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Marginal Wells: Fuel For Economic Growth

ation of economic impact from marginal oil and gas production, state severance taxes and local and ad valorem taxes must be added to any estimates derived from RIMS II.

  • e U.S. Department of Commerce Bureau of

Economic Analysis was able to provide the RIMS II multipliers for the 12 largest oil producing states: Alaska, California, Colorado, Kansas, Louisiana, Mississippi, New Mexico, North Dakota, Okla- homa, Texas, Utah and Wyoming. However, Alaska has no marginal well production reported. Its inclu- sion in U.S. production statistics can significantly skew the analysis results, due to the large volume of North Slope production with its corresponding low wellhead value. erefore, Alaska is excluded in the IOGCC analysis. e remaining 11 states used for this study (referred to as the “survey states”) account for the majority of marginal oil and gas produc- tion. Average values applied for the remaining states reflect weighted averages.

  • e use of state level RIMS II multipliers is most ac-

curate when the economic activity is evenly distrib- uted across the state. is appears to be a reasonable assumption for the majority of the states considered in this study. In California, the oil and gas industry is not evenly distributed and significant other economic activity is present. ese factors suggest that the potential for error in the RIMS II estimate is greater for states such as California, whereas accuracy should

be better in states with more evenly geographically distributed production, such as Louisiana.

Since the RIMS II multipliers used for this study are aggregations of regional data at the state level, it is expected that any errors introduced by the limitations previously discussed will be minimized. While RIMS II does not consider timing, many of the effects predicted in this report are based on annual values. It would follow that some portions of the predicted ar- eas impacted, such as annual severance tax collections, could be considered as time dependent.

All previous editions of this report utilized RIMS II factors that were calculated from data gathered in the late 1980s. e U.S. Department of Com- merce released updated RIMS II factors in April 2004, and these updated factors were used in this report. e old factors were aggregated into industry 8.000, Crude Petroleum and Natural Gas. e new factors are grouped into Industry 211000, Oil and Gas Extraction. e new factors are generally higher than the old factors, showing that the industry activity has a larger impact on the overall economy that what would have been calculated using the old factors. Because of the time interval between the development of the multipliers and the possible changes in the scope of what is encompassed in the industry categor , it cannot be determined to what extent the old multipliers are directly comparable with the new.

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