Closure of Elk Creek Coal Mine on the horizon

Oil and gas revenues likely to offset losses to Gunnison County

The Elk Creek Mine, located near Somerset in the North Fork Valley, is a significant economic contributor to Gunnison County that could close in the next three to six years. The exact timing is not clear, but would require that the county offset revenue losses of more than $1 million per year.

Last May, billionaire Bill Koch’s Oxbow Mining Company nominated parcels north of Hotchkiss for exploratory drilling. The idea is to create a new mine by the time the Elk Creek Mine closes—but that new mine would no longer lie in Gunnison County.
In the meantime, Oxbow also asked local land management agencies to modify Oxbow’s existing lease at Elk Creek and add one new lease. According to BLM public affairs specialist Shannon Borders both the modification and the new lease are adjacent to the existing mine operation. Jim Cooper, president of Oxbow, says that the leases would extend the life of the mine until 2018.
“The modification is small tonnage, to keep the main line straight for safety so there would not be an obtuse angle, and the other is about a year of work for our people,” Cooper said.
The latter includes a 790-acre federal coal lease tract with approximately 3.8 million tons of recoverable coal. Cooper said the company first applied for the extension in September 2006, but the decision was delayed several times by opposition from environmental groups. Last summer, Cooper said, both the Bureau of Land Management and the Forest Service approved the lease.
The decisions effectively bought Gunnison County a few more years to offset revenues that come in the form of severance taxes (taxes imposed on the extraction of natural resources so that local and state governments share in the profits) and property taxes. According to BLM public affairs specialist Tina Brown, the Elk Creek Mine contributes about $1.1 million in revenues to Gunnison County every year, including both property and severance tax. To give a sense of the breakdown, data provided by Oxbow shows that in 2010 the Elk Creek Mine contributed $277,323 to the county through property tax collection.
“Mining companies are the largest property tax revenue sources for Gunnison County,” Brown said.
In general, she added, the mine is a significant income source for both Gunnison County and Delta County, where most of its employees live. With approximately 325 full- and part-time employees, the Elk Creek Mine has an annual payroll of approximately $32 million. And the BLM estimates that the total direct economic benefits associated with North Fork Mines exceed $60 million annually.
But while $1.1 million is a significant revenue source for the county’s general fund, county manager Matthew Birnie does not see the pending closure of Elk Creek Mine as an immediate threat.
“It’s a lot of money, but it’s not an amount of money we can’t manage solutions for,” Birnie said. He cited the 2012 budget as an example, adopted by the Board of County Commissioners in December. The county reduced property tax collections on existing properties by $1.2 million, but that decrease in funding was offset by increases in new construction.
“To put the amount of money in context, if the mine would have closed toward the end of 2011, how would we have approached our budgeting? We wouldn’t have proposed a property tax decrease. It’s not anything I’m panicking about,” Birnie said.
Birnie suspects that oil and gas revenues—one of the factors he has credited with enabling this year’s reduction in property tax collection—will continue to increase in coming years.
According to data provided by county finance director Linda Nienheuser, Gunnison County severance tax collection for oil and gas has increased from $4,844.65 in 2000 to $734,414.50 in 2011. In 2009, it was as high as $1,085,114.50.
“[The oil and gas] severance tax is distributed by a formula that includes factors of count of residents employed in mineral extraction, mining and well permits, mineral production, population and road miles,” Nienheuser said by email correspondence.
Birnie cautioned that the increases in the oil and gas severance tax are not due solely to production increases.
“For Gunnison County, a huge issue was a change in that severance tax formula,” Birnie said. Originally, distribution of oil and gas severance taxes only looked at where workers lived. “That hurt us tremendously because most of the workers in mines in Gunnison County don’t live in Gunnison County.”
Now, the formula also takes into account how many permits there are and how much production takes place by county. Combine that with expectations that oil and gas production as well as commodity prices will increase, and Birnie believes Gunnison County has time to balance any losses that would come from the closure of the Elk Creek Mine.
“I’ve seen Oxbow plans that show continued production out to 2018. Even then, there’s no indication that’s all the coal,” Birnie said.
Still, groups like WildEarth Guardians and EarthJustice continue to challenge Elk Creek Mine’s operation. After the BLM approved the new lease in June 2011, both groups appealed the decision and asked that operations at the mine be stopped while the Interior Board of Land Appeals considers the case.
“Given the timing and given the economic impact, we don’t think it’s responsible,” said BLM communications director Steven Hall.
Cooper says that Oxbow will need to begin acting on the lease extension by May of this year in order to make it worthwhile. And as far as the BLM is concerned, failing to capture that coal would be a huge loss to Colorado taxpayers.
“From our perspective we’ve made the decision and we’re moving forward with the decision,” Hall said.
If WildEarth Guardians and EarthJustice are successful in appealing the BLM decision, Cooper says, the mine could begin closing as early as 2015. Rather than forecast significant layoffs, Cooper says the company would likely let attrition—about 13 percent in the industry—shrink the workforce.
“We will join BLM in stressing to the courts the importance the mine has to the area,” Cooper said.