputs, which are goods and services purchased in the production process (or i nput or operational expenses). GSP is the state counterpart of Gross Domestic Product for the nation (Downey, 2006).Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

v Exhibit ES-2. 2007 Oil and Gas Activity as a Fraction of the State’s Economy (2007$)

Indicator All Oil and Gas Activities in

Wyoming All Economic Activity in Wyoming Percent of Oil and Gas to State Source

Total Economic Output $18,617,065,044 $58,831,050,621 31.6% IMPLAN 2006
Total Employment 73,229 369,565 3 19.8% IMPLAN 2006
Total Labor Earnings $3,914,633,314 $15,487,363,835 25.3% IMPLAN 2006
Average Earnings $53,457 $41,907 127.6% IMPLAN 2006

Gross State Product (i.e., Value Added) $13,329,075,050 $31,205,616,410 42.7% IMPLAN 2006

Severance Tax $666,397,115 $882,383,479 75.5% WY Department of Revenue Annual Report 2007

Mineral Ad Valorem Levies $712,637,118 $913,011,683 78.1% WY Department of Revenue Annual Report 2007

Assessed Valuation (Taxable Value) 1 $11,303,378,284 $21,491,267,438 52.6% WY Department of Revenue Annual Report 2007 Federal Mineral Royalties (WY Disbursements, 50%) 2 $515,500,646 $931,394,926 55.3% Minerals Management Service, 2007 State Mineral Royalties $90,031,996 $138,201,502 65.1% Wyoming Office of State Lands and Investments 2007

Sales and Use Taxes $50,344,215 $906,973,329 5.5% Wyoming Depart of Revenue Annual Report 2007

1 The assessed valuation, severance taxes, and ad valorem taxes are based on 2006 production. Severance and ad valorem taxes are paid to the state in 2007. 2 This estimate is from the Minerals Management Service (MMS), and it includes Federal Mineral Royalties from carbon dioxide, coalbed methane, condensate, gas plant products, oil, pr ocessed and unprocessed gas, and royalties associated with rents, bonuses, and other revenues. Fi fty percent of royalties return to Wyoming and 50 percent are paid to the federal treasury (U.S. Minerals Management Services, http://www.mrm.mms.gov/Stats/pdfdocs/formulas.pdf ). Native American royalties are not included in this estimate and therefore the receipts paid to reservations are not captured in this a nalysis. 3 This employment figure is from IMPLAN, w hose estimates are derived from U.S. Bureau of Economic Analysis. This includes fulltime, part-time, self employed, small business owners, and farm em ployment. The Wyoming Departm ent of Employment figures are lower than those reported here (May, 2007 labor force estimate is 285,553), as they do not include farm employment, self-employ ed and small business owners (Wyoming Department of Employment Labor Trends, Volume 45, No. 7, July, 2008). The Bureau of Economic Statistics estimates that Wyoming had 85, 987 self-employed (proprietor) jobs in 2006.Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

vi Oil and gas activities significantly contribute to state and local governments through royalties and tax payments. Extraction tax receipts paid to state and local governments were gathered from secondary sources for severance, ad valorem , federal and state royalty, and extraction sales and use taxes for 2007, as described in Section 7.4. In 2007, approximately $2.0 billion was pa id to state and local governments in all extraction tax payments by the oil and gas industry. Oil and gas ad valorem and severance tax receipts account for 78 percent and 76 percent, respec tively, of all these associated state tax payments within Wyoming. Federal and state oil and gas royalt ies (paid to the state of Wyoming) account for 55 percent and 65 percent of all mineral royalties pai d to the state in 2007, respectively.
Drilling, completion, and recompletion investments were estimated by basin and depth of the well drilled from primary data provided by the industry in Wyoming and secondary data obtained from the Wyoming Oil and Gas Conservation Commission (WYOGCC) database. The large and broad set of primary data collected from operators and service companies (describ ed in Section 5) indicated that expenditures per well varied considerably by basin (see Exhibit ES-3). Average capital investments were lowest in Powder River Basin, at approximately $402,000 per well, wh ile investments in the Pinedale Anticline and Jonah fields were almost $3.9 million per well. Across t he state, capital investm ents average $1.5 million per well, of which 45 percent remain within Wyom ing, contributing to t he state’s economy.

Exhibit ES-3. Drilling, Completion, Facility, and Recompletion Investments for Wyoming, by Basin (2007$)
Greater Green

River and Overthrust (less Pinedale

and Jonah) Pinedale and Jonah Fields* Bighorn Wind River Powder River Laramie,DenverCheyenne,

Hanna Total
Total Investments $1,496,975,056 $2,607,664,488 $72,654,549 $277,504,668 $876,527,426 $30,734,060 $5,362,060,246
Investments that Remain within WY $696,820,537 $1,188,365,632 $35,800,476 $116,540,850 $361,806,402 $15,592,479 $2,414,926,375
State Purchase Coefficient 47% 46% 49% 42% 41% 51% 45%
Number of Wells Drilled & Completed 654 662 Drilled 449 Completed 79 102 2,180 20 3,697
Total Investments per Well $2,288,953 $3,939,070 $919,678 $2,720,634 $402,077 $1,536,703 $1,450,381
WY Investments per Well $1,065,475 $1,795,114 $453,171 $1,142,557 $165,966 $779,624 $653,212

* Pinedale Anticline and Jonah field expenditures were extrapolated separately for drilling and completion.

Exhibit ES-4 summarizes the royalty and lease payments made to homeowners and interest owners by the industry for access to private minerals and surf ace lands. Our analysis su ggests that approximately 26 percent of these payments were made to Wyoming residents and businesses. From the regionalWyoming Heritage Foundation Oil and Gas Economic Contribution Study

vii economic model, IMPLAN’s, Social Accounting Matrix, an estimated of 82 percent of this income is considered the marginal propensity to spend, which is income spent on consumer goods and is assumed to be spent in the Wyoming economy. Once this per centage is applied to these total in-state payments, there is approximately $184 million of additional spending or economic activity within the state per year as a result of these payments to households and busi nesses. This impact creates downstream economic activity in Wyoming for a total econ omic contribution of private mineral royalty payments of $231.8 million.

Exhibit ES-4. Private Mineral Royalties and Lease Payments in Wyoming (2007$)

S ales and use taxes paid to the state were also esti mated as a result of ex traction, and drilling, and completion activities. Total sales and use taxes paid by the oil and gas industry in Wyoming are estimated to be $63 million for Sector 2131, Support for Mining, ($50.3 million for sales tax and $12.4 million for use tax) and $11.5 million for Sector 2111, Extraction Sector, for a total of $74.3 million paid in sales and use taxes in 2007. The oil and gas portion of these taxes represents 5.5 percent of all sales and use taxes collected by the state in 2007. Booz Allen believes this is a conservative estimate of the sales and use taxes paid by the oil and gas industry in Wyoming. This observation is based on the fact that some purchases that are potentially taxable have likely been excluded from the analysis, such as rental or leasing of drilling equipment or contracts rela ted to certain trade industries such as construction, electrical and earth work. Oil and gas activities in Wyoming and the economic acti vity that they generate c ontribute significantly to the Wyoming economy, with an estimated $18.6 b illion in economic output, equaling 32 percent of the state’s total economic output or gross revenues. Oil and gas activities, investments and payments account for 43 percent of Wyoming’ s Gross State Product. Additionally, oil and gas activities contribute 20 percent of the employment in the state with $3.9 bi llion in labor earnings annually and 38 percent of all government employment in the stat e (including public education employment). The average annual earnings per worker for these activities are approximately $53,000, which is 29 percent higher than the state average. Oil and gas activities generate appro ximately $2.0 billion in extraction tax revenue and $62.8 million in sales and use taxes from development activities. Wyoming’s oil and gas industry is a vital and significant economic driver of st ate’s economy. For every job that the oil and gas industry di rectly employs, there are an additi onal 2.65 jobs created in downstream economic activity through businesses supporting this industry and employees sp ending their money in the economy. There is considerable downstream state a nd local government and educational jobs and labor earnings associated with the substantial state and loca l taxes paid by the industry. This industry is unique in creating these types of considerable rollo ver employment and earnings effects in the Wyoming economy. Payment/Impact Type Mineral Royalties and Lease Payments Within State Payments $224,172,370 Out of State Payments $639,239,767 Total Payments $863,412,137 State Purchase Coefficient (SPC) 26% Percent of Payment Assumed to be Spent in the Wyoming Economy 82% Total Spending in the Wyoming Economy as a Result of Royalty Payments $183,821,343Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 1 

## 1. Introduction

This first-ever original and comprehensive study wa s commissioned by the Wyoming Heritage Foundation to better understand and more accurately estimate the economic contribution of the oil and natural gas industries in Wyoming. This study, which be gan in February, 2008, has been peer-reviewed and was also reviewed by a Review Team of 18 individuals . A study such as this one provides a baseline economic picture of the oil and gas industries and t heir direct and downstream impacts on Wyoming’s economy. Additional and concurrent economic cont ribution studies of other important industries in Wyoming, such as mining, healthcare and construction, would create a better understanding of industry interdependencies within state’s economy and their rela tive economic contribution to the state. This study provides a framework and launch-pad from which other studies could be conducted. As part of this study, a customized input-output m odel was developed for the state to estimate the economic contribution of the oil and gas industry in Wyoming. Although existing input-output (IO) models provide a foundation for estimating relative impacts and contributions of the industry at a national level, these models, which use national production functi ons, are not specific to local economies and environments. Additionally, a sales tax model was also developed to assess the contribution to the local and state governments from sales and use taxes associated with oil and gas activities. In 2005, Booz Allen successfully esti mated economic contribution of oil and gas activities in Colorado in a peer-reviewed analysis (CERI, 2007, available at: www.ceri-mines.org/cerioil&gas.pdf ). The current study utilized a methodology similar to that in the Colorado study. A regional economic modeling approach was used to evaluate the contribution of oil and gas acti vities to the state of Wyoming. The approach included an extensive effort to gather site specific information needed to complete the analysis, such as capital investments, average cost to drill and complete a well, average production costs, royalty and lease payments to private landowners, and service company costs and locations. Secondary source data was also obtained, including number of wells drilled and completed for each basin, oil and gas prices, oil and gas production, employment, etc . The primary and secondary data were then used in combination with a customized regional economic model, IMPLAN, to esti mate economic contributions of Wyoming oil and gas activities in 2007. This economic contribution study focuses on financial injections ( i.e ., capital investments, revenues, payments) to the Wyoming economy associated with o il and gas activities in Wyoming. As such, the regional economic modeling approach measures economic benefits in terms of jobs, labor earnings, economic output, Gross State Product (GSP), and fiscal payments to state and local governments. It does not assess environmental, government al services, or social costs of oil and gas activities or other economic benefits. For example, wells located on pr ivate property can influence property values (either positively or negatively); this value change is not included in this study. Boom oil and gas development, as is currently occurring in the Pinedale and Jonah fields, can have considerable environmental, governmental service, and social costs to local co mmunities, wildlife, and local economies. This can include wildlife habitat fragmentation, stresses on co mmunity infrastructure and local governments (i.e., increased needs for law enforcement, fire, edu cation, highways, utilities, and others) air quality degradation, hotel and housing shortages, tourism im pacts, reductions in personal income, and others. These costs are not measured in this study.

This report describes both the methodology and resu lts of the oil and gas economic contribution study. Section 2 briefly presents a discussion of the objective s and design of this study. In Section 3, a brief overview of the oil and gas industry in Wyoming is given for backgrou nd and context. Section 4 describes the input-output model, IMPLAN, used for the analysis and the model customization approach. Section 5 summarizes the types of information collected from the Wyoming oil and gas industry and the response rate of the collection effort. In Section 6, the se condary data sources are briefly described. Section 7Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 2 explains the methods to extrapolate the capital invest ments and mineral royalty payments to the state. Section 8 reports the economic contri bution results, and Section 9 summarizes the relative importance of the industry. Section 10 describes the sales and use taxes analysis and results. Section 11 concludes the report.


## 2. Objective and Design of the Project

This project sought to estimate the total economic c ontribution of oil and gas activities on the state of Wyoming for the calendar year 2007. Economic c ontribution was defined as the direct, indirect, and induced impacts in terms of: 1) economic output ( i.e. , gross revenues or sales); 2) Gross State Product 3) labor earnings; and 4) employment. These te rms are defined in Section 4.1 and Appendix B. The oil and gas industry is generally comprised of two primary activities, development and extraction. Development activities consist of drilling, comp leting, and recompleting wells, which are typically completed in a few of months. Recompletion activities involve restimulating or reactiviting the wells after they have been producing for a period of time. Extracti on or production is the act of removing the oil or gas from the mineral formations, and it occurs co ntinually over a longer period of time. Taxes and royalties are paid to the state on the value of the produc tion. Royalties are also paid to the owners of the minerals from which the production occurs: state gov ernment, Federal government, or private households and businesses. All of these taxes and royalties ar e reported through various state sources except the ones paid to private households and businesses.
Therefore, the following oil and gas activities were analyzed to assess their economic contribution:

• Drilling, completing, and recompleting wells

• Extraction operations

• Mineral royalties and lease payments for access to private minerals

• Extraction tax payments to state and local governments. Other capital investments, pipeline investments, and re finery impacts are not captured in this analysis. The project design comprised four major analytic tasks: 1. Customize a regional economic impact model (I MPLAN) with local industry data, and specify the model for operations in the state of Wyoming 2. Collect information from the Wyoming industr y on capital investments, production costs, and private mineral royalty payments 3. Utilize the newly specified model and the primar y data to estimate 2007 economic contribution of the industry in the state 4. Develop a Fiscal Model to determine the oil and gas contribution to state and local government entities from sales and use taxes.



## 3. Brief Overview of Oil and Gas I ndustry and Activities in Wyoming

In 2007, Wyoming ranked 7 th nationally in terms of crude oil production. Wyoming ranked 3 th nationally for gross natural gas production and 2 nd in terms of natural gas marketed production in 2006 (Energy Information Agency, Accessed 8/15/2008). The year 2007 marked the highest level of production ofWyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 3 natural gas (in units) in the state, with a total of 2.253 trillion cubic feet produced, on average 6.2 billion cubic feet a day (Wyoming Oil and Gas Conservation Commission (WYOGCC), May 2008). Crude oil production peaked in 1970 and has fallen until 2005. Since then it has increased, and the state produced 54 million barrels of oil in 2007 (WYOGCC). In 2007, there were approximately 37,350 producing wells, distributed as illustrated in Exhibit 3.1. Twenty of twenty-three counties in the state produce oil and gas. Of the twenty counties in Wyoming producing crude oil and natural gas, Campbell County produced the most crude oil and Sublette County produced the most natural gas (WYOGCC). According to WYOGCC, there were 8,122 combined oil, gas and Coalbed Methane Natural Gas (CBM) Applications for Pe rmits-to-Drill (APD) approved in 2007. In 2007, the most active county in terms of APDs was Cam pbell (Powder River Basin), followed by Sublette (where Pinedale Anticline and Jonah fields are locate d), and Sweetwater (Greater Green River Basin). There are seven primary oil and gas basins within Wyoming: Bighorn (BHB), Denver-Cheyenne, Greater Green River (GGR), Laramie, Overthrust Belt, Powder River (PRB), and Wind River Basin (WRB). For the analysis, Pinedale Anticline and Jonah fields were removed from the Greater Green River Basin as this area has unique conditions, production, and investments. Further description of a number of these basins is provided below: Bighorn Basin – The Bighorn Basin is located in a remote section of Northern Wyoming, between the Yellowstone Uplands and the Bighorn Mountains. The la rge majority of the Bighorn Basin is public lands owned by the Bureau of Land Management (BLM), which has recently increased it s oil and gas leasing in the area. With the increase in ga s prices, this area has seen an increa se in exploratory drilling. The area also has a wealth of wildlife.
Greater Green River Basin – The Greater Green River Basin encompasses the Bridger, Great Divide, Kindt, Washakie, Green River, and Hobak Basins. It is primarily located in the Southwestern part of Wyoming, and it extends into part s of Utah and Colorado. The basin has large amounts of oil shale and natural gas reserves. In addition to having a long hist ory of oil and gas exploration and production, it has also experienced an increase in well drilling and oil exploration in recent years.
Powder River Basin – The Powder River Basin is in the North-central and North-eastern part of Wyoming and also extends into Montana. The Powder River Basin is most known for its coal deposits—it is the single largest source of coal mined in the Un ited States. A substantial amount of the state’s coalbed methane is produced in this basin, 98 percent.
Wind River Basin – The Wind River Basin is located in c entral Wyoming. It has hydrocarbon source rocks, reservoir rocks, and hydrocarbon traps. Wi nd River Basin is thought to contain a significant amount of undiscovered oil, gas, and CBM resources.Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 4 Exhibit 3.1. Distribution of Producing Wells in Wyoming, 2007

Source: WYOGCC, May, 2008. Circles or dots are sh own larger than would be depicted on a map; they are not are not draw n to scale.

Oil and gas development across Wyoming in 2007 is depicted in Exhibit 3.2. Across the state, the Powder River Basin had the highest number of we lls drilled in Wyoming (59%), followed by Greater Green River (35%), and Pinedale and Jonah fields (18% ). Exhibit 3.3 summarizes both the development and production statistics by basin in Wyoming in 2007. However, the average dept hs of the wells drilled in Powder River are the shallowest in the state, contributing to the lesser amount of investment per well in this Basin compared to other basins. Deeper wells in Pinedale and Jonah fields and the Greater Green River Basin require significantly more investments on average. The Powder River Basin has the highest amount of oil production (34%) and coalbed methane production (98%) in the state. Bighorn Basin is the second la rgest producer of oil in Wyoming, with 27% of oil production. Pinedale and Jonah fields have the hig hest amount of conventional gas production (39%) followed by gas production in Greater Green River Basin (27%). The magnitudes of these production differences among basins are illustrated in Exhibit 3.4.Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 5 Exhibit 3.2. Wells Drilled in Wyoming in 2007

Source: WYOGCC, May, 2008. Circles or dots are show n larger than would be depicted on a map; they are not are not drawn to scale.Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 6 Exhibit 3.3. Wyoming Drilling and Pr oduction Statistics, by Basin, 2007

Basin Number of Wells Drilled in 2007 (% of State Total Drilled) Average Depths of

Wells Drilled Number of Wells in Production Barrels of Oil Production (% State Oil Production) MCF of Nat. Gas Production

(% State Conventional Gas Production) MCF of CBM Production (% State CBM Production)

Big Horn Basin (BHB) 79

(2%) 4,085 2,651 14,472,633 (27%) 20,744,008 (1%) 0 (0%)
Denver-Cheyenne Basin 10

(0.3%) 7,654 91 401,478 (1%) 114,138 (0%) 0 (0%)

Greater Green River Basin (GGR) (less Pinedale and Jonah Fields) 644

(35%) 9,113 6,880 9,184,839 (17%) 495,906,098 (27%) 5,089,343 (1%)

Pinedale Anticline and Jonah Fields 662

(18%) 12,757 1,959 6,393,722 (12%) 714,178,060 (39%) 0 (0%)

Laramie & Hanna Basins 10

(0.3%) 4,226 125 174,199 (0%) 121,627 (0.01%) 0 (0%)

Overthrust Belt Basin 10

(0.3%) 5,028 506 1,443,556 (2%) 361,019,726 (20%) 0 (0%)

Powder River Basin (PRB) 2,180*

(59%) 1,833 23,435 18,081,295 (34%) 27,839,379 (2%) 429,049,308 (98%)

Wind River Basin (WRB) 102

(3%) 8,666 1,703 3,776,864 (7%) 196,573,699 (11%) 1,826,016 (1%)
TOTAL 3,697 5,326 37,350 53,983,312 1,816,496,735 435,964,667

Source: Wyoming Oil and Gas Conservation Comm ission (WYOGCC) database, May, 2008. * Includes 11 Enhanced Oil Recovery Wells Drilled.Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 7 Exhibit 3.4. Production by Basin in Wyoming, 2007

- 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000MMCFE

BHB Denver Cheyenne Pinedale/Jonah GGR Hanna/Laramie Overthrust PRB WRB Oil (MMcfe)

Gas (MMcf)

CBM (MMcf)Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 8 

## 4. Regional Economic Modeling

Booz Allen utilized a regional economic modeling appr oach to evaluate the economic contribution of the oil and gas industry to the state of Wyoming. This approach included an extensive data collection effort to identify site-specific information needed to comp lete the economic contribution analysis. Data collected included capital investments, average costs to drill and complete a well, average production costs, royalty and lease payments to private mineral owners, and service company expenditure allocations. Secondary data was also obtained and included: the number of wells drilled and completed, recompleted, or reactivated for each basin; oil and ga s prices; oil and gas production; employment levels; etc. The primary and secondary data was then used in combination with a common regional economic model to estimate economic contributions as described below. Input-output (IO) modeling is a systematic method used to describe production and consumption sectors within a particular economy through a series of li nkages among industries, households, and government. 4 Booz Allen utilized the IMPLAN® economic impact model data and software system as the basic regional economic model (IO) for this analysis. IMPLAN pr ovides certain advantages over other IO modeling systems in that study area data can be upgraded using local data and conditions to more accurately represent the industry economic prof iles, providing more accurate multipliers. In addition, IMPLAN gives the user full access to the model for added flexibility, allowing numerous manipulations to be made at any time during the analysis.

For this analysis, Booz Allen initially populated IM PLAN Software Version 2.0 with 2006 data sets and structural matrices from the Minnesota IMPLAN Gr oup (MIG). The data set included state-level Wyoming production functions for 509 industrial sectors. This off-the-shelf model was customized with both secondary and primary data specific to the oil and gas industry in the state. The following sections describe the approaches that were used to modify the parameters of the model.



## 4.1 Types of Economic Impacts or Economic Contribution
Changes to purchases of goods and services for fi nal consumption (final demand change) drive IO models. Each industry that produces goods and services generates demands for other goods and services. When oil and gas firms purchase supplies or services, such as construction services, drilling contracts, or well stimulation services, their suppliers must make purchases from their own suppliers and pay wages to their own employees. These seco ndary suppliers similarly make purchases and pay wages, generating additional economic activity. Multipliers describe these iterations (IMPLAN Manual, 2003). Impacts or effects can be described through the following definitions.

• Direct effects are the changes in the industri es to which a final demand change is made. In this case, we have direct impacts from extracti on, support activities for oil and gas activities, drilling industries, wholesale trade, and construction.

• Indirect effects are the changes in inter-industry purchases as they respond to the new demands of the directly affected industries. A direct change increases economic activity for businesses that support the direct industries (i.e., geological services, trucking, power

4 See Miller and Blair (1985) for a more det ailed explanation of input-output analysis.Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 9 generation, hotels and lodging, etc.), businesses supporting these suppliers, and so on up the supply chain.

• Induced effects are the increases in household income expenditures generated by the direct and indirect effects (e.g., food and beverage stores , motor vehicle dealers, healthcare, etc.). A type SAM (Social Accounting Matrix ) multiplier, as modeled by IMPLAN, is the estimated sum of the direct, indirect and induced effects, divided by the dire ct effect. It shows the total amount of economic activity per unit of direct economic stimulus. Multip liers close to 1.0 indicate very little additional activity beyond the direct expenditures, whereas larger multip liers indicate more indirect and induced economic activity. In IMPLAN, SAM multipliers include all households by default, but other institutions can also be included. Institutions include households, federal government, state and local government, capital, and trade. Since the current study is a state analysis, multiplier s for “state and local non-education” and “state and local education” institutions were included in t he multipliers that were generated by IMPLAN. Public Education Institutions include purch ases for elementary, high school, and higher education. NonEducation Institutions are for purchases for all ot her government activities, like state government operations, police protection and sanitation. Priv ate education purchases are not counted here. Since not all expenditures by the oil and gas indust ry and its employees will necessarily remain in Wyoming, the full volume of indire ct and induced impacts will not be r ealized within Wyoming. These economic leakages can have considerable implications for the modeling results. To address this issue, Booz Allen collected information and created a model to estimate the fraction of these impacts that leak outside of the state for capital investment s and private mineral royalty payments. For drilling and completion activities, the oil and gas in dustry is purchasing from a number of industries to drill, complete and recomplete wells – these are the di rect effects considered by this analysis. For the extraction industry, Booz Allen assumes that most of the oil and gas being produced is exported outside the state of Wyoming for processing; this allows th e modeling of total industry sales or revenues as the direct effect. 5 Royalty payments are assumed to be all induced impact as these are payments to households, which spend a proportion of those paym ents in the economy. Extraction tax payments are paid by industry to state and local governments; thes e impacts are considered to be all indirect economic contribution.



## 4.2 Customizing the IMPLAN Model
One of the first steps in customizing the IMPLAN model involved the modification of the industry specific data and value-added components reported in the Wyom ing model. Three industrial sectors within the IMPLAN framework were modified:

• Oil and Gas Extraction

• Drilling Oil and Gas Wells

• Support Activities for Oil and Gas Operations. For these three sectors, adjustme nts were made to the model parameters for the following economic measures, based upon detailed primary and se condary data obtained during the study:

• Total Industry Output

5 In reality, a small portion of the product is sent to Wyoming’s four refineries.Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 10 • Earnings

• Employment

• Value Added. The resulting study area parameters used in the model are provided in Appendix C. Since the IMPLAN data sets used had 2006 as a base year, these figures are converted to 2006 dollars. An important part of modifying the Value Added components for the extr action industry involves specifying the costs of production. Section 4.2.4 describes how this parameter was determined. The following sections describe how the updated model parameters were derived.



### 4.2.1 Oil and Gas Extraction (IMPLAN Sector 19) Total Industry Output - The extraction sector’s total industry output was based on 2007 WYOGCC data on oil and gas production quantities in Wyoming. T hese production volumes were determined to be:

• Oil – 54,051,671 barrels

• Conventional Gas – 1,817,181,173 mcf

• CBM – 436,306,044 mcf These quantities were converted to dollar amounts us ing the 2007 preliminary prices from the Wyoming Department of Revenue. The index prices for calenda r year 2007 were $58.88 per barrel (Bbl) for oil and $4.65 per thousand cubic feet (Mcf) for gas (WY Depart ment of Revenue). These prices were converted to 2006 dollars to be consistent with the IMPLAN model resulting in $56.31 per barrel of oil and $4.45 per mcf for gas. The gas price is a composite price of both conventional and coalbed methane gas. In actuality, CBM gas sells at about $1/mcf less than conventional gas. This is due to CBM’s low BTU content, which requires that approximately six percent of the volume be used for compressor fuel to move the low pressure CBM to the interstate pipelines.
The deflators used for the conversion were sect or specific estimates obtained from the IMPLAN database. The deflated prices were then multiplied by the production volumes to estimate total industry output for extraction in Wyoming. Total industry output in 2006 dollars was determined to be:

• Oil -- $3,043,813,207

• Conventional Gas -- $8,081,505,125

• CBM -- $1,940,373,136

• Total -- $13,065,691,468 For natural gas, production data is assumed to inclu de the total volume of all gas produced in Wyoming, including methane, carbon dioxide, natural gas liquids, and all other related products. For oil production, data is assumed to include the total volume of all oil produced in Wyoming including stripper, tertiary, other oil, and lease condensate (Consensus Revenue Estimating Group, Wyoming State Government Revenue Forecast: Fiscal Year 2008-Fiscal Year 2012 , January 2008, Table 3). Once the Value Added Components were modified (as de scribed below) to zero out the Indirect Business Taxes and remove Private Mineral Royalty Payments, Total Industry Output was reduced to $10.3 million in 2006 dollars. For the extraction industry, most of the oil and gas being produced is exported outside the state of Wyoming for processing. Since there are a few refineries in the stat e, this is a simplifying assumption. For consistency with this model requ irement, the Extraction Sector Regional PurchaseWyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 11 Coefficient (RPC) within the model was zeroed out. This allows the modeling of total industry sales or revenues as the direct effect. Employment – Based on employment data from the Bureau of Labor Statistics, extraction employment was estimated to be 4,115. Earnings – Information on the number of extraction jobs and the earnings associated with these jobs were obtained from the BLS website for Wyoming. Th is employment data was multiplied by the benefitsadjusted average earnings per job from BLS to esti mate total earnings for the extraction sector, $402,070,349. Total earnings were then allocat ed between employee compensation and proprietor income based on the ratio between the two as reported in the IMPLAN model. With employment and total earnings, average earnings per job can be estima ted for the extraction sector in Wyoming. Average earnings per job was adjusted to include benefits bas ed on the 2006 national ratio of wage and salary accruals for compensation of employees for the oil an d gas extraction. This ratio was obtained from the August 2007 Survey of Current Business. Aver age earnings were estimated to be $97,708 in 2006 dollars.
Total Value Added - Total Value Added for the extraction sector is the residual of total industry output minus the cost of production (excl uding labor and indirect business ta xes). The cost of production was determined to be $1.10 per mcfe. There is considerable variation in the costs of production depending on a number of factors, including the depth of the well, type of reserves , and produced fluid characteristics related to the lifecycle of a well. Generally, there are three types of costs associated with production as it is defined in the extraction sector: lifting costs; in -basin gathering, processing and treatment; and in-basin transportation costs. For the purposes of this modeling effort, these costs should exclude labor, finding and development, administrative, overhead, profit, and taxes. Many of these costs have already been accounted for as separate components in the model. These production costs are used to allocate a certain proportion of value added to final demand. Fu rther description of the approach to estimate the cost of production is provided in 4.2.4.
The following section and section 4.2.4 describe th is production cost data collection and estimation process in more detail. Other property income and indirect business taxes are the residual of total value added minus employee compensation and proprietor in come. Labor earnings for the extraction sector were taken from the Bureau of Labor Statistics (BLS) for the extraction sector in Wyoming, as described above (North American Industry Classi fication System [NAICS] code 211). Labor earnings were allocated between the employee compensation and proprietor income based on the ratio from IMPLAN. Since the extraction taxes were being run through the model as impacts, the Indirect Business Taxes within the Value Added Components were zeroed out, so as to not double count these economic contributions. Once this model adjustment was made, this reduced the total value added and total industry output as these tax payments reduce revenues to the extraction sector.



### 4.2.2 Drilling Oil and Gas Wells (IMPLAN Sector 27)
Employment and Earnings - Component estimates of value added for the drilling sector was based on 2006 data from BLM for the drilling sector (NAICS code 213111) in Wyoming. Information on the number of drilling jobs and the earnings associated with these jobs in 2006 was obtained from the BLS website for Wyoming. BLS estimates of drilli ng sector employment were adj usted to include self-employed individuals based on the ratio of total employment to wage and salary employment from the Bureau of Economic Analysis for mining support services in Wyoming in 2005. As such, drilling employment in Wyoming was estimated to be 4,047. BLS estimates of labor earnings were adjusted to include benefits based on the 2006 national ratio of wage and salary accruals to compensation of employees for the mining support activities, which was obtained from the August 2007 Survey of Current Business. The adjusted BLS estimates of employment and labor earnings were then used to estimate total earnings forWyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 12 the drilling sector. Total earnings were then a llocated between employee compensation and proprietor income based on the ratio between the two in the standard IMPLAN model for Wyoming. Total Industry Output and Value Added – Total industry output was based on output per employee estimates from the 2002 Economic Census for drilling o il and gas wells in Wyoming. This ratio ($208,876 per employee in 2006 dollars) was multiplied by the adjusted employment estimates to estimate total industry output of $845 million in 2006 dollars. Total value added for drilling was estimated based on the ratio of total value added to total industry output fr om IMPLAN. It is estimated to be approximately $508 million. Other property income and indirect business taxes were then estimated as the residual of total value added minus employee compensation and proprietor income. This residual amount was allocated between the two components based on the ratio from IMPLAN.



### 4.2.3 Support Activities for Oil and Gas Operations (IMPLAN Sector 28)
Employment and Earnings - Component estimates of value added for the support sector were based on 2006 data for the support sector in Wyoming (NAI CS code 213111) that was obtained from the BLM website for BLS. BLS estimates of support sector employment were adjusted to include self-employed individuals based on the ratio of total employment to wage and salary employment from the Bureau of Economic Analysis for mining support services in Wyoming in 2005. Employment for the oil and gas support sector was estimated to be 9,959. BLS estimates of labor earnings was adjusted to include benefits based on the 2006 national ratio of wage and sa lary accruals to compens ation of employees for the mining support activities, which was obtained from the August 2007 Survey of Current Business. The adjusted BLS estimates of employment and labor earnings were then used to estimate total earnings for the support sector. The total was then allocated between employee compensation and proprietor income based on the ratio between the two in IMPLAN. Total Industry Output and Value Added – Total industry output was based on output per employee estimates from the 2002 Economic Census for oil and gas support services in Wyoming. This ratio ($138,583 per employee in 2006 dollars) was multiplied by the adjusted employment to estimate total industry output to be ap proximately $1.4 billion. Total value a dded components are ba sed on the ratio from IMPLAN of total value added to total industry output. Other property income and indirect business taxes are estimated as the residual of total value added minus employee compensation and proprietor income. This residual amount was allocated between the two components based on the ratio from IMPLAN.



### 4.2.4 Production Cost Approach and Estimate Data was collected from industry in Wyoming on product ion costs for each basin of operation and by type of product produced, where possible. A total of 18 companies, out of 19 that provided data, were able to provide this information with the components that were required. As stated in Section 4.2.1, the production cost needed to comprise certain cost components and exclude others. The model required costs specific to the extraction sector, including lifting costs and in-basin gathering, compression treatment costs, and in-basin tran sportation costs. However, company labor, overhead, taxes, profits, major workovers or capital investments, and finding and development costs should not be included in the estimates as they are captured elsewhere in the model. The final production cost for the state was used to modify the Value Added components in the Extr action Sector, as described in Section 4.2.1. Once these industry costs by basin were collected, they were all converted to a cost per mcfe if they were not provided in that format. Cost per barrel or Barrel of Oil Equivalent (BOE) were converted to mcfe by applying a factor of six. The operator costs were we ighted by the percentage of the operator’s production by product to the total sample production accounted for by basin. This weighted cost was then applied to all production to determine a production cost per basin. The basin costs were weighted by basinWyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 13 production volumes to estima te the production cost for all operations in the state. In general, the costs were less in Pinedale and Jonah fields and the Wind River Basin and higher in Bighorn and Powder River Basins. Overall, the average cost was es timated to be $1.10 per mcfe. 

### 4.2.5 Trade Flows Data Version 2.0 of IMPLAN utilizes Regional Purchase Coefficients (RPCs) to re present the proportion of intermediate demands and final de mands for a specific commodity that will be satisfied by local production. They are derived from a calculation en compassing production, consumption, total imports, foreign imports, and domestic imports. RPCs represent the proportion of the total supply of a good or service used to fulfill the demands of a region that is supplied by the region to itself. RPCs can be critical to the accuracy of the model.
The new version of IMPLAN not yet released incorporates a new approach to measuring RPCs: the IMPLAN National Trade Flows Model. This new appr oach utilizes a doubly-c onstrained gravity model using IMPLAN’s county-level estimates of commodity demand and supply. In general terms, the import and export flows between regions are thought to be prop ortional to the “mass,” “attractiveness,” or “size” of an economy and inversely proportional to the “dista nce” or cost of moving goods and services between them. There are three main databases used in the Trade Flows Model: the Oak Ridge National Laboratory county-to-county distances by mode of tr ansportation, the Commodity Flows Survey ton-miles data by commodity, and the IMPLAN commodity supply and demand by county. As such, the Trade Flows RPCs have been shown to reveal much more ac curate economic movement between counties and regions than the RPCs embedded in IMPLAN Version 2. Although the new version of IMPLAN was not availa ble, Booz Allen has obtained the new Trade Flows Microsoft Access Databases from MIG, created with new Trade Flows RPCs, and has imported them into the Wyoming model developed for this analysis. This was done by aggregating all Wyoming counties for each Wyoming-produced commodity (i.e., sector) t hat was shipped within Wyoming, providing a percentage of total consumption that is satisfied by Wyoming demand for the commodity. The RPC is the amount shipped within Wyoming as a percentage of total commodity demand, which is obtained from the Commodity Summary report in IMPLAN. After the state study area value added components were adjusted, the gravity-fed Trade Flow RPCs were inputted and the multipliers were recalculated.



## 5. Primary Data Collection and Storage Approach

Booz Allen identified a representative sample of o il and gas industry representatives to interview. According to WYOGCC, in 2007, the top ten operator s in Wyoming produced 57, 82, and 86 percent of the oil, conventional gas, and CBM ga s in the state. Data collection focused on the largest operators to collect a significant amount of data and information wit hout interviewing an exhaustive number of industry contacts.
The data collection effort also included service co mpanies or vendors. Service companies are a major source of the oil and gas development activity across the state. Both operators and service companies were contacted initially with a phone call, and then with an email which described the project in more detail. Once the correct point of contact was locate d within the company, Booz Allen ensured that they received a “Data Request Document,” (see Appendix D) understood the requirem ents, and could provide the information within the time frame required. O ften there were three (and sometimes more) points of contact within each company (e.g., drilling and completi on, production, and mineral royalties). Generally, standard reporting forms such as Authority for Expenditure (AFE) for drilling and completion wereWyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 14 requested from the operator for an average well within the various basins of operation. Once information was received from the operators, interviews were sc heduled to clarify and obtain additional information needed for the study.
Since the actual costs of the vari ous services for drilling, completion, and production can be obtained from operators, interviews with service compani es were focused on the breakdown of the revenue received from the operator (the operator’s cost) by labor, ma terials and equipment, overhead and administration costs. For each of these areas, B ooz Allen gathered the perc entage of revenues that remained within the state and identified those exp enditures that moved out of the state.



## 5.1 Operator Data Collection

5.1.1 Approach This section describes the types of information collected on operator expenditures for exploration, development, and production of oil, natural gas, and CBM. As indicated previously, it was determined that most operators contra cted much of their well dr illing, completion, and recompletion work to service companies. Therefore, interview efforts were u ndertaken to collect data from service company representatives, which are further described in Section 5.2 and Appendix D. Operator expenditures were separated into three categories:

• Drilling, completion, and recompletion expenditures

• Production cost

• Mineral and override royalty payments, leas e and bonus payments, and surface land damages for access for private minerals.
Information was also obtained on the names and locati on of vendors utilized, t he expenditures that were incurred within the company (versus contracted), the locations of fiel d, district, and headquarter offices, and materials versus equipment expenses. To simplify the data collection effort and the impact on each company, Booz Allen requested an example Authority For Expenditure (AFE) document for drilling and completing a well for each basin where exploration and development occurs. These forms we re requested for a typical well in each basin of operation for 2007. Booz Allen also requested a dditional information, which was usually conveyed verbally in follow-up interviews, on clarifying the type s of expenditures. Further, additional information was requested on the largest expenses, the names of service companies utilized and their locations, and other pertinent information. All ope rators were able to provide us dr illing and completion information; the majority of operators were able to furnish recompletion information as well. Recompletions occur throughout Wyoming to impr ove well production, befor e choosing the costly alternative of drilling a new well. Therefore, the corresponding cost categories for recompletion operations are similar to those for well completion and incurred to revitalize production in an aging well. Booz Allen collected operator’s information on the number of wells recompleted in 2007 or other information relevant to expenditures spent in 2007 on recompletion, restimulation, or reactivation activities. The drilling, completion, and recomple tion costs were grouped into categories that were both consistent across operators and mapped to the relevant sectors in IMPLAN. A sa mple of the cost categories are shown below in Exhibit 5.1.Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 15 Exhibit 5.1. Example Well Drilli ng & Completion Cost Categories Drilling Completion and Recompletion Main Drill Contract Stimulation and Cementing (main contract) Earthwork Earthwork Services (e.g., insurance, permitting) Tube & Pressure inspectors Supervision (labor) Water & Transport Well Logging Complete Workover Equipment (Rig & Unit) Casing & Tubing (surface and production) Tanks & Equipment; Flowlines Downhole Equipment Roustabout Labor (Supervision, Administration) Overhead

In this way, Booz Allen was able to group Drilling, Completion, and Recompletion expenditures into four IMPLAN sectors: Drilling, Support Activities for Oil and Gas Industries, Construction, and Wholesale Trade. Information was also requested from operators on pr oduction cost and royalty payments to private mineral owners. This included information on private mineral royalties, override royalties, payments for leases and bonuses, and surface land damages all for ac cess to private minerals. Specific information requested on these expenditures and investments are shown in Appendix D. 

### 5.1.2 Response Rates Booz Allen staff contacted 27 oil and gas operatin g companies and over 120 operator personnel with operations located in Wyoming. Of these 27 compani es, Booz Allen collected information from 19, a response rate of 70 percent. The remaining 8 companies either did not responded to our calls, were not interested in participating in the study, or did not have the time to collect the information within our time frame. From the companies who have provided information, these 19 operators accounted for 63%, 70%, and 71% of the oil, conventional gas, and CBM produc tion in the state, respectively, in 2007. This response rate seems reasonable considering the fairly onerous request for information.



## 5.2 Service Company Data Collection

5.2.1 Approach During interviews with Booz Allen staff for this project, operators provided information on the total expenditures incurred for services rendered as well as the names of the particul ar vendors and service companies regularly utilized in 2007. Booz Allen in terviewed some of the lar ger service companies to obtain an understanding of what and where thes e operator expenditures and vendor revenue were allocated. Since the expenditures by operators are revenues for the service companies, the interviews with service companies targeted both the alloca tion of expenses among labor, materials, and administrative, and where the revenues were alloca ted (within Wyoming and out of Wyoming). For example, many of the materials for completing a we ll come from out of the state; understanding what percentage of those materials come from local so urces and what percent are paid to downstream materials suppliers outside of Wyoming can have important implications for the model results. The service company information collection was focus ed on two general issues: whether the service was primarily labor- or materials-based; and the location of the company, labor pool or source of materialWyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 16 (e.g., within or out-of-state). Once these servic e company allocations were determined, they were averaged to estimate the “within state” and “out-of-state” percentages for the related contracted vendor expenditures. Vendors were targeted that provided services and materials that account for the highest percentage of total costs incurred by operators. Ex amples of these services are:

• Main drilling contract

• Well completion stimulation and cementing

• Well head equipment, tubing and casing

• Facilities expenditures. The interviews with service companies were focused on the following categories and their related portion of total costs:

• Labor

• Materials, supplies, and equipment

• Overhead and administrative costs

• Margin.
For each of the above categories, information was obtained on the percentage of allocations that were incurred within and outside Wyomi ng. This process allowed us to obtain a general breakdown of the operator’s expenditure (and corresponding service company allocation) within the state and out-of-state. The following example demonstrates how the service company allocations were estimated. This example will also explain how the information is utilized from service company interviews and applied to operator expenditures for the related services in the database. Exhibit 5.2 illustrates an example summary of data from a service company collected during an interview. This is an example drilling company with a local and regional office in Wyoming and corporate headquarters in Texas. This company provides a turnkey, main drilling contract service to the oil and gas operato rs in a given basin of operation. The percent of total allocation is applied to the in-state and out-of-state location breakdown and aggregated to determine the total percentage of the company’s revenues that stay within Wyoming (67%) and those that move outside the state (33%).

Exhibit 5.2. Example Drilling Company Location Allocation X Drilling Company – Main Drill Contract Local and Regional Office in WY / Corporate HQ in TX Location Breakdown (Percent of revenue amount for each category) Category Percent of Total Allocation (of total revenue received) In-State Out-of-State Labor 31.0 94 6 Materials/Supplies 42.0 70 30 Overhead/Admin 2.5 100 0 Margin 24.5 25 75 Total Cost Breakdown (Percent of total revenue received) 67.1 % 32.9%Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 17 Booz Allen received the labor, materials, and overhe ad/administrative categories and their corresponding allocations during interviews with service companies. Through interviews with service companies, profit was assumed to move to the location of the corporate headquarters, although some service companies do report that a small percentage did stay at the regi onal office. This was consistent with idea that partners and managers may receive a share of pr ofits and the company could pay out bonuses to employees. After collecting data from service company intervie ws, the next step was to determine the allocation profile for other companies in the basin providing simi lar services. Three location profiles were applied for each service company allocation:

• Small In-state Field Office; Regional & Corporate Headquarters out of Wyoming

• Large In-state Field Offices (may or may not in clude regional office); Corporate Headquarters out of Wyoming

• Field, Regional Offices, and Corporate Headquarters in Wyoming. Information obtained in the interviews from similar companies was used to extrapolate for companies providing similar services and with similar office loca tions. For services on which data was not collected, such as smaller expense it ems (e.g., legal, surveying, etc. ) secondary information was collected on whether the company was typically either more labo r-based or more material-based and on the location of the offices. Then, data from similar service com pany allocations and locations for those with activities in multiple basins were interviewed to ascertain t he differences in expenditure profiles among the basins. If there were significant differences, the service co mpany location allocations were adjusted as needed, and additional company interviews were undertaken to accurately reflect both economic leakages and investments that remain within Wyoming and contribute to the local economy.



### 5.2.2 Company Selection and Response Rates Since a majority of the drilling and completion activiti es in Wyoming for 2007 were focused in two basins, the interviews focused on the Greater Green River Basin, Pinedale and Jonah fields, and Powder River Basin. Over 90 percent of 2007 drilling and completion acti vities in the state took place in one of these three areas. It was determined that most of the same companies providing services in these areas were also providing services in the other Wyoming basin s, so their location allocations were applied as appropriate to other basins. Five drilling companies provided information for the study; these companies had operations in one of the three areas, Powder River, and Green River, or the Pinedale and Jonah fields. Booz Allen also contacted an additional five drilling companies, but did not receive any data from them. When an operator reported using a drilling company from which we did not receiv e information, the company was researched via the internet or from information from the operator in terms of where the drilling company’s offices were located, and the appropriate office location and corresponding service company location allocation was applied. Four major stimulation and cementing service compan ies were contacted, and information was received from two companies. One of the companies only partici pated in an “informal” interview to discuss general operations and expenditure patterns and locations r egarding their Wyoming businesses. Although this interview did not provide specific numbers, it did validate the number s captured from one major company for the stimulation and cementing expenditure allocations.Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 18 We contacted six distributors of casing, tubi ng, flowlines, and well head equipment, and received information from two companies, both of whom prov ided products to operators in the three main development areas. A fluid servic ing company who provides product and services throughout Wyoming also provided data for the study. Three earthwork a nd construction companies were also contacted, two of which provided information regarding general allocations in their businesses.



## 5.3 Data Storage and Querying Approach
Booz Allen developed a Microsoft Access database to incorporate both the operator and service company (vendor) data, which also provided the percentages for in-state and out-of state expenditures. This standard reporting process allowed the team to inco rporate and maintain data integrity and easily perform data queries to aggregate and manipulate the data to map to the IMPLAN sectors. The database has expenditure categories that mirror those in AFE forms, as most operators provided these general types of categories. The database was developed with two el ectronic forms by which primary data was entered: an “Operator Well Information” form; and a “Cost” form. The Operator Well Information form was used to enter general well capital investment information for an operator in a particular basin (or multiple basins). Generally this information was gathered directly from operating companies, but occasionally secondary sources (primarily WYOGCC database) were used to fill in the gaps that were not known by the operator (i.e., num ber of wells drilled, average depths of wells drilled). The second “Cost” form provided an interface to enter and house the development expenditures. These cost categories were broken down for drilling, comple tion, facility, and recompletion expenditures. Each of these major categories was then further disagg regated. For example, completion comprised of a number of categories, including: ca sing/tubing, equipment, roustabouts, stimulation and cementing, other services, fuel, etc. The expenditures for the operators were then entered into the relevant expenditure category. If the service was contracted to a vendor , then the corresponding service company location allocation was applied to the contracted cost. If t he expenditure was incurred in-house for the operator, then the operator provided a percentage breakdown (or general idea) of where the expenditure was paid. In this way, both operator and service company in formation was entered into the Microsoft Access database. Queries were developed within the database that aggregate the operators’ expenditures by IMPLAN sector, displaying both within state and out-of-stat e expenditures. For example, the activity of drilling was broken into four categories for estimating the economic contribution in the IMPLAN model:

• Drilling Sector (#27)

– includes all expenditures related directly to drilling a well (e.g., drill rig rental, mobilization, and anything related di rectly to the actual drilling of the well

• Construction Sector (#39)

– includes all necessary expenditures to prep and reclaim a well site location (e.g., earthwork, road and pi t construction, re-vegetation)

• Support Activities for the Oil and Gas Industry (Sector #28)
, which includes Engineering & Geology, Open Hole Logging, Drilling Water, Chemicals, etc.

• Wholesale Trade Sector (#390)

– includes equipment and goods that are purchased through a wholesale distributor. An example from our study is surface casing. Completion and recompletion activities were all assigned to either Support Activities for the Oil and Gas Industry (Sector #28) or to Wholesale Trade (#390) for the IMPLAN model.Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 19 

## 6. Secondary Data Collection

Throughout this study, Booz Allen collected data from secondary sources to supplement the data received directly from oil and gas operators and serv ice companies. The source used most often during the study was 2007 data obtained from the Wyom ing Oil and Gas Conservation Commission database including the number of wells drille d, completed, recompleted, and 2007 annual production. Booz Allen requested the needed fields from WYOGCC, and the customized data was provided to Booz Allen at the end of May, 2008. In conducting the economic analyses, numerous secondary sources were used in addition to the data received and/or derived from the WYOGCC database. Most of the additional se condary sources assisted Booz Allen in developing and adjusting the study area and economic parameters for IMPLAN. This included employment, labor earnings, oil & gas prices, ratios of wage and salary to compensation, among others.

Exhibit 6.1 lists all of the secondary sources used. A description of how each secondary source was used in the modeling effort was giv en previously in Section 4.2.
Exhibit 6.1. Secondary Source Data Used to Modify Model Parameters

Source Data Received Data Details - # Drilled and Completed by Basin & Operator WYOGCC: Well Spud and Completion Reports 2007 Wyoming Oil and Gas Wells Drilled, Completed, and Recompleted - Average & Median Depths WYOGCC: Production Data 2007 Wyoming Oil & Gas Production - By Operator , by Basin, by type (Oil, Conventional Gas, and CBM determined from “gas type” field)

Bureau of Economic Analysis Ratio of total employment to wage and salary employment - Mining support services - Self Employment Adjustment Ratios Bureau of Labor Statistics Employment and earnings estimates - Oil & Gas Extraction industry - Oil & Gas Drilling sector - Support Activities for Oil & Gas 2002 Economic Census Output to employee ratios - Us ed to estimate Total Industry Output for Drilling and Oil and Gas Support sectors Mineral Management Service 2007 Federal Mineral Royalty Revenues - Natural Gas Liquids output estimate - Federal Mineral Royalties that are paid to WY WY Department of Revenue Sales and Use Taxes; Severance Taxes; Ad Valorem Taxes; Oil and Gas Index Prices for 2007 - Used for extraction tax impacts and sales and use tax estimates; Prices used to estimate Extraction Total Industry Output. Wyoming Office of State Lands and Investments State Mineral Royalties - Used for oil and gas extraction tax impacts

Bureau of Economic Analysis, August 2007 Survey of Current Business National ratio of wage and salary accruals to compensation - Used to adjust earnings for benefits - For the oil and gas extraction - For mining support activities (used for drilling sector)Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 20 

## 7. Extrapolation Methods and Estimating the Direct Oil and Gas Impacts

This section describes the four oil and gas activities on which this study focuses to estimate the economic contribution of oil and gas activities in Wyoming. These are:

1. Drilling, completing and recompleting activities

2. Extraction operations
3. Mineral royalty payments to households and business for access to private minerals

4. Extraction taxes paid to the st ate and counties of Wyoming.
Other capital investments, pipeli ne investments, and refinery impacts have not been included in this analysis.

This section will summarize the data collected and expl ain the approach to utili ze both the primary data from industry and the secondary data from WYOGCC to estimate state oil and gas economic contributions.



## 7.1 Drilling, Completion, and Recompletion Activities
The economic contribution of drilling, completion, a nd recompletion activities was estimated using the modified IMPLAN model for Wyoming. These expendi tures were inclusive of facility and surface equipment investments captured on a per well basis, where possible. Drilling and completion capital investments support many industries across Wyom ing. These operator expenditures or capital investments become revenue or sales for the recipient industries providing these services (e.g., drilling, stimulating and cementing, construc tion, etc.). The analysis commenced with the categorization of the database housing the primary data -- drilling, completion, and recompleti on capital investments -- into appropriate IMPLAN sectors, as summarized in Exhibit 7.1.

Exhibit 7.1. IMPLAN Sectors for Direct Ca pital Investments for Drilling, Completion, and Recompletion Activities Type of Expenditure Title of Sector IMPLAN Sector Number Drilling Sector 26 Construction 39 Support Industries for Oil and Gas Activities 27 Drilling

Wholesale Trade 390 Support Industries for Oil and Gas Activities 27 Completion Wholesale Trade 390 Support Industries for Oil and Gas Activities 27 Recompletion Wholesale Trade 390



### 7.1.1 Drilling and Completion Investments Total drilling, completion, and facility investments pe r basin were aggregated into the relevant IMPLAN category with queries from the database. Informat ion was entered on where the costs were incurred by both operators and service companies, which allowed an es timate from each operator of the in-state andWyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 21 out-of-state costs for each IMPLAN sector category . Information obtained from service companies and vendors allowed appropriate percentages of state expenditures to be estimated and applied for each type of service or material needed for drilling, completi on, and wholesale trade investments (see Section 5.2 and Appendix E for more details). This resulted in a total estimated expenditure for each itemized cost that remained within Wyoming, It also identifi ed investments that moved out of Wyoming and do not contribute to the Wyoming economy. After the primary data was mapped and aggregated to the various IMPLAN sectors, the expenditures needed to be estimated for the remaining drilled and completed wells in the state that were not captured by the data collection process. This extrapolation process was base d on development by basin and the depth of the well drilled. The total numbers of wells drilled as well as the depth of the various wells were obtained from the WYOGCC database (see Exhibit 3.3). After comparing the drilling (spud) and completion reports for the state and assessing the operator data, it was determined that there were few differences between the number of spuds and completions except in the Pi nedale and Jonah fields. Total number of wells spudded in the state was 3,697, and total number of completions was 3,462, a difference of 235. The Pinedale and Jonah fields had 662 spuds and 449 completions, which accounts for 213 of the 235 difference. 6 Therefore, it was decided that all basins would be extrapolated for drilling and completion together except the Pinedale and Jonah fields, wh ich would require both a drilling and a completion extrapolation. A few of the basins were combined for extrapolation purposes due to limited data collection in these areas. There were 10 wells drilled in the Overthrust basin, in which the field also report ed to the Greater Green River basin. The depths appeared to be abou t the same as those reported by a company drilling in the western portion of the Greater Green River and so these 10 wells were included with those in the Greater Green River Basin extrapolation. In t he Hanna and Denver-Cheyenne Basins, there were 16 wells drilled of which we did not obtain any informat ion from the data collection process. These wells were determined to have similar depth distributions to those in the Laramie Basin and so these three basins were extrapolated together. There was consider able operator data from all the other basins in Wyoming: Bighorn, Wind River, Greater Green River, Powder River, and Pinedale and Jonah Fields. The extrapolation process was implemented by mapping operator information about drilling and completing at various depths to the well depth distri bution of the basin in total as reported by WYOGCC database. For example, in the Great er Green River Basin, 11 operator s provided information on average costs for 12 wells drilled and completed from depths ranging from 1,500 to 13,000 feet. From assessing the operator cost/depths and the well depths of all wells drilled in the basin, it was determined that the operators costs should be mapped to the following depths: less than 3,000 feet, between 3,000 and 9,000 feet, between 9,000 and 12,000 feet, and more than 12,000 feet. Within each of these depth distributions, operator costs were weighted depending on how many wells they drilled to more accurately represent the total basin drilling and completion costs. In this way, the individual ope rator costs were mapped to: 1) The number of wells drilled for each operat or as a percent of drilled wells reported; and 2) The total basin drilled depths.

6 In the Pinedale and Jonah fields, a number of wells were spudded and then suspended after setting the surface conductor pipe; several had to suspend co mpletion operations because of various wildlife stipulations (Personal Communications with Don Likwartz, August 1, 2008).Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 22 This was done for each the drilling, support, and wholesale tr ade sectors. Earthwork and site construction expenditures for drilling were extrapolated based only on the number of wells drilled by the operator as a percent of the reported total wells drilled and were not based on depths of wells drilled. 

### 7.1.2 Recompletion Investments Booz Allen used both primary and secondary source information to determine capital investments for recompleted or restimulated wells across Wyoming. Operating companies provided data on the number of recompleted or reactivated wells in all basins of operation and the average cost of these investments per basin. Booz Allen also collected secondary source information from WYOGCC on all recompletions and workovers across Wyoming in 2007. This WYOGCC data was accessed by select ing “recompletion” in the "type of completion" field. This recomp letion field was only added to WYOGCC data collection website last year so it may be the case that some operators are not using this new selection approach to report their recompletion activity. Booz Allen ther efore used not only the recompletion field, but also restimulations, workovers, and othe r reactivations as provided by the WYOGCC’s database. These included the following categories:

• Types of completion, which include "recomplet ion", "conversion", and "convert to production"

• "Reactivation" type of completion with a spud (drill) date prior to 2006

• "New Well" type of completion, with a spud (drill) date of prior to 2006

• "Work Over" type of completion, but with a spud (drill) date of prior to 2006. The primary and secondary data was compared. If there were more or fewer recompletions reported by operators than what were reported in the WYOG CC database, the number was adjusted based on the difference between the figures. This adjustment process was only required in Bighorn and Wind River Basins. It was determined that there were 304 recompletion, workovers, and reactivations across Wyoming in 2007. Exhibit 7.2 summarizes the re completions by basin in Wyoming in 2007. The average costs then needed to be extrapolated to t he remaining recompletions across Wyoming. This was based on the reported number of recompletions by an operator in a basin as a percentage of the total basin recompletion sample, and then multiplied by the total number of recompletions that occurred within the basin. The total amount was then a llocated between support sect or expenditures (75%) and equipment and materials (25%). The within stat e percentages were adjus ted based on the service companies that the operators were using for completion activities.

Exhibit 7.2. 2007 Well Recompletions, Workovers, and Reactivations by Basin
Basin Number Greater Green River and Overthrust 24 Pinedale and Jonah Fields 3 Wind River 13 Bighorn 104 Powder River 160 Laramie, Hanna, and Denver-Cheyenne NA Total 304
Source: WYOGCCWyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 23 There were 304 recompletions across the state with an average cost of $174, 616, 47 percent of which remains within Wyoming. Most of the recompletion activity occurred in Bighorn and Powder River Basin (264 recompletions).



## 7.2 Extraction Operations
The economic contribution of oil and gas extraction (also called production) in Wyoming was analyzed directly through one of the IMPLAN sectors (Sector 19) because it is a self-contained sector which includes all economic activity associated with oil an d gas extraction. This diffe rs from the approach used for drilling, completion, and recompleti on since these activities involve a number of different sectors in the IMPLAN model, as described in the previous section. The oil and gas industry also differs in that extraction represents annual operating expenses and revenues while drilling, completion, and recompletion are more of a one-time capital investment. The economic contribution of product ion was based on total industry revenues or sales for the oil and gas extraction sector, which was derived from WYOGCC data on 2007 quantities of oil and gas production in Wyoming and Wyoming indexed 2007 oil and gas prices (see Exhibit 7.3). The contribution of the extraction sector was assumed to be set at 100 percent local, as all of the production is occurring inWyoming. An estimate of the production costs is used to allocate total industry sales between the valueadded component and intermediate payments for the extr action sector within the IMPLAN model as discussed in Section 4.2.4.

Exhibit 7.3. Extraction Volumes, Prices, and Revenues
Product 2007 Production

(mcfe) 1

(A) Price 3 (2007$) Price 4 (2006$)

(B) Oil and Gas Production Revenues

(2006$) (A x B)

Oil 324,310,026 2 $9.81 $9.39 $3,043,813,207
Gas 1,817,181,173 $4.65 $4.45 $8,081,505,125
CBM 436,306,044 $4.65 $4.45 $1,940,373,136
Total 2,577,797,243 $13,065,691,468

1 Source: WYOGCC; 2 Oil production was 54,051,671 barrels, which was multiplied by 6 to estimate the 324,310,026 mcfe of oil; 3 Source: WY Department of Revenue; 4 Deflated with IMPLAN’s WY inflation rates for the extraction sector for 2007/2006 of 1.046.

Total industry output (i.e., oil and gas extraction reve nues) for the extraction industry was reduced since model modifications to the Indirect Business Taxes within the Value Added components were zeroed out. This was required as extraction taxes were co llected and run exogenously through the model. Additionally, private mineral royalty payments were also removed from the extraction revenues since they are paid with the extraction revenues; without removing these payments, they would be double counted. Exhibit 7.4 shows the reductions and the result ing extraction revenue direct impact.Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 24 Exhibit 7.4. Direct Impact -- Extraction Operations*
Extraction Revenues (A) Private Mineral Royalty Payments (B) Extraction Taxes

(C) Direct Impact for Extraction (A-B-C)

2007 Dollars $13,661,277,948 $863,412,137 $1,996,024,906 $10,801,840,905
2006 Dollars $13,065,691,468 $825,770,227 $1,909,004,830 $10,330,916,411

* See Section 7.3 and Exhibit 7.5 for methodology to estimate private mineral royalty payments and extraction taxes.
IMPLAN’s inflation factor of 1.045584 was utilized.



## 7.3 Private Mineral Royalties and Payments
As part of the data collection effort, operators ac ross Wyoming were asked about their expenditures and payments to gain access to both minerals and su rface lands from households and companies. Information was obtained on a number of expenditures, including:

• Royalties to private mineral owners

• Override royalties (e.g., finder’s fees)

• Payments for leases and bonuses

• Payments for surface land damages.

Additionally, information was collected from operators ab out the location of the these recipients of mineral and override royalties, surface land damages and l ease and bonus payments as well as the percentage of wells or percentage of operator production that comprised private miner al ownership (i.e., fee lands). For both private mineral and override royalties, opera tors were asked about t he percentage of operating wells or production in the basin receiving these priv ate royalties, and the average royalty rate typically applied to the value of production. Average 2007 prices were utilized from the WY Department of Revenue database to determine the value of produc tion. Company and basin-wide production was also determined from the WYOGCC database. For the purpo ses of the extrapolation, barrels of oil were converted into mcfe by multiplying by a factor of six. For each oper ator, a royalty value per mcfe was determined for privately-owned miner al production, weighted by the operator production, and multiplied by total basin production to determine a total payment for mineral and override royalties. Operators also provided general information about the locations of the recipients of these payments. These percentages (both within and out of state) were weighted by o perator production by basin and applied to the mineral and override royalties to obtain in-state and out-of-st ate payments by basin. These basin figures were aggregated to determine the state totals. Total lease payments and bonuses for private mineral pr oduction were collected from operators, weighted by the operator production as a portion of the sample ’s production, and applied to total basin production. All basins were aggregated to estimate all payments for the state. The within st ate percentages from the override and mineral royalty payments for the state were applied to the lease and bonus payments. Information was also collected on surface land damages, including the percentage of wells drilled in 2007 where this payment applied, an average payment per well drilled, and the location of the recipients of these payments. These payments we re calculated for the number of wells drilled, weighted based on number of wells drilled by operator, and applied to the total number of wells drilled in the basin.Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 25 Operators also provided information on on-going damage payments to surface owners for producing wells. This information was also extrapolated based on the basin, number of producing wells as a percentage of the total sample, the percentage of wells this applies to, and then was applied to total producing wells in the basin. All basins were aggregated to estimate total surface land damage payments for wells drilled and annual damage payment s for producing wells for the state.
Once the in-basin totals were calculated for su rface land damages, royalties and overrides, and lease payments and bonuses, they were aggregated to yield total within state payments to Wyoming households and companies for access to private minera ls. To ascertain how much of this payment was spent within the state, it was necessary to deter mine the disposable income or amount spent (versus being saved or paid to the government) for each basin and for the state overall. IMPLAN provides an Aggregate Social Accounting Matrix (SAM) report that identifies a matrix delineating the relationships among industries in total, commodities, value added components, households, federal and state institutions, capital, and foreign and domesti c trade. The percentage of household expenditures spent on commodities, foreign, and domestic trade provides an estimate of the marginal propensity to spend. This percentage (82%) was applied to the Wyoming mineral and override royalties, damage and lease payments to provide an estimate of spending in the Wyoming economy. The private mineral royalties are paid to both househ olds and businesses. To simplify this approach, Booz Allen assumed that all of these payments we re made to households. Therefore, we needed to determine the correct household sector to which t hese payments apply. IMPLAN estimates that the average income per household in Wyoming in 2006 was approximately $100,283. Since this estimate was fairly close to two household sectors ($75,0 00 to $100,000 and $100,000 to $150,000) and it seemed relatively high, the $75,000 to $100,000 household sector was determined to be a more reasonable household income range to utilize. Therefore, this sector was imported into IMPLAN and the marginal propensity to spend (i.e., 82%) was determined from the IMPLAN model.



## 7.4 Extraction Taxes

Extraction taxes are also an important contributor to Wyoming’s state and local governments and its economy. These production taxes contribute to Wyoming’s economy as the governments spend this money in the state’s economy. Wyoming’s Department of Revenue collects severance, ad valorem , and sales taxes; these 2007 receipts are based on 2006 production levels. Minerals Management Service collects royalties from pr oduction on Federal minerals. Half of all federal mineral royalties return to the state of Wyoming (U.S. Minerals Management Service, http://www.mrm.mms.gov/Stats/pdfdocs/formulas.pdf ). Total oil and gas Federal royalties were over $1 billion in 2007, of which half were returned to the state of Wyoming. Royalties paid to Wyoming for production from state minerals were obtained from the Wyoming Office of State Lands and Investments (Personal Communication, Billie Hunter 6/18/2008); state royalties from oil and gas products in 2007 are approximately $90 million. Sales and use taxes paid by the Extraction Sector (Sector 2111) are collected by the Wyoming Department of Revenue and are estimated to be $11 million.
Exhibit 7.5 summarizes 2007 estimates of ad valorem , severance, and sales taxes, as well as state and federal mineral royalty payments to the state and coun ties of Wyoming. These extraction taxes were run through the State and Local Government Sector with in the Wyoming IMPLAN model to determine the total economic contribution of these taxes to the state of Wyoming.Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 26 Exhibit 7.5. Extraction Taxes Paid by Wyoming Oil and Gas Industry (2007$) Type of Tax Tax Receipts Source Severance Taxes $666,397,115 WY Department of Revenue Annual Report, 2007

Ad Valorem Taxes $712,637,118 WY Department of Revenue Annual Report, 2007 Federal Royalties $515,500,646 2 Minerals Management Service

State Royalties $90,031,996 Wyoming Department of State Lands and Investments

Sales Tax 1 $11,458,031 WY Department of Revenue
Total $1,996,024,906

1 This sales tax figures is only for the extraction industry, and not for development activities, as only extraction or productio n-based taxes are run through the Extraction Sector in the IMPLAN model to determine economic output, employment and labor earnings impacts. Sales and use taxes are also collected from the Support Sectors (i.e., Drilling and Support); see Section 10 for the Sales and Use Tax Analysis and Results. 2 This estimate is from the Minerals Management Service (MMS), and it includes Federal Mineral Royalties from carbon dioxide, coalbed me thane, condensate, gas plant products, oil, processed and unprocessed gas, and royalties associated with rents, bonuses, a nd other revenues. Fifty percent of royalties return to Wyoming and 50 percent are paid to the federal treasury (U.S. Minerals Management Services, http://www.mrm.mms.gov/Sta ts/pdfdocs/formulas.pdf ). Native American royalties are not included in this estimate, and therefore the receipts paid to reservati ons are not captured in this analysis.



## 8. Economic Contribution

Through the approach outlined in the previous sect ion, the direct economic impacts for drilling, completion, and recompletion, private mineral roya lty and lease payments, oil and gas extraction, and extraction taxes were calculated and run through the modified IMPLAN model. Other capital investments, such as for pipelines or other major infrastructure, or refining sector impacts were not included in this analysis. 7 The new Trade Flows RPCs are utilized in the indire ct and induced impacts that occur from this initial investment or monetary injection into the state economy. The results therefore yield direct, indirect, and induced economic contribution of these activities. This section will initially describe how the direct econ omic contribution is run th rough the IMPLAN models. This is followed by the direct economic contri bution estimates, and the results of the economic contribution analysis from IMPLAN.

7 Although pipeline investment was not included, flowline costs per well were included. This includes the costs of purchasing and installing fl owlines from the well head to the pipeline. Other facility and surface production equipment was also included in these estimate s. Pipeline investment for five projects by the Overthrust Pipeline Company, Overland Pass Pipel ine, Fort Union Gas Gathering Company, and the Wyoming Interstate Company were estimated to be $540 million in 2007 (Personal Communication with Brian Jeffries, Executive Director of Wyoming Pipeline Authority, 8/10/2008).Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 27 

## 8.1 Analyzing Direct Impacts through IMPLAN Model Sectors
The extrapolated 2007 Wyoming capital investments were deflated to 2006 dollars using IMPLAN deflators to be consistent with the IMPLAN software, and then were run as direct impacts through the state model. The results of the IMPLAN model were then reinflated to 2007 dollars utilizing the same industry inflators for IMPLAN.
The activities of oil and gas drilling and completion require a considerable am ount of material and equipment purchases from wholesale trade industries in Wyoming. As indicated in the service company section, in general, these industries acquire cons iderable equipment and materials from outside of Wyoming. These ‘retail’ sectors ar e treated differently in IMPLAN and typically have to be ‘margined’ to determine the warehouse mark-up of the merchandi se. Through the assessment of the vendors supplying this equipment and materials in the servic e company database, Booz Allen has utilized primary data to estimate appropriate margins for these wholesal e trade industries. In this way, the margins as a percentage of total expenditures have been determi ned through the database process, and it has not been necessary to utilize IMPLAN’s margins.

For the mineral royalties and lease payments, it was nec essary to import the correct institutional sector. Although these payments are made to both business es and households, it was assumed that the payments were all made to households. This likely provides are more conservative estimate of the downstream impacts to the state. As described in Section 7.3, it was dete rmined that the appropriate household income sector was $75,000 to $100,000. Therefore, this household sector was imported into IMPLAN to run the analysis. These direct impacts were deflated to 2006 dollars to be consistent with the IMPLAN model; the IMPLAN results were then reinflat ed with IMPLAN inflation factors to report the impacts in 2007 dollars. Extraction taxes were run through the State and Local Government Institution sector in IMPLAN, sector 12001. The economic contribution of product ion is based on total industry sales for the oil and gas extraction sector, less the Extraction Taxes and Private Mineral Royalty Payments. To be consistent with the IMPLAN model, the 2007 oil and gas prices were converted to 2006 dollars. An estimate of the production costs ($1.10/Mcfe) was used to allocate total industry sales between the value-added component and intermediate payments for the extracti on sector. The derivation and explanation of this production cost was previous ly explained in Section 4.2.4. For the extraction industry, most of the oil and gas being produced is exported outside the state of Wyoming for processing; this allows the modeling of total industry sales or revenues as the direct effect. Therefore, the RPC for the extraction sector within Wyoming was set to zero.



## 8.2 Drilling, Completion, Recompletion Activities
All basin extrapolated expenditures were aggregated ac ross the relevant drilling, completion, and recompletion IMPLAN sectors to det ermine overall in-state capital in vestment for drilling, completion, facilities expenditures, and recompletion. Exhibi t 8.1 summarizes these development investments. Overall, 45 percent of these expenditures remained with in the state, while over half of these investments move outside the state. This was primarily due to a large amount of materials and equipment that come from out-of-state, including cement, casing, tubing a nd other materials. States where these materials were purchased include California, Oklahoma, and Te xas. Overall, operators paid approximately $5.4 billion in 2007 in capital investments for drilling, completing, facility requirements, and recompletion investments. On average, it cost $1.45 million to drill and complete a well in Wyoming in 2007. However, across the basin, these costs varied significantly (see Exhibit 8.1).Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 28 Exhibit 8.1. Drilling, Completion, Facility, and Recompletion Investments for Wyoming (2007$)

Exhibit 8.2 summarizes the drilling and completion expenditures by basin in Wyoming (these do not include recompletion investments). Although there were three times the number of wells drilled in Powder River Basin than in Greater Green River or in Pinedale and Jonah fields, the total investments were almost two to three times higher in Greater Green River and Pinedale and Jonah area due to the investments needed per well. In Powder River, there were generally three different types of wells being drilled, 95 percent of which were CBM wells. The CBM wells are shallower, generally less than 3,000 feet, and on average, cost $319,000 per well. The remain ing 5 percent of the wells are either oil wells or Enhanced Oil Recovery wells which are typically much dee per and more costly to drill. However, overall, the Powder River Basin comprises wells that cost on average $400,000 to drill and complete. In comparison, the Greater Green River and Pinedale and Jonah fields are requiring significantly more investment per well drilled and completed, $2.3 million and $3.9 million, respectively. Type of Investment Drilling, Completion, and Facilities Costs (Per Well) 3697 Wells D&C Recompletions (Per Recompletion) 304 Recompletions Total Drilling, Completion, and

Recompletion Investments Investments that Stay within the State $653,212 $81,713 $2,439,767,029

Investments that Move Outside the State $797,169 $90,903 $2,974,768,404

Total Investments $1,450,381 $172,616 $5,414,535,433 Percent that Stays within the State (State Purchase Coefficient) 45% 47% 45%Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 29 Exhibit 8.2. Drilling, Completion, and Facility Investments for Wyoming (2007$)
Greater Green

River and Overthrust (less Pinedale

and Jonah) Pinedale and Jonah Fields* Bighorn Wind River Powder River Laramie,DenverCheyenne,

Hanna Total
Total Investments $1,496,975,056 $2,607,664,488 $72,654,549 $277,504,668 $876,527,426 $30,734,060 $5,362,060,246
Investments that Remain within WY $696,820,537 $1,188,365,632 $35,800,476 $116,540,850 $361,806,402 $15,592,479 $2,414,926,375
State Purchase Coefficient (SPC) 47% 46% 49% 42% 41% 51% 45%
Number of Wells Drilled & Completed 654 662 Drilled 449 Completed 79 102 2,180 20 3,697
Total Investments per Well $2,288,953 $3,939,070 $919,678 $2,720,634 $402,077 $1,536,703 $1,450,381
WY Investments per Well $1,065,475 $1,795,114 $453,171 $1,142,557 $165,966 $779,624 $653,212

* Pinedale Anticline and Jonah field expenditures were extrapolated separately for drilling and completion.

The State Purchase Coefficients (SPC) in each of th e basins ranged from 41 percent to 51 percent, with the state average for all basins being 45 percent (i.e., 45 percent of these development expenditures remain within Wyoming). As mentioned previously , the out-of-state wholesale trade purchases primarily lower the SPC. There were both Wyoming and non-Wyoming drilling compani es; expenditures that reduced the SPC for some of the drilling companies in cluded non-local labor pools, capital improvements, major rig maintenance, and non-Wyoming companies to where administration, overhead and profit costs are generally allocated. There were some notable SPC differences among t he basins. Greater Green River Basin and Pinedale and Jonah fields had SPCs that were very close to the state SPC, while Wind River and Powder River Basins were lower with 42 percent and 41 percent respectively. Greater Green River and Pinedale and Jonah’s percentages represent the average state num bers since 76 percent of the state’s drilling and completion expenditures were in these two basins. In the Wind River Basin, the SPC was slightly lower due to the use of non-Wyoming-based drilling companies. The wholesale trade expenses brought the SPC for the Powder River Basin lower than the state average. This was due to the fact that the Powder River wells cost much less to drill, although the amount of wholesale trade investments (casing, tubing, equipment ) increases proportionally to overall costs, which decreased the SPC numbers in this basin compared to other basins. Bighorn Basin’s SPC for development investments was higher than the state average, which was due in part to the more extensive use of rental equipment in this area. Rental equipment typically provides more local economic value as there is more overhead a nd other expenditures (i.e., trucking, fuel, storage yard/facilities, etc.) compared to wholesale trade pu rchases. The relatively higher SPC for Laramie,Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 30 Denver-Cheyenne, and Hanna Basins can be attributed to a very small sample size of operators that provided data and its influence on the 20 wells drilled and completed. The within-state capital investments were run through the IMPLAN model as direct effects ($2.4 billion). According to this analysis, the capital investments in Wyoming support almost 27,000 jobs in Wyoming., 16,000 of which are in the drilling, oil and gas support industries, wholesale trade or construction. This development activity has an employment multiplier of 1. 67, indicating that for each job created in drilling, support activities, wholesale trade, and constructi on, there is an additional 0.67 jobs created in downstream or supporting businesses. Exhibit 8.3 summarizes the economic contribution of these capital investments for the state. A total of $3.5 b illion in sales or revenues was generated from this investment activity in 2007, supporting approximatel y 26,700 jobs and $1.5 billion in labor earnings.

Exhibit 8.3. Drilling, Completion, Facility and Recompletion Economic Contribution for Wyoming (2007$) Type of Impact Revenue Employment Labor Earnings Earnings per Worker
Direct $2,439,767,029 15,975 $1,104,682,651 $69,151

Indirect $269,838,803 1,735 $69,005,578 $39,773

Induced $803,446,273 8,991 $284,405,440 $31,632

Total $3,513,052,106 26,701 $1,458,093,669 $54,608

Multiplier 1.44 1.67 1.32



## 8.3 Extraction Operations
In Wyoming, total industry revenues were used to estimate the direct economic contribution of the extraction industry. As described in Section 7.2, the direct impact was determined to be $10.8 million in 2007 dollars and $10.3 million in 2006 dollars. This dire ct impact was run through the extraction sector in IMPLAN to estimate the total economic contribution of extraction in Wyoming, which is summarized in Exhibit 8.4.

Exhibit 8.4. 2007 Extraction Economic Contribution for Wyoming (2007$) Type of Impact Revenue Employment Labor Earnings Earnings per Worker Direct $10,801,840,905 4,115 $420,397,957 $102,162

Indirect $772,763,456 3,667 $192,952,907 $52,619

Induced $388,957,284 3,983 $123,462,343 $30,997

Total $11,963,561,646 11,765 $736,813,207 $62,628
Multiplier 1.11 2.86 1.75

A total of $10.8 billion in total industry revenues was generated by oil and gas extraction operations and indirect and induced economic activity in Wyomin g in 2007. This industry has a high employmentWyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 31 multiplier of 2.86. With each extraction industry jo b created, there are an additional 1.86 jobs created in supporting industries and through increased household spending. Extraction industry employment was 4,115 in 2007, but it supported an additional 7,650 jobs in the state. Average earnings for the extraction industry ($102,162) are significantly higher than thos e of other downstream industries (indirect jobs -- $52,619 and induced jobs -- $30,997). As indicated in Section 7.2, direct extraction impact s are determined by the aver age indexed price of oil and gas in Wyoming multiplied by the volume of produ ction, less Extraction Taxes and Private Mineral Royalty Payments. As such they are highly sensitive to the price of oil and gas. In 2007, gas prices were lower than they have been in the past few years due to pipeline constraints (Personal communication, Don Likwartz, WOGCC Supervisor, 7/2/08). For exampl e, in 2006 the gas price was $5.85 per mcf, while in 2007 the price of gas was estimated to be $4.65 per mcf and the price of oil was $58.88 per barrel. The first three months of 2008 indicate that pric es may be considerably higher than those in 2007 (Personal communication, Don Likwartz, WYOGCC supe rvisor, 7/2/08) as more pipeline capacity comes on line. Prices for the first three months averaged $7. 38 per mcf for gas and $85.08 per barrel for oil. Static Input-Output models such as IMPLAN can not assess the impact s of price changes on employment and earnings estimates. Price changes would primarily affect tax revenue receipts and profits to companies. With higher prices, the extraction indust ry would likely employ more people in a number of areas including: exploratory and geological engineer ing, seismic services, land departments, and other areas. However, these jobs and earnings increases w ould occur over time as operating companies invest additional funds and therefore cannot be estimated in a static model. (See Section 8.5 for a assessment of 2008 price changes on tax receipts).



## 8.4 Private Mineral Royalties and Payments
Overall, there is a considerable amount of income paid to homeowners and interest owners to access private minerals and surface lands (see Exhibit 8.5). This is in the form of private mineral royalties, surface land damages, lease payments and bonuses, and ov erride royalties. Twenty-six percent of these payments stay within Wyoming, in general. Overall, the marginal propensity to spend for the state is estimated to be 82 percent (IMPLAN, 2006), indicating that 82 percent of these payments are spent on consumer items. Therefore, tota l payments estimated to be spent in the Wyoming economy are $183.8 million.
Exhibit 8.5. Wyoming Private Minera l Royalties and Lease Payments (2007$)

As a result of private mineral royalty payments, ho useholds were estimated to spend $183.8 million in the Wyoming economy, which generated $45.3 million in addi tional economic activity for a total of $231.8 million in economic activity as summarized in Exhi bit 8.6. Labor earnings were approximately $42 million in total, while earnings per worker on average were $29,300 per year. Overall these private mineral and Type of Impact Total Mineral Royalties and Lease Payments Within State Payments $224,172,370 Out of State Payments $639,239,767 Total Payments $863,412,137 State Purchase Coefficient (SPC) 26% Percent of Payment Assumed to be Spent in the Wyoming Economy $183,821,343Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 32 lease payments support 1,450 people in the state. These impacts are all considered to be induced economic contribution.

Exhibit 8.6. Economic Contribution of Private Mineral Royalties and Lease Payments for Wyoming (2007$)

Economic Activity Employment Labor Earnings Earnings Per Worker Per Year Total Economic Impact $231,827,774 1,447 $42,461,473 $29,344



## 8.5 Extraction Taxes
Extraction taxes receipts were collected from a numbe r of secondary sources (see Exhibit 7.5) for a total of $2.0 billion paid to state and local governments in 2007. The extraction taxes create additional economic revenue for the state as a result of payrolls, spending, etc. which includes the direct impact of almost $2.0 billion in extraction tax payments and $913 million in indirect and induced impacts of these payments rolling over in the eco nomy, benefiting households and indire ct industries. Total employment from extraction taxes in 2007 was approximately 33, 300 and labor earnings from these impacts are estimated to be $1.7 billion. Exhibit 8.7 summari zes this induced econom ic contribution.

Exhibit 8.7. Economic Contribution of Extraction Taxes in Wyoming (2007$)

Economic Activity Employment Labor Earnings Earnings Per Worker Per Year Total Economic Impact $2,908,623,519 33,316 $1,677,264,966 $50,344

Oil and gas prices can have considerable repercussi ons on the fiscal receipts paid to state and local governments by the oil and gas industry. The C onsensus Revenue Estimate Group (CREG) Forecast and Legislative Services Office predict ed the change in revenue to the state with a unit change in price of both oil and gas. The revenue sources include severanc e taxes, federal mineral royalties, and the school foundation portion of ad valorem taxes. Exhibit 8.8 shows the tax receipt increases or decreases associated with a unit price change for oil and gas.

Exhibit 8.8. State and Local Tax Receipts with a Unit Price Change (2007$)

Type of Product Price Change State and Local Tax Receipt Increase or Decrease

Oil $1.00 per barrel $6 million

Gas $0.10 per mcf $25 million

Source: CREG Forecast and Legislative Services Office, January 2008. According to the first three-month oil and gas prices for 2008 discussed in Section 8.3, this could equate to some significant revenue increases to the state asso ciated with extraction tax receipts paid by the oilWyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 33 and gas industry. Exhibit 8.9 shows the estimated increases in state and local government revenues associated with these price increases. These o il and gas price changes from 2007 to 2008 would yield an estimated additional $831 million in extraction taxes paid by the oil and gas industry in Wyoming.

Exhibit 8.9. State and Local Tax Receipts with a Unit Price Change (2007$)

Type of Product State and Local Tax Receipts with Unit Price Change 1 2007 Price 2008 Price 2 Price Change 2007-2008 State and Local Government

Revenue Increase

Oil $6 million with Increase of $1/Bbl $58.88 $85.08 $26.20 $156 million

Gas $25 million with Increase of $0.10/mcf $4.65 $7.38 $2.73 $675 million

Total $831 million

1 CREG Forecast and Legislative Se rvices Office, January 2008. 2 Estimate of 2008 prices fr om first three months of 2008, CREG.



## 8.6 Total Economic Contribution of All Oil and Gas Activities
Aggregating over all of the economic impacts fr om drilling, completion, and recompletion capital investments, extraction revenues, private mineral royalties and leas e payments, and extraction taxes, there is estimated to be considerable economic co ntribution from these combined activities. To avoid double counting these impacts, privat e mineral royalty payments ($863 million) and extraction taxes were removed from the extraction revenues, since these payments to households, industries and state and local government would be embedded in these extracti on revenues. This allows an aggregation across economic impacts to determine total economic contribut ion of the industry to the state. Since private mineral royalty payments were not endogenous to the m odel it was not necessary to zero out the indirect business taxes for this sector. The overall econo mic contribution of oil and gas and the associated downstream activities in Wyoming in 2007 has been es timated and is summarized in Exhibit 8.10. This Exhibit summarizes total economic contribution, encom passing direct, indirect and induced impacts of all oil and gas activities within the state. Overall, over 73,000 people are estimated to be employ ed either directly or through indirect and induced downstream activities associated with the oil and gas industry. Direct industries include extraction, drilling, support industries for oil and gas, wholesale trade, and constr uction. Indirect industries are additional businesses that support these direct oil and gas industries. Induced impacts are those associated with direct and indirect employees spending their money in economy. The majority of the employment impacts is associated with drilling and completion (36%) and tax payments to state and local governments (45%). As described in the following sect ion, oil and gas extraction taxes are vital source of revenue for state and local governments, significant ly contributing to government employment, labor earnings and economic activity. Extraction operations account for the most amount of economic activity, but in terms of employment, are not as important as extraction taxes and drilling and completion activities. Total indirect and inducedWyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 34 impacts include the tax payments to state and local governments and the royalty and lease payments to private households and companies, creating higher multipliers due to this considerable downstream economic activity. The employment multiplier is not eworthy, estimated at 3.65, where with each job directly created by the oil and gas industry, ther e are an additional 2.65 jobs generated. Direct employment is 20,090, which creates an additional 53,139 jobs (see Exhibit 8.11), for a total of 73,229 jobs. Similarly, the earnings multiplier is estimated to be 2.57, which indicates that with each dollar of labor income paid to oil and gas workers, an additional $1.57 in labor earnings is generated in the state’s economy.

Exhibit 8.10. Total Economic Contribution for Oil and Gas Activities in Wyoming (2007$) Type of Impact Drilling, Completion, and

Recompletion Extraction Mineral Royalty &

Lease Payments 1 Extraction Taxes 2 Total Economic Contribution

Total Economic Output $3,513,052,106 $11,963,561,646 $231,827,774 $2,908,623,519 $18,617,065,044
Employment 3 26,701 11,765 1,447 33,316 73,229
Labor Earnings $1,458,093,669 $736,813,207 $42,461,473 $1,677,264,966 $3,914,633,314 Earnings per Worker $54,608 $62,628 $29,344 $50,344 $53,457 Employment Multiplier 1.67 2.86 NA NA 3.65 Earnings Multiplier 1.32 1.75 NA NA 2.57

* These figures encompass direct, indirect, and induced economic impacts. 1 These payments to households and companies are treated as all secondary induced impacts; that is, these payments are considered income of which a portion is spent in the economy. 2 These tax payments to state and local governments are treated as all secondary indirect impacts; that is, these payments are considered d ownstream beneficiaries of oil and gas activities.

Oil and gas activities contribute to the economic well-bei ng of many other industri es within the state of Wyoming. Exhibit 8.11 and Exhibit 8.13 summarize t he industries that benefit through employment and labor earnings from all the oil and gas activities within the state in 2007. Only 27 percent of the employment is estimated to be direct employment associated with oil and gas, wholesale trade, and construction jobs, and the remaining 73 percent is estimated to be indirect and induced employment. Our estimates suggest that almost 34 percent or 25,149 of the employment associated with these activities is government employment, including federa l, state and local government jobs. According to the Wyoming IMPLAN model (estimates derived from U. S. Bureau of Economic Analysis), total state government employment in 2006 was 66,204 (See Appen dix C, Sectors 495-506). Oil and gas activities therefore comprise approximately 38 percent of government employment in the state. Approximately 25 percent of the empl oyment is specific to the mining sector, which encompasses oil and gas industries, followed by 7 percent in retail trade, 5 percent in health care and social services, and 5 percent in accommodations and food services. Of the 18,001 mining sector jobs, all but 20 jobs orWyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 35 17,982 are specific to oil and gas industry. These o il and gas industry jobs are summarized in Exhibit 8.12.

Exhibit 8.11. 2007 Employment Impacts by Industr y Associated with All Oil and Gas Activities

IMPLAN Sector Direct Employment Downstream Employment (i.e., Induced and Indirect) Total Employment Percent of Total Oil and Gas Employment Public Administration/Government 0 25,149 25,149 34.3% Mining (includes Oil and Gas) 17,146 855 18,001 24.6%
Retail Trade 0 4,893 4,893 6.7%
Health Care & Social Assistance 0 3,801 3,801 5.2%
Accommodations & Food Service 0 3,548 3,548 4.8% Other Services (except public administration) 1,768 887 2,654 3.6%

Wholesale Trade 0 2,748 2,748 3.8%
Professional & Technical Services 0 2,086 2,086 2.8%
Administrative & Waste Services 0 1,582 1,582 2.2%
Construction 1177 543 1,720 2.3% Transportation & Warehousing 0 1,430 1,430 2.0%
Finance & Insurance 0 1,388 1,388 1.9% Real Estate & Rental & Leasing 0 1,218 1,218 1.7%
Arts, Entertainment, & Recreation 0 828 828 1.1%

Information 0 528 528 0.7% Manufacturing 0 409 409 0.6%

Private Educational Services 0 375 375 0.5%

Utilities 0 377 377 0.5% Management of Companies & Enterprises 0 313 313 0.4% Agriculture/Forestry/Fishing/Hunting 0 181 181 0.2%
Totals 20,090 53,139 73,229 100.0%Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 36 Exhibit 8.12. 2007 Oil and Gas Industry Employment in Wyoming
Sector Employment

Extraction 4,127
Drilling Oil and Gas Wells 2,950 Support Activities for Oil and Gas Operations 1 10,905
Total Oil and Gas Industry Employment 17,982 Total Mining and Oil and Gas Employment 18,001

1 For the purposes of this analysis, this sector includes all drilling and completion activities except the main drilling contract, wholesale trade purchases (for example, tangibles), and construction.

Labor earnings generated by the oil and gas activities in 2007 follow a similar trend to the employment figures. An estimated thirty-nine percent of the labor ear nings from this activity are directly related to the oil and gas activity (i.e., drilling, support industries, extraction, wholesale trade, and construction) and the remaining 61 percent is associat ed with downstream activity. Government earnings are estimated to be highest, with 37.5 percent of all earnings from these activities, followed by mining (36.5%). Oil and gas-related publ ic administration or government labor earnings comprise 42 percent of the total government labor ear nings in the state; total government labor earnings are estimated to be $3.5 billion in 2007 dollars (See A ppendix C, Sectors 495-506; inflated with IMPLAN’s ratios).
Other industries that benefit in terms of the tota l amounts paid to workers from oil and gas activities include wholesale trade (4.1%), health care and social services (3.8%), retail trade (3.0%), and professional and technical services (2.3%). The mini ng sector labor earnings comprise 99.9 percent oil and gas earnings, and 0.1 percent mining earnings. In terms of both employment and labor earnings, the t op indirect industries that are estimated to benefit economically from oil and gas activities in the stat e are state and local governments, retail trade, health care and social services, among many others.Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 37 Exhibit 8.13. Labor Earnings Impacts by Industr y Associated with All Oil and Gas Activities (2007$)

IMPLAN Sector Direct Labor Earnings Downstream Labor Earnings (i.e., induced and

indirect) Total Labor Earnings Percent of Total Oil and Gas Labor Earnings Public Administration/Government $0 $1,469,170,391 $1,469,170,391 37.5% Mining (includes Oil and Gas) $1,367,226,287 $62,294,535 $1,429,520,822 36.5%
Wholesale Trade $106,668,471 $53,508,809 $160,177,280 4.1%
Health Care & Social Assistance $0 $147,534,019 $147,534,019 3.8%
Retail Trade $0 $119,347,080 $119,347,080 3.0%
Professional & Technical Services $0 $89,428,251 $89,428,251 2.3%
Construction $55,745,280 $25,388,703 $81,133,983 2.1%
Finance & Insurance $0 $51,523,086 $51,523,086 1.3% Real Estate & Rental & Leasing $0 $39,489,572 $39,489,572 1.0% Transportation & Warehousing $0 $58,529,555 $58,529,555 1.5% Other Services (except public administration) $0 $44,629,435 $44,629,430 1.1%
Accommodations & Food Service $0 $56,627,522 $56,627,522 1.4%
Administrative & Waste Services $0 $33,091,985 $33,091,985 0.8%
Utilities $0 $35,921,343 $35,921,343 0.9% Management of Companies & Enterprises $0 $27,300,570 $27,300,570 0.7%
Information $0 $21,375,380 $21,375,380 0.5%
Arts, Entertainment, & Recreation $0 $19,824,371 $19,824,371 0.5%
Private Educational Services $0 $6,892,840 $6,892,840 0.2% Manufacturing $0 $20,087,307 $20,087,307 0.5% Agriculture/Forestry/Fishing/Hunting $0 $3,028,528 $3,028,528 0.1%
Totals $1,529,640,037 $2,384,993,282 $3,914,633,314 100.0%Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 38 

## 9. Relative Importance of Wyoming’s Oil and Gas Activities

Wyoming’s oil and gas activities are vitally important to the state of Wyoming. This section will compare the Wyoming oil and gas economic indictors with those of the state, the Wyoming travel industry, and oil and gas activities in Colorado in 2005.



## 9.1 Relative Importance of Oil and Gas Industries in the State of Wyoming
Exhibit 9.1 summarizes some of our model’s estimates of the economic indicators for the oil and gas industry in Wyoming and compares these indicators to st ate totals. Oil and gas activities within the state account for an estimated 32 percent of the state’s to tal economic output (or total sales or revenues), 20 percent of employment, 38 percent of government employment, and over 25 percent of total earnings. Estimated oil and gas value added represents almo st 43 percent of gross state product (GSP) 8 in Wyoming. In general, oil and gas activities, including private mi neral royalty payments and extraction taxes and the associated downstream activity, generate estimated av erage earnings that are considerably higher than the state average, $53,000 or 28 pe rcent higher than the stat e average. However, considering only those industry sectors directly impacted by drilling, completion, and extraction activities, the average earnings are estimated to be $75,912 annually, in 2007 dollars. Although not all the jobs and income are directly associated with the oil and gas industry, without these activities in the state, these downstream jobs and associated earnings would not exist.

8 Gross State Product measures the value-added of all goods and services in the state. Value-Added is defined as economic output (or gross sales or revenu es) less intermediate inputs, which are goods and services purchased in the production process (or i nput or operational expenses). GSP is the state counterpart of Gross Domestic Product for the nation (Downey, 2006).Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 39 Exhibit 9.1. Oil and Gas Industry Activity as a Fraction of the State’s Economy (2007$)
Indicator All Oil and Gas Activities in Wyoming All Economic Activity in Wyoming Percent of Oil and Gas

to State Source

Total Economic Output $18,617,065,044 $58,831,050,621 31.6% IMPLAN 2006

Total Employment 73,229 369,565 3 19.8% IMPLAN 2006
Total Labor Earnings $3,914,633,314 $15,487,363,835 25.3% IMPLAN 2006
Average Earnings $53,457 $41,907 127.6% IMPLAN 2006 Gross State Product (i.e., Value Added) $13,329,075,050 $31,205,616,410 42.7% IMPLAN 2006

Severance Tax $666,397,115 $882,383,479 75.5% WY Department of Revenue Annual Report 2007 Mineral Ad Valorem Levies (i.e., Property Taxes) $712,637,118 $913,011,683 78.1% WY Department of Revenue Annual Report 2007 Assessed Valuation (Taxable Value) 1 $11,303,378,284 $21,491,267,438 52.6% WY Department of Revenue Annual Report 2007 Federal Mineral Royalties (WY Disbursements, 50%) 2 $515,500,646 $931,394,926 55.3% Minerals Management Service, 2007 State Mineral Royalties $90,031,996 $138,201,502 65.1% Wyoming Office of State Lands and Investments 2007 Sales and Use Taxes $50,344,215 $906,973,329 5.5% Wyoming Depart of Revenue Annual Report 2007

1 The assessed valuation, severance taxes, and ad valorem taxes are based on 2006 production. Severance and ad valorem taxes are paid to the state in 2007. 2 This estimate is from the Minerals Management Service (MMS), and it includes Federal Mineral Royalties from carbon dioxide, coalbed methane, condensate, gas plant products, oil, pr ocessed and unprocessed gas, and royalties associated with rents, bonuses, and other revenues. Fi fty percent of royalties return to Wyoming and 50 percent are paid to the federal treasury (U.S. Minerals Management Services, http://www.mrm.mms.gov/Stats/pdfdocs/formulas.pdf ). Native American royalties are not included in this estimate and therefore the receipts paid to reservations are not captured in this a nalysis. 3 This employment figure is from IMPLAN, w hose estimates are derived from U.S. Bureau of Economic Analysis. This includes fulltime, part-time, self employed, small business owners, and farm em ployment. The Wyoming Departm ent of Employment figures are lower than those reported here (May, 2007 labor force estimate is 285,553), as they do not include farm employment, self-employ ed and small business owners (Wyoming Department of Employment Labor Trends, Volume 45, No. 7, July, 2008). The Bureau of Economic Statistics estimates that Wyoming had 85, 987 self-employed (proprietor) jobs in 2006.

Severance taxes from oil and gas activities comprise almost 76 percent of all severance taxes collected by the state and 78 percent of all mineral ad valorem (i.e., mineral property) taxes. Oil and gas taxable valuation from production activities accounts for 53 perc ent of all assessed valuati on within the state. OilWyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 40 and gas revenues provide for 55 percent of all Federal mineral royalties dispersed to the state and 65 percent of all state mineral royalties. The oil and gas industry is a vital Wyoming industry that contributes significant revenue to state, local, and federal go vernments, with considerable industry revenues, employment, labor earnings, average earnings and st ate and local fiscal contributions. See Section 8.5 for a discussion in increased state and government revenue (i.e., extraction taxes) associated with oil and gas price increases.



## 9.2 Oil and Gas Industry Compared to the Travel Industry in Wyoming
The travel industry in Wyoming is another integral part of the state’s economy, as are many other industries in Wyoming. The tour ism industry has seen steady grow th for a number of years; 2007 visitation in Yellowstone National Park was at the highest levels ever, up almost 10 percent from 2006 levels (U.S. National Park Service, 2008). The trav el industry, through the Wyoming Division of Tourism, has been assessing its economic benefits in Wyomin g through studies undertaken by Dean Runyan and Associates, which utilizes similar input-output modeling approaches. It is the only industry that has consistently assessed its economic contributions and for this reason, t he most recent Travel Industry study is further described below, and the figures are compared with those of the oil and gas industry. A study on the economic impacts of Agriculture in Wyoming was done 17 years ago in 1991, and therefore its figures are quite dated and are not described here . Studies regarding the economic benefits of wildlife and hunting/fishing also have been undert aken but are not examined here. Additional studies of other important industries in Wyoming, such as mining, healthcare, construction, and agriculture, would create a better understanding of i ndustry interdependencies within state’s economy and their relative economic contributions to the state. Ideally, a series of concurrent and comprehensive studies assessing five to seven key Wyoming industries would be a valuable informational tool for state policy-makers. Such a series of state-funded studies could be done every five to ten years. Travel and oil and gas industries are very different, which should be noted in their comparison. Generally the oil and gas extraction industry is an exporting and goods-producing industry, while tourism or travel industry, as a service-provider, import s visitors to the state. Oil and gas requires considerable investment and returns considerable revenues, while the tourism industry requires lower investments and has more moderate returns. Oil and gas extraction is consid ered to be a consumptive or depleting use of natural resources, while tourism and travel are thought to be generally sustainable or non-consumptive in their use of natural resources. Dean Runyan and Associates finished a study in 2007, Economic Impact of Travel on Wyoming 1997- 2006 (herein referred to as Travel In dustry Report). This Travel Indu stry Report estimates the impacts of both leisure and business travel on the state of Wyoming. Oil and gas business travel is likely embedded in the Travel Industry Report figures , and therefore tourism or leisure travel figures are somewhat lower than those reflected in Exhibit 9.2. Exhibit 9.2 summarizes some of the major econom ic indicators for both the oil and gas and travel industries in Wyoming, which are provided in 2007 dollars. Therefore, the Travel Industry Report figures have been inflated with IMPLAN’s inflation factors to represent 2007 dollars. The oil and gas revenue, employment, and earnings impacts and multipliers are summarized to both include and exclude the impacts of the tax receipts to state and local governm ents. The Travel Industry Report estimates travel industry tax revenues, but does not include these fiscal impacts in terms of employment, labor earnings, and revenues. To be consistent with this analysis , economic contribution of tax receipts have been removed from the figures.Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 41 Exhibit 9.2. Economic Comparison of Oil and Gas and Travel Activities in Wyoming (2007$)

1 Source: Dean Runyan Associates, Economic Impact of Travel on Wyoming 1997-2006 , September, 2007. 2 The travel industry state and local tax revenues include lodging, sales, use, and gas oline taxes and do not include property taxes. The oil and ga s tax payments include ad valorem , severance, extraction sales taxes, federal and st ate royalties, but do not include development sales and use taxes, lodging, or gasoline taxes. The oil and gas tax re ceipts figure was deflated with IMPLAN’s ratios for this inst itutional sector for reporting in 2006 dollars.

Activities related to the oil and gas industry generate approximately five times as many direct industry revenues as those generated by the travel industry, although the trav el industry comprises about 3,500 more jobs than the oil and gas industry. However, if tax payment contribution is included with the employment indicators, the oil and gas activities account for considerably more annual jobs than those of the travel industry. Labor earnings for the travel in dustry are about half those of the oil and gas industry without tax impacts included; with tax impacts included, the oil and gas activities account for almost four times those of the travel industry. The average earn ings per worker for the oil and gas industry are more than twice those of the travel industry. Gross state pr oduct figures for the oil and gas activities are from 12 to 15 times those of the travel industry. Oil and gas tax payments to state and local governments are almost 19 times higher than those of the travel industry. In Wyoming, oil and gas, mining, agriculture, and t ourism are generally considered the most important economic drivers in the state. Ho wever, there are other important and growing industries, such as health care, construction, telecommunications, and others, t hat should be further evaluated to better understand their value, industry independence, and growth over time in the Wyoming economy. A study on the economic contribution of government payrolls, purchases and spending within Wyoming would also provide insightful information for policy-makers. Oil and Gas Activities Ratio of Oil and Gas Industry to Travel Industry Economic Indicator Travel Activities 1 Excluding Tax Impacts Including Tax Impacts Excluding Tax Impacts Including Tax Impacts Direct Revenue Impacts $2,601,751,748 $13,425,429,277 $15,421,454,183 516% 593%
Total Employment 43,430 39,913 73,229 92% 169%
Total Earnings $1,054,083,793 $2,237,368,349 $3,914,633,314 212% 371% Gross State Product (i.e., value added) $933,484,517 $11,184,440,523 $13,329,075,050 1198% 1428% Average Employee Earnings $24,271 $56,056 $53,457 231% 220%

Employment Multiplier 1.45 1.99 3.65 137% 251%
Earnings Multiplier 1.65 1.47 2.57 89% 156%
State and Local Tax Payments 2 $106,595,239 $1,996,024,906 1873%Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 42 

## 9.3 Wyoming and Colorado Oil and Gas Activities
A similar study was undertaken for oil and gas activities in Colorado in 2005. 9 Exhibit ES 1-1 in the Colorado report is represented below in Exhibit 9.3, with a couple of changes. All revenues, earnings and average earnings have been inflated to 2007 dollars fo r comparison with those of Wyoming. IMPLAN factors for the two-year adjustment, 2005 to 2007 were used for both the revenues or economic contribution (1.13) and labor earnings (1.04). The Colorado employment has not been changed and therefore reflects 2005 employment. All employment and labor earnings associated with mineral royalty and lease payments and extraction taxes are assumed to be downstream, either indirect (taxes) or induced (royalty payments), as consistent with the analysis in this report; therefore, the employment multiplier for all activities has been modified to reflect this adjustment.

Exhibit 9.3. Total Economic Contribution for Oil and Gas Activities in Colorado in 2005 (2007$)

Type of Impact Drilling, Completion, and

Recompletion Extraction Mineral Royalty & Lease Payments Extraction Taxes Total Economic Contribution

Total Economic Output $2,476,710,893 $21,307,460,524 $1,021,852,168 $1,203,773,627 $26,009,797,212

Total Employment 19,307 32,471 7,257 11,744 70,779
Total Labor Earnings $1,161,294,251 $2,484,957,581 $278,222,501 $568,673,410 $4,493,147,743
Earnings per Worker $60,149 $76,529 $38,339 $48,422 $63,481

Employment Multiplier 2.01 5.63 NA NA 4.54

1 CO’s revenues and labor earnings inflated with IMPLAN’s (2006) inflation factors.

Exhibit 9.3 can be compared to Exhibit 8.10 summariz ing the economic contribution of Wyoming’s oil and gas activities. A few of these figures are directly com pared in the Exhibit summarized below (Exhibit 9.4). Colorado’s economy is much larger than Wyoming’s economy; in terms of economic output (or gross revenues or sales), Colorado had over seven times more economic output than Wyoming in 2007. Colorado’s oil and gas-related employment is slight ly smaller than that of Wyoming, with 71,000 employed in Colorado and over 73,000 employed in Wyoming, yet total labor earnings in Wyoming are approximately $600 million less due to the lower average earnings in Wyoming. Earnings per worker are approximately $10,000 less in Wyoming than in Colorado. However, when compared to the state’s economy, it is apparent how important oil and gas is to Wyoming. In Wyoming, oil and gas activities comprise 32 percent of economic output or gross revenues (6% in Colorado), 20 percent of all employment (2% in Co lorado), and 25 percent of all labor earnings (3% in Colorado). The oil and gas contribution to GSP in Wyoming is 43 percent of t he state’s GSP, while in Colorado, it only accounts for 7 percent of the GSP.

9 The Colorado Oil and Gas Economic Impact study is available at: www.ceri-mines.org/publications

.Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 43 Exhibit 9.4. Comparison of Wyoming and Colorado Economic Indicators (2007$)

Indicator All Oil & Gas Activities in

Wyoming Percentage of Oil and Gas to Wyoming State Total All Oil & Gas Activities in Colorado 2 Percentage of Oil and Gas to Colorado State Total

Total Economic Output 1 $18,617,065,044 31.6% $26,009,797,212 6.1%
Total Employment 73,229 19.8% 70,779 2.2%
Total Earnings 1 $3,914,633,314 25.3% $4,493,147,743 3.2%
Average Earnings $53,457 $41,907 3 $63,481 $48,073 3

Gross State Product $13,329,075,050 42.7% $17,764,844,651 7.1%

Assessed Valuation $11,303,378,284 52.6% $7,223,758,012 7.2%

1 CO’s revenues and labor earnings inflated with IMPLAN’s (2006) inflation factors. 2 Source for Colorado’s figures is Colorado Energy Research Institute, Oil and Gas Economic Impact Study , June, 2007, Report 2007-1. 3 These are average earnings for the associated states.

Exhibit 9.5 illustrates the br eakdown in Wyoming and employment asso ciated with these activities. In Wyoming, extraction taxes comprise the bulk of the employment (45%) compared to 17 percent in Colorado. This is likely due to the differences in tax payments between the two states. In Colorado, there was approximately $718 million (see Exhibit 3-7 in CE RI report) paid in extraction taxes, while in Wyoming the extraction industry paid $2.0 billion. In 2005, assessed valuation was $5 billion in Colorado (see Exhibit 2-47 in CERI report), which was bas ed on much higher 2005 oil and gas prices, $59.93 and $7.39, respectively. In Wyoming, the oil and gas a ssessed valuation was $11 billion based on relatively lower prices in 2007 of $58.88 and $4.65 for oil and gas respectively. Obviously, the oil and gas production in Wyoming in 2007 (2.8 billion mcfe) was much higher than that in Colorado in 2005 (1.3 billion mcfe), more than twice as much. Mineral royalty payments to private mineral owners ar e higher in Colorado (10%) than in Wyoming (2%), likely due to the larger proportion of federal lands in Wyoming. According to one source, there was 35 percent federal land ownership in Colorado versus 48 percent in Wyoming in 1993 ( www.colorado.edu/librari es/govpub/fedlands.htm ). Federal mineral ownership is likely an even higher percentage. Extraction industry employment is much higher in Colorado (46%) than in Wyoming (16%). The Denver area comprises considerable extraction em ployment, as this area supports both Colorado extraction but also extraction operations ac ross the Rocky Mountain West.Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 44 Exhibit 9.5. Oil and Gas Employment by Activity in Colorado and Wyoming 

## Wyoming Employment

Drilling, Completion, and

Recompletion 36%

Extraction 16% Private Mineral Royalty Payments 2% Extraction Taxes 46%



## Colorado Employment

Drilling, Completion, and

Recompletion 27%

Extraction 46% Mineral Royalty & Lease Payments 10% Extraction Taxes 17%

The extraction employment multiplier for Colorado is 5.63, while in Wyoming, it is 2.86. This is likely due to the larger and more diversified Colorado economy, which, as a result, is able to retain the dollars generated by oil and gas extraction sector, influencing t he employment multiplier. Overall, the oil and gas employment multipliers are much higher than other industries, 4.54 in Colorado, and 3.65 in Wyoming (see Exhibit 9.6).Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 45 Exhibit 9.6. Colorado and Wyoming Empl oyment and Labor Earnings Multipliers Employment Labor Earnings (2007$) Type of Impact Colorado Wyoming Colorado Wyoming 1 Direct 15,601 20,090 $1,838,704,678 $1,529,640,037 Total (Direct, Indirect, and Induced) 70,779 73,229 $4,493,147,743 $3,914,633,314
Multiplier 4.54 3.65 2.44 2.56

1 CO’s labor earnings inflated with IMPLAN ’s (2006) inflation factors.

There was higher drilling and completion activities in Wyoming (3,697 wells drilled) than there were in Colorado in 2005 (2,570), resulting in 37 and 27 pe rcent of the employment in Wyoming and Colorado respectively. Overall, there were $5.4 billion in c apital investments in Wyoming (compared to $2.4 billion in Colorado), with approximately 45 percent (in Colo rado it was 50%) remaining within the state. The lower SPC in Wyoming is likely due to the fact that Denver supports much of the operations in both states, increasing the Colorado percentage. In vestments per well in Wyoming were $1.45 million (2007$), while in Colorado they were $816,000 (2005$) . One reason for this difference is that Booz Allen included facility and surface equipment costs in aver age capital investments where possible in Wyoming, while these costs were only captured in Colorado if they were included in the Authority for Expenditure form.
Exhibit 9.7 summarizes some of the fiscal contri butions to state and local governments for both the states. For consistency with this report, the tax receipts have been obtained for 2007 in Colorado based on the source cited in the Exhibit, and therefore do not coincide with those figures identified in the CERI report. All tax payments to state and local governm ents in Wyoming are higher than those in Colorado, severance taxes and Federal Mineral royalties are over five times higher. Wyoming oil and gas assessed valuation is one and a half times that in Colorado, co nsistent with higher production in Wyoming.

Exhibit 9.7. Comparison of Colorado and Wyoming’s Fiscal Contributions (2007$)

Indicator All Oil & Gas Activities in

Wyoming (% of state total) All Oil & Gas Activities in

Colorado (% of state total) Percent of WY to those of Colorado’s Source for CO’s Figures

Severance Tax $666,397,115 (75.5%) $126,244,455 (88.7%) 527.9% CO Department of Revenue, 2007 Annual Report
Assessed Valuation (Taxable Value) 1 $11,303,378,284 (52.6%) $7,223,758,000 (7.2%) 156.5% CO Department of Local Affairs, 2007 Annual Report
Federal Mineral Royalties (WY Disbursements, 50%) $515,500,646 (55.3%) $98,775,127 (76.5%) 521.9% Minerals Management Service 2007

State Mineral Royalties $90,031,996 (65.1%) $24,727,282 (59.8%) 364.1% CO State Lands DepartmentWyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 46 

## 10. Fiscal Analysis: Estimate of Sales Taxes

Wyoming State Statute W.S. 39-15-1 03(a)(i)(K) imposes a sales and use tax on oil and gas services. 10 The statute requires that taxes be im posed on the sales price paid for all services needed for real or tangible property within an oil or gas well site. These taxes are distributed to either the counties or the state. Taxes are imposed on all services throughout the productive life of a well and include those performed at the wellbore to any point within a 250 foot radius. Sales taxes are applied to purchases of tangible property and services that occur within th e state while use taxes are applied to out of state purchases of tangible property. The state of Wyoming does offer a sales tax credit to tax payers if they also pay sales taxes on tangible property that is purchas ed out of state. This credit is applied to relevant sales tax liability due to the state of Wyoming. A distinction is made by the state of Wyoming between two phases of a productive well including: 1) preproduction phase and 2) production casing phase. Typi cal activities included in the pre-production phase include seismographic and geophysical services, well site development (e.g. earth work, digging of reserve pits), rigging up, drilling, coring, logging and te sting. All these services are considered part of the pre-production phase and are therefore not subject to a sales tax. Note that sales or leases of tangible personal property used or consumed during the pre-production phase is taxable. This includes the purchase, lease or rental of items such as:

• Casing or cement

• Rigs

• Drilling Fluids

The production casing phase begins with the setting and cementing of production casing. 11 Services within the second phase are considered those that are required for the production of any oil and gas. All services needed during the second phase of a well (production casing phase) are taxable under Wyoming State Statues. Types of services during this pha se that are subject to sales tax include:

• Labor associated with site maintenance (mowing, weed control, trash hauling) and reclamation

• Services related to the measurement of gas flows and gas sampling

• Cathodic well protection systems

• Testing of lines, tanks and flow systems

• Installing or replacing equipment or parts

The state of Wyoming’s Department of Revenue publishes monthly reports summarizing the sales taxes collected by industry and county th roughout the state as part of their Sales and Use Tax Distribution Reports

. 12 The series includes reports titled Minor Industry Code, by month/year , which breaks down the

10 State of Wyoming, Department of Revenue, Excise Tax Division, “Excise Tax Division, Tax Pub #5 – Oil, Conventional Natural Gas & C oal Bed Methane,” January 30, 2004.

11 For open hole completions, the production casing phase begins upon reaching total depth or the completion of the under-reaming.

12 The Sales and Use Distribution Reports can be accessed at http://revenue.state.wy.us /PortalVBVS/DesktopDefault.aspx?tabindex=3&tabid=10

.Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 47 sales taxes collected for industries defined by the f our digit codes defined by North American Industry Classification System (NAICS). Discussions with personnel from the Wyoming Department of Revenue indicated that sales taxes earned from activities associated with oil and gas occur within the following sectors: • 2111 – Oil and Gas Extraction • 2131 – Support Activities for Mining

According to NAICS definitions, both sectors include ac tivities to develop and operate oil and gas wells on a contract or fee basis. Sector 2131 can also include ot her “mining” activities such as contract services to support the mining (coal and non-metallic minerals) and quarrying of mineral reso urces (excluding site preparation and related construction activities). 13 Sales and use tax data for each of the counties in Wy oming for all months during 2007 were downloaded from the Wyoming Department of Revenue and ar e summarized for sectors 2111 and 2131 in Exhibit 10.1. The state reported that thes e two sectors generated over $148 million in sales tax revenue during calendar year 2007.

Exhibit 10.1. 2007 Total Annual Sales and Use Taxes
for Sectors 2111 and 2131

Sector Annual Sales Tax 2111: Extraction $11,458,031 2131: Support of Mining $136,905,194
Total $148,363,225

The sales and use taxes earned within these two sectors for each of the basins in Wyoming was estimated as summarized in Exhibit 10.2.

13 NAICS codes and definitions can be viewed at http://www.census.gov/ naics/2007/index.html

.Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 48 Exhibit 10.2. 2007 Sales and Use Tax Estimates for Sectors 2111 and 2131

Basin County Sales and Use Tax for 2007 (Sector 2111) Sales and Use Tax for 2007 (Sector 2131) Bighorn Basin Park $1,196,814 $1,189,673 Big Horn $34,747 $457,571 Hot Springs $382,008 $765,993
Total $1,613,570 $2,413,237 Laramie, Hanna, Denver-Cheyenne Albany $6,170 $142,311
Laramie $15,191 $474,435
Goshen $552 $28,060
Platte $133 $26,658
Total $22,045 $671,464
Greater Green River/Overthrust
Sweetwater $2,147,288 $31,684,798
Lincoln $652,242 $3,146,467
Uintah $46,826 $1,767,571
Carbon $834,096 $10,825,168
Total $3,680,452 $47,424,003

Pinedale Anticline and Jonah Sublette $3,123,584 $35,962,241
Total $3,123,584 $35,962,241

Wind River Fremont $640,832 $6,509,763
Natrona* $13,855 $4,869,101
Washakie $20,995 $868,966
Total $675,682 $12,247,829

Powder River
Sheridan $28,142 $4,736,553 Campbell $2,162,981 $19,936,301
Johnson $20,153 $4,846,343Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 49 Converse $60,022 $2,242,641
Niobrara $45,089 $541,051
Weston -$5,703 $583,364
Crook $14,400 $353,125
Natrona* $13,855 $4,869,101
Total $2,338,938 $38,108,480

No Basin Teton $18,438 $77,916
Total $18,438 $77,916

State Total $11,472,709 $136,905,171
*Sales taxes for Natrona were divided evenly between Wind River and Powder River Basins.

The percentage of total sales and use taxes by sector for each basin is summarized in Exhibit 10.3 with Greater Green River/Overthrust, Pinedale/Jonah and Po wder River generating a significant percentage of total sales taxes for these two sectors throughout the state.

Exhibit 10.3. Percentage of Sales and Use Taxes by Basin Industry Basin 2111 2131 Big Horn Basin 14.08% 1.76%
Laramie, Hanna, DenverCheyenne 0.19% 0.49%

Greater Green River and Overthrust 32.12% 34.64%

Pinedale and Jonah 27.26% 26.27%

Wind River 5.90% 8.95%

Powder River 20.41% 27.84%

Further analysis of sales and use taxes associated Sector 2131 was undertaken to determine how much of these taxes are due to activities directly associat ed with oil and gas activities. For Sector 2111, an assumption was made that all sales and use taxes associated with this sector were due to oil and gas activities. This is based on the NAICS code definitio ns which only include extraction and support services for oil and gas activities. This is not the case with Sector 2131 which, according to the NAICS codes, includes other mining activities.Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 50 Utilizing data collected through economic contribution study , it is possible to apply the average sales and use tax rates to those portions of the drilling and completion investments to which these taxes apply. Booz Allen first determined an average sales tax rate for each of the basins as shown in Exhibit 10.4. The figures were determined by averaging tax rates across the counties included in each basin.

Exhibit 10.4. Estimated Average Sales and U se Tax Rates for Basins within Wyoming
Basin Average Sales Tax Rates Bighorn Basin 0.05 Laramie, Hanna, Denver-Cheyenne 0.0556
Greater Green River/Overthrust 0.0525
Pinedale/Jonah 0.04

Wind River 0.045

Powder River 0.055 State of Wyoming 0.050 Source: Wyoming Department of Revenue, Sales/ Use Tax Rates by Locality, Effective 4-1-07 ( http://revenue.state.wy.us/PortalVBVS/uploads /MASTERTAXRATECHART_4-1-07_Final.pdf )

The average sales tax rates were used in conjuncti on with drilling and completion costs as discussed in Sections 7.1 and 8.2. Exhibit 10.5 provides a summary of these costs estimates by basin and the state of Wyoming. Note that expenses spec ified as main drilling contract, suppo rt of drilling activities and earth work have been excluded from total drilling and completion costs due to the stipulation in the Wyoming State Statutes that sales tax rates will not be applied to services provided in the “pre-production” phase of the development of oil and gas wells. The services included in these three categories are more associated with drilling a well than completing the well. The fourth drilling category, wholesale trade, was included in this analysis as it is considered tangibl e private property which is taxable under the Wyoming State Statutes. Only Wyoming expenditures are included below to estimate sales taxes on these state purchases and services. The average sales tax rates were applied to the remain ing expenditures, shown in row three of Exhibit 10.5. which provided an estimate of sales tax reve nue for completion and wholesale trade as summarized in the last row. Sales tax revenues range from $248,000 in the Laramie, Denver-Cheyenne and Hanna Basins to $19 million in Pinedale and Jonah fields (which is Sublette County). When applying an average sales tax rate to the applicable drilling and s upport industry costs for t he state of Wyoming, the total estimate sales tax was estimated to be over $50 m illion. This is slightly higher than the sum of all the basins ($47 million). The difference is likely du e to the different sales tax averages used for the different basins and the state.Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 51 Exhibit 10.5. Sales Tax Estimates by B asin for Wyoming Oil and Gas Activities

Cost Categories Greater Green River & Overthrust Pinedale and Jonah Bighorn Wind River Powder River Laramie,DenverCheyenne,

Hanna WYOMING

In State Drilling and Completion $701,672,727 $1,188,859,663 $49,346,008 $119,004,117 $365,292,035 $15,592,479 $2,439,767,029

Total In State Drill Rig, Drilling Support and Earth Work $460,863,949 $713,555,781 $18,347,564 $62,063,661 $176,696,409 $11,118,833 $1,442,646,196

Total Estimated Taxable Expenses $240,808,778 $475,303,882 $30,998,443 $56,940,456 $188,595,626 $4,473,647 $997,120,833

Average Sales Tax Rate (Basin) 0.057 0.04 0.05 0.045 0.055 0.056 0.050

Estimated Sales Tax $13,726,100 $19,012,155 $1,549,922 $2,562,320 $10,431,695 $248,846 $50,344,215

As stated earlier in this section, the state of Wyoming also collects use tax on out of state purchases of tangible property. At this point, it has been difficult to estimate use taxes using data collected in the economic contribution study. This is due to the comp lexity of the use tax application which also involves the award of credits for sales taxes paid out of stat e, and the uncertainty of how the state is actually applying this tax to relevant purchases. For instan ce, according to the data collected in the economic contribution study, oil and gas vend ors operating in Wyoming during 2007 incurred $1.26 billion in out of state wholesale trade purchases associated with materials and equipment needed in the drilling and completion of wells (Exhibit 8.1 and Exhibit 8.2). If all of these expenditures were liable to the use tax, estimated taxes would exceed $63 million, utilizi ng the average use tax rate of 5 percent. However, in 2007, the state of Wyoming reported that use taxes from Sector 2131 were $12.4 million. Given the high level of out of state purchases made by the oil and gas industry that may be taxable, Booz Allen assumed that all of the $12.4 million in use taxe s for Sector 2131 are due to oil and gas activities. There is uncertainly around this figure due to t he above mentioned tax credits and state implementation and enforcement. Total sales and use taxes paid by the oil and gas industry in Wyoming are estimated to be $62.8 million for sector 2131 (S upport for Mining Sector) ($50 .3 million for sales tax and $ 12.4 million for use tax) and $11.5 million for sector 2111 (Extractio n Sector), for a total of $74.3 million paid in sales and use taxes in 2007. The total estimated sales and use tax for Wyoming represents 50 percent of the total sales and use tax estimate ($148 million) for Sector 2131 and 2111 for 2007 as reported by the state of Wyoming. These sales and use taxes paid by the oil and gas indu stry comprise 5.5 percent of all sales and use taxes collected by the state. Booz Allen believes these figures are conservative es timates of the sales and use taxes paid by the oil and gas industry in Wyoming. This observation is based on the fact that some pur chases that are taxable have likely been excluded from the analysis. For instan ce, the Wyoming Statues st ate that the “purchase, rental or lease” of drill rigs is a taxable expense. This expense would likely be in cluded in the category called Drilling Rig Expenses which have been excluded from the portion of expenditures that is taxable. Determining the portion of drilling co mpany expenses that are the purcha se, rental or lease of drill rigs could not be undertaken. It is also likely that these purchases or rental fees are going to out-of-stateWyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 52 providers. In addition, it is also possible that ot her purchases being made by oil and gas operators or service companies are not being accounted in either Sector 2111 or 2131. Examples include services related to construction and earth work contracts t hat may be credited to other industries.Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 53 

## 11. Conclusion

The oil and gas industry in Wyoming significantly c ontributes to the Wyoming economy. This study estimates that oil and gas activities contribute:

• $18.6 billion in economic output or 32 percent of total economic activity in the state

• 43 percent of Wyoming’ s Gross State Product

• 73,229 total employment or 20 percent of the employment in the state

• 25,149 oil and gas-related government employment, 38 percent of all government employment in the state

• $3.9 billion in labor earnings annually or 25 percent of the state’s total labor earnings

• Average annual earnings per worker for these ac tivities are $53,000, which is 28 percent higher than the state average

• $2.0 billion in extraction tax revenue and over $62.8 million in sales and use taxes from development activities. Wyoming’s oil and gas industry is a vital and significant economic driver of st ate’s economy. For every job that the oil and gas industry di rectly employs, there are an additi onal 2.65 jobs created in downstream economic activity through businesses supporting this industry and employees sp ending their money in the economy. There is considerable downstream state a nd local government and educational jobs and labor earnings associated with the substantial state and loca l taxes paid by the industry. This industry is unique in creating these types of considerable rollo ver employment and earnings effects in the Wyoming economy. Additional studies of other important industries in Wyoming, such as mining, healthcare, construction, and agriculture, are vital to create a better and more comprehensive un derstanding of industry interdependencies within state’s economy and their evol ving relative economic contributions to the state. Ideally, a series of concurrent and comprehensive studies assessing five to seven key Wyoming industries would be a valuable informational tool fo r state policy-makers. Such state-funded studies would ideally be conducted every five to ten years.Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 54 

## Appendix A: Acronyms

AFE Authority for Expenditure APD Applications for Permits to Drill B Billion Bbl Barrel BEA Bureau of Economic Analysis BLS Bureau of Labor Statistics CBM Coalbed Methane DOE Department of Energy DOR Department of Revenue EIA Energy Information Agency GSP Gross State Product IMPLAN Impact Analysis for Planning IO Input-Output LOE Lease Operating Expenses NAICS North American Industry Classification System M Million Mcf Thousand cubic feet Mcfe Million cubic feet equivalent MIG Minnesota IMPLAN Group RPC Regional Purchase Coefficient MMS Minerals Management Service SAM Social accounting matrix SPC State Purchase Coefficient WYOGCC Wyoming Oil & Gas Conservation CommissionWyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 55 

## Appendix B: Glossary

Direct Impact The set of expenditures or revenues as a result of activity in the geographic location of the basin, which are run through the IMPLAN model as the direct effect. Disposable Income The amount of income left to an individual after taxes have been paid available for spending and personal savings. It is also known as take-home pay. Economic Output Economic Output or Total Industry Output is the value of production by industry for a given time period. Output can be measur ed either by total value of purchases by intermediate and final consumers, or by intermediate outlays plus value-added. Output can also be thought of as a value of sales plus or minus inventory. Employment The work in which one is engaged; an occupation by which a person earns income. The percentage or number of people gainfully employed. Final Demand Consist of purchases of goods and servic es for final consumption as opposed to an intermediate purchase where the good will be further remanufactured. Gross State Product GSP, also know as value added, is equal to its gross industry output (i.e., sales or receipts and other operating income, commodity taxes, and inventory change) minus its intermediate inputs (i.e., cons umption of goods and services purchased from other US industries or imported). IMPLAN A software program that estimates input-output (IO) models using data and assumptions to social accounts and multipliers for various scenarios and economics impacts. Indirect Impact The inter-industry impact of IO analysis t hat measures the economic activity associated with the directly impacted industries selling and purchasing goods and services to/from other industries. Induced Impact The effects of increased consumer spending resulting from direct and indirect income changes. Industries The collection of businesses in an economy within a given region purchasing good and services and paying workers. Inflation/Deflation The rate at which the general level of pr ices for goods and services is rising or falling, causing purchasing power to fall or rise. Inflation/deflation rates can be applied to create an assessment of constant dollars across different time periods. In-State Investment These are operator’s expenditures or inves tments that are incurred or paid within the state. Institution Institutions refer to the type of final demand sector. An institution can be any industry, households, federal or state government. Investment An asset or item that is purchased with the intent of generating income or future appreciation. The purchase of goods that are not consumed today but are used to create future wealth. Input-Output (IO) Analysis An economic model that allows the assessment of change in overall economic activity as a result of some corresponding change in one or several activities. Labor Earnings R epresents all forms of employment earnings. In IO analysis, it is the sum of employee compensation and proprietor income (income from self-employed people). Margins Represents the difference between producer and purchaser prices in a retail environment. Multiplier A factor that quantifies the change in total economic activity as compared to the injection of capital investments or revenues which originally fueled the growth. The SAM multiplier is estimated as a sum of the direct, indirect, and induced effects, divided by the direct effect. Out-of-State Investment Capital investments that are either made outside or move outside the state of Wyoming.Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 56 Production Function The relationship between the output of a good and the inputs required to produce that good for any given industry. Revenues The amount of money that an entity receives during a given time period. The “top line” or “gross income” figure from which costs are subtracted to determine net income. In input-output analysis, indus try revenues are also considered total industry output or industry sales. Regional Purchase Coefficients (RPC) Ratios representing the portion of r egional production used to satisfy local demand. Social Accounting Matrices (SAMs) A set of regional economic accounts which describe transfers between institutions, as well as value added components. State Purchase Coefficients The percentage of the total investments or expenditures that remain or are incurred within the State, which also includes investments within the multi-county basin. Value-Added Components Payments made by industry to workers, which also includes interest, profits and indirect business taxes. In IMPLAN, value added components consist of employee compensation, proprietary income, other property type income, and indirect business taxes. Value-added is an estimate of Gross State or Regional Product.Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 57 

## Appendix C: IMPLAN Study Area Data (O il and Gas Sectors: 19, 27, and 28)Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

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## Appendix D: Wyoming Oil and Gas Op erators Data Collection Documents

A number of documents were submitted to industry contacts in order to facilitate communication. This includes:

• A letter of introduction to the project (Exhibit D-1)

• Confidentiality Measures ( Exhibit D-2 )

• Data request document (Exhibit D-3)

• Supporting letter from the Petroleum As sociation of Wyoming (Exhibit D-4) Booz Allen met with Wyoming Heritage Foundation repr esentatives to obtain an initial list of industry contacts. The contacts were prioritized and contacte d by phone. A follow-up email was then sent to each contact with additional project information. The lette r of introduction, shown in Exhibit D-1 was designed to provide general information regarding the project. This letter of introduction was sent to all contacts and some general information regarding the types of in formation that was needed from operators. This included: drilling, completion, and recompletion expenditures (AFE forms); and production expenditures (often obtained through LOE forms); private mineral and override royalties, lease Payments, surface Damages – payments for access to the minerals and surface lands. Once the appropriate contact was made at the com pany, the data request document (Exhibit E-3) was sent to this contact. The document provided industry contacts with more specific information on the expenditure data required for the project. After sending this information, a call was made or an email was sent to make sure the requests were understood an d to obtain a timeframe in which the company would be able to furnish the information. Booz Allen also forwarded a support letter from the Petroleum Association of Wyoming (Exhibit E-4) and a copy of the Confidentiality M easures that were put in place to ensure that the industry information is handled with care, statistics and impacts are reported in aggregate, and other measures were taken to protect the propriet ary nature of the information. Telephone or email communications were made weekly to follow up with industry contacts to insure deadlines were met. Oftentimes, additional contacts were made within the company to obtain information on vendor names and locations.Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 68 Exhibit D-1: Letter of Introduction

Booz Allen Hamilton Inc. Suite 840 5299 DTC Boulevard Greenwood Village, CO 80111-3362

Tel 1-303-694-4159 Fax 1-303-694-7367

March 4, 2008

Dear XX,

In recent years, with high prices and increasi ng demand for domestic oil and gas production, there has been considerable oil and gas activity in Wyoming. As a result, the Wyoming Heritage Foundation is funding a study to investigate and quantify the econom ic contribution of these activities on the State in 2007. Booz Allen Hamilton has been contracted to estimate the direct and downstream economic impacts of the oil and gas production, development, private mineral royalty payments, and extraction taxes. Booz Allen has utilized a similar methodology to estimate the economic contribution of oil and gas activities in Colorado (please see: www.ceri-mines .org/CERIOil&Gas.pdf for a copy of the report).

As part of this study, it is necessary to customize the ec onomic parameters of the model we use. It is vital that your company participate in this data collectio n process to ensure the accuracy of the oil and gas economic contribution to the State. Generally, we are collecting operator information on development costs (i.e., average costs to drill and complete wells in various basins), production costs, and private mineral royalty payments. We are also collectin g information from supporting vendors and service companies regarding labor, materials, equipment, office locations, and other pertinent data.

Your participation in this study will be entirely conf idential. The study will only report aggregate data from responses to the interv iews. Either myself or Jessica Dick wi th the Booz Allen project team will follow up with you to arrange a convenient time for a discussi on and interview. We would very much appreciate your participation in this effort. Sincerely,

Holly Bender, PhD
BOOZ ALLEN HAMILTON INC.Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 69 Exhibit D-2: Wyoming Economic Contri bution Study Confidentiality Measures

• No specific company names will be mentioned in any report or correspondence with third parties interested in this study.

• The economic contribution will be estimated using the modified IMPLAN model and will be reported in terms of total employment, income, economic output, and tax revenue generated by the industry to the State of Wyoming.

• Average expenditures for well development for both labor and materials expenses within basins will be used in combination with publicly available data (e.g. number of wells, production levels) to estimate economic contribution. Only aggregat ed direct expenditures for these activities to estimate impacts will be reported as part of a final report.

• Upon receipt, all company information will be held and stored behind the Booz Allen protected firewall. No specific company data will be rele ased behind the firewall. The data will only be shared with Booz Allen team members needed to conduct the analysis. Database passwords are required to access industry-specific data.

• The purpose of this study is to better under stand the relationships between relevant industries that directly or indirectly support oil and gas develo pment in the state. In order to accomplish this task, the project team is collecting basin specif ic expenditure data on drilling and completing wells and other capital investments in Wyoming as well as average itemized expenditures, labor and material expense breakdowns, and location of se rvices and materials being purchased. This information will be used to modify and customiz e the IMPLAN model. IMPLAN is a regional economic model that estimates additional economic activities, in terms of employment and income, generated from a primary activity (oil and gas development). Models such as IMPLAN are based on national averages that often time s do not properly consider these important relationships and thus are not accurate in thei r estimate of total economic contribution. The updates to the model will consist of modificati ons of coefficients that represent expenditure relationships between relevant industries. Thes e coefficients are embedded in access database files within the software program. As such, there is no requirement to report any specific company costs, contactor information or other pr oprietary information to be released as part of this study. However, the study may report on ge neral trends or differences in industry operations that can impact expenditures and investments across basins.

• A Draft Report will be extensively reviewed by industry, academia, and other interested parties before it is finalized for publication.

• The Final Report will be shared and distributed to all operators and service companies that participate in the study.

• Please see the Colorado Oil and Gas Economic Im pact Study for an example of the types of information that will be reported. The report is located at the following website: www.cerimines.org/CERIOil&Gas.pdf

.Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 70 Exhibit D- 3: Wyoming Oil and Gas Operators Data Request Document

Booz Allen Hamilton (Booz Allen) is requesting in formation from your company regarding oil and gas development and production expenditures. We are ve ry cognizant of the sensitive nature of this information and insure that no specific cost informat ion for any individual company will be revealed. For instance, ALL costs, fees, and payments WILL BE A GGREGATED across industrie s and activities and reported only in aggregate to protect the proprietary nature of this information. However, in order to accurately estimate the true ECON OMIC CONTRIBUTION of the indust ry to the State of Wyoming we need to have accurate information on the average costs incurred by companies within specific basins. This is the number one goal of this effort. We appreciate any help you ca n provide in facilitating this information collection effort and providing the appropr iate point of contact to provide these types of information.

For your information, Bruce Hinchey with the Petrol eum Association of Wyoming is supportive of this project. He has written a letter of support the projec t and provided us with your contact information.

Booz Allen is specifically interested in obtaining th e following information from your company for the calendar year 2007:

• Total number of wells drilled and completed by basin in Wyoming

• Average capital investments for drilling and completing wells by basin for oil, conventional gas or coalbed methane gas

• Major service companies utilized for drilling an d completing wells and locations of service companies

• Number of producing wells by basin

• Average production costs for oil, conventional gas, or coalbed methane gas

• Specific royalty and payment information for private mineral production, including average surface land damage payments, ov erride payments, royalty paym ents, and value of private mineral lease payments and bonuses

A major task within this study is to understand to where the capital investments are being paid. Therefore, we will also be interviewing service co mpanies to allocate their revenues among those that stay within Wyoming and those that move outside the State.

To facilitate this informat ion collection process, it is necessary to contact and collect info rmation from Team Leads for the various basins of operation as well as a Land Group contact. The information needed for each is outlined below.

If this information is difficult to report, we wo uld like to interview (for about an hour) someone within your company who has knowledge about capital investment and production costs as well as private mineral royalties, fees and payments. We require only ESTIMATES of these costs to customize our model, and your subjective knowledge about your company's expenses is better than no information at all!Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 71 For the Team Lead in Each Basin of Operation In order to simplify the data collection effort and the impact on each company, we would like to request an example Authority for Expenditure (AFE) document fo r drilling and completing a well. If possible, these documents should be for a typical well in each basin where you operate ( if possible for oil, conventional gas and coalbed methane ) for the calendar year 2007.

Once these forms or cost documents are obtained, we would like to contact you to obtain more information on the larger expenses, the names of service companies utilized and their locations, and other pertinent information.

We would also like to obtain information on your 2007 production costs, if possible, by basin of operation and type of resource extracted. If possible, this info rmation should be provided in a cost per mcf or per barrel unit. If these costs cannot be captured per unit of production, we are willing to work with whatever type of reporting units or methods you can provide. Additional data may be requested to convert the cost data into per mcf or per barrel production costs, such as number of producing wells, wells per lease, etc.

For the Land Group (or Division Order) for Each Basin of Operation On average across each basin of operation, we woul d like to obtain the following information for 2007 (these should be mutually exclusiv e royalties, payments and fees):

• Private mineral royalties

• The percentage of wells with private mineral ownership

• Average production fee as a percentage of product ion value paid to private mineral owners

• Locations of private mineral royalty recipients; provide percentage of royalties paid to recipients within Wyoming.

• Surface land damage payment

• Percentage of wells that are split estates where surface land damages are paid to private surface owners

• The average surface land damage payment paid in a cost per well

• Locations of surface land damage payment re cipients; provide perc entage of payments to recipients within Wyoming.

3. Override Payments

• The number or percentage of wells in t he basin where an override payment is made

• The average override fee as a percentage of production value

• Locations of private override fee recipients; provide percentage of fees paid to recipients within Wyoming.

4. Average dollar value of leases and bonuses paid for access to private minerals in 2007Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 72 Exhibit D-4: Supporting Letter from Petroleum Association of Wyoming

951 Werner Court, Suite 100 fax (307) 266-2189 Casper, Wyoming 82601 e-mail: paw@pawyo.org (307) 234-5333 www.pawyo.org

February 29, 2008

Board of Directors Petroleum Association of Wyoming Casper, Wyoming

As you know, we have been in the planning stages for the few months and are ready to execute the oil and gas industry economic contributi on study. The effort, coordinat ed through the Wyoming Business Association and Wyoming Heritage Foundation and in conjunction with economists Dr. Lisa McDonald with The Louis Berger Group and Dr. Holly Bender of B ooz Allen Hamilton will require your cooperation and participation in order to make this project succ essful. In 2005, Drs. McDonald and Bender estimated economic contribution of oil and gas activities in Colorado (see: www.ceri-mines.org/cerioil&gas.pdf ) in a peer-reviewed, objective and transparent analysis. Th is study will utilize a similar highly defensible methodology to the Colorado study.

A number of key areas will be examined and require your help in obtaining accurate, specific information. For example, we will be examining capital expenditure data for drillin g and completing wells, service company use and expenditures, production cost data, and other aspects of the industry to demonstrate the economic contribution of the indu stry to the State of Wyoming. Once the data collection effort is complete, we will calculate the direct and dow nstream economic contri bution to the State.

I cannot emphasize enough the importance of your participation in this survey and the need for cooperation with the effort. Confidentiality w ill be of utmost importance and I will work with you individually if needed to satisfy any issues you migh t have. Our industry’s economic contribution to Wyoming’s economy is vastly underestimated.

Dr. Bender or one of her representatives will be cont acting you shortly to schedule an interview and follow up to collect data. Thank you in advance for your help. Should you have suggestions about areas to examine, please feel free to advise me at your earliest convenience.

Sincerely,

Bruce Hinchey PresidentWyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 73 

## Appendix E: Vendor and Service Company Allocations

This section presents the location profiles used to distribute service company expenditures between instate and out-of-state expenditures. These expenditu re location allocation and profiles were used for six general types of intangibles and tangibles for drilling and completing a well. They are: 1. Drilling Contra ct Services
2. Earthwork and Construction Services 3. Stimulation, Cementing and Perforation Services
4. Other Labor-Based Services 5. Tangibles: Casing and Tubing 6. Tangibles: Other Materials and Equipment Expenditures

Exhibit E.1 displays the location allocations used for drilling contract services. Operating companies utilized both local Wyoming drilling companies as well as companies with regional and headquarter offices outside Wyoming. Booz Allen interview ed one local drilling company and four companies with regional and corporate headquarters out of state. The local Wyoming companies were generally smaller companies and, as expected, had si gnificantly higher in state expenditure percentages since all or most labor and most of the profit remained within the state.
Exhibit E.1. Drilling Contract Ex penditure Location Allocations

Location Percentage Field, Regional, and HQ in Wyoming Larger Local Field Office and HQ out of state Small or No Local Field Office and Regional and HQ Office out –of-state Within Wyoming 72 49 30 Outside Wyoming 28 51 70

Exhibit E.2 displays the location allocations used fo r earthwork and construction services expenditures. Most of the earthwork companies used by operators were locally-owned and operated companies, many of which had multiple WY field offices. Two comp anies provided input into the expenditure patterns and verified the expenditure allocation. These allocations were mostly incurred within Wyoming since these construction services utilize local labor and profits remain local as well.
Exhibit E.2. Earthwork and Construction Expenditure Location Allocation

Location Percentage Field, Regional, and HQ in Wyoming Larger local field office and HQ out-of-state

Within Wyoming 95 85 Outside Wyoming 5 15Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 74 Stimulation, cementing, and perforat ion services, shown in Exhibit E.3, are often the largest expenses for completing an oil or gas well. These activities are largely labor-based services, but do require a significant amount of materials (cement, stimulation ma terials). In Wyoming, two major companies were interviewed to assess the location a llocations. Since these are fairly technical services, it is often the case that these companies need to bring in highly- skilled labor from outside Wyoming to perform these services. Required materials and equipment, non-loca l labor, and non-local profits drive down the local Wyoming percentage for these services.

Exhibit E.3. Stimulation and Cement ing Expenditure Location Allocation

Location Percentage Larger Local Field Office and HQ out-of-state Small or No Local Field Officeand Most Support from out-ofstate HQ Within Wyoming 42 30 Outside Wyoming 58 70

Exhibit E.4 summarizes general labo r-based services locations allocations for drilling and completing wells. These services include pumper labor, roustab outs, drilling or completion supervision, permitting, legal, surveying, water hauling or water services , and others. Two well servicing companies were interviewed to determine their expenditure location a llocations. Knowledge from labor-based service operations in Colorado were also utilized.

Exhibit E.4. General Labor-Based Service Expenditure Location Allocation

Location Percentage Field, Regional, and HQ Office in

Wyoming Larger Local FieldOffice and HQ out-ofstate Small or No Local Field Office and Most Support

from out-of-state HQ Within Wyoming 90 80 60 Outside Wyoming 10 20 40

As shown in Exhibit E.5, casing and tubing exp enditures for Wyoming have a large out-of-state component as these materials are primarily imported to Wyoming. The small Wyoming percentage is attributed to the overhead for the storage, transportation, and sales of the product.
Exhibit E.5. Casing and Tubing Expenditure Location Allocation

Location Percentage WY sales office (yard) & reg office in WY / HQ out of state WY sales office (maybe yard) / rest out state No local field office / most support from out of state HQ Within Wyoming 20 15 5 Outside Wyoming 80 85 95Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 75 Exhibit E.6 shows the equipment and materials expendi ture location profile. This profile was used for items such as rental equipment, down hole equipm ent, wellhead equipment, fluid service providers, or other general material and equipment items that were not captured in casing and tubing location profile. Three companies provided information for these prof iles. Rental equipment allocations are generally higher for within state expenditures than other whol esale trade items due to the use of Wyoming companies with local overhead, transportati on, installation and take-down labor.

Exhibit E.6. General Materials and E quipment Expenditure Location Allocation

Location Percentage Field, Regional, and HQ in Wyoming Larger Local Field Office and HQ from out of state Small or No Local Field Office and Most Support

from out of state HQ Within Wyoming 35 28 10 Outside Wyoming 65 72 90

During interviews with operators, a large amount of “facility” expenses were identified for surface buildings, housing, storage facilities, and buildings and general facilities for production and well head equipment. Since these facilities are primarily a material cost, but also have a labor component for overhead, installation labor, transportation, the fo llowing allocation was used: 30% within Wyoming and 70% outside Wyoming. This was based on our discu ssions with two companies provided these types of wholesale trade items.Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 76 

## Appendix F: References

Colorado Department of Local Affairs, Annual Report , 2007.
Colorado Department of Revenue, Annual Report, 2007.
Colorado Energy Research Institute, 2007, Oil and Gas Economic Impact Analysis , Colorado School of Mines, Report 2007-1, June.

Colorado State Land Board, 2008, Personal Communication with Pete Melonis, 7/15/2008.
Consensus Revenue Estimating Group, Wyoming State Government Rev enue Forecast: Fiscal Year 2008-Fiscal Year 2012 , January 2008, Table 3.

Independent Petroleum Association of America, 2007, The Oil and Gas Producing Industry in Your State, http://www.ipaa.org/report s/econreports/IPAAOPI.pdf , August.

Dean Runyan Associates, 2007, Economic Impact of Travel on Wyoming: 1997-2006.
Downey, George K., 2006, Using BEA’s Gross State Product Estimates , U.S. Bureau of Economic Analysis, Sept. 8.

IMPLAN Professional, Version 2.0. 1025, Copyright MIG, Inc. 1997-2004, www.implan.com

. IMPLAN Manual, 2003, Version 2.0, Copyright MIG.

Miller, Ron and Peter Blair, 1985, Input-output Analysis: Fundamentals and Extensions , Prentice-Hall: Englewood Cliffs, NJ.
Olson, Doug, 1999, Using Social Accounts to Estimate Tax Impacts , Paper give at the Mid-Continent Regional Science Association meetings in Minneapolis, Minnesota, June 11, 1999.

Petroleum Association of Wyoming, April, 2008, www.pawyo.org

. Society of Petroleum Engineers, http://www.spe.org/speapp/spe/industry/reference/unit_conversions.htm

. U.S. Bureau of Economic Analysis. 2006. http://bea.gov/bea/regional/spi/action.sfm

. U.S. Bureau of Labor Statistics, 2006, www.bls.gov

. U.S. Department of Commerce, Bu reau of Economic Analysis, 2007, Survey of Current Business, August, 2007.

U.S. Census Bureau, 2003-2004, A nnual Survey of State and Local Government Finances, http://www.census.gov/govs/www/estimate.html

. U.S. Census Bureau, 2002 Economic Census
, http://www.census.gov/econ/census02/

. U.S. Minerals Management Service, 2007, Federal Mineral Royalty Revenues, www.mrm.mms.gov/mrmwebstats/

.Wyoming Heritage Foundation Oil and Gas Economic Contribution Study

Booz Allen Hamilton 77 U.S. National Park Service, 2008, Press Release on Yellowstone National Park, January 3.
Wyoming Department of Employment, 2008, Labor Trends , Vol. 45, No. 7, July.
Wyoming Department of State Lands and Investment s, Personal Communication with Billie Hunter, Department of Royalty Compliance, 6/18/2008.

Wyoming Department of Revenue, 2007, Annual Report

. Wyoming Department of Revenue, Excise Tax Division, Excise Tax Division, Tax Pub #5 – Oil, Conventional Natural Gas & Coal Bed Methane , January 30, 2004.
Wyoming Department of Revenue Sales and Us e Distribution Reports, accessed at http://revenue.state.wy.us /PortalVBVS/DesktopDefault.aspx?tabindex=3&tabid=10

. Wyoming Oil and Gas Conservation Commission, May, 2007.
Wyoming Pipeline Authority, Personal Communication with Brian Jeffries, Executive Director, 8/10/2008.