A new report from the Federal Reserve Bank of Kansas City knocks down a perception that energy states could recover from the recession faster than non-energy states.

The report, by Mark C. Snead of the bank’s Denver office, says that energy states typically enter recessions late and exit early as energy prices recover along with the rest of the overall national economy. But he concludes that “continued weakness in natural gas prices suggests that a rapid recovery well ahead of the non-energy states seems unlikely in the current cycle.”

Nowhere is that more true than in Oklahoma, which is confronting the worst budget crisis in modern history, according to The Oklahoman newspaper. The state has been battered by the decline in natural gas prices. Other major natural gas-producing states whose revenues have affected by low prices are Texas, Wyoming, New Mexico, Louisiana and Colorado.

Snead, the assistant vice president, branch executive and economist at the Kansas City Fed, does a nice job defining which states are energy states and how they have fared historically in economic downturns.

He identifies a “top tier” of energy states: Alaska, Louisiana, Oklahoma, Texas and Wyoming. The second tier is New Mexico, Colorado, West Virginia, Kansas, Mississippi, Montana, North Dakota and Utah. Snead says Kansas and Mississippi have limited exploration opportunities and are “slowly shedding” energy state status while Utah has all but lost its position. New energy states on the horizon with immense shale gas formations are Arkansas and Kentucky, the report says.

Though not all energy states are positioned to lead the nation in the recovery, several of them are financially stronger than non-energy states, especially Texas, North Dakota, Alaska and Montana. In fact, North Dakota and Alaska were the top two states in job growth during the recession.

The future of some of southwestern Colorado’s most rugged terrain will be decided in the new year. On Dec. 30, attorneys for oil and gas developers, conservation groups and federal agencies met in a Denver courtroom to continue a tug-of-war over whether to allow about 140 gas wells to be drilled in the HD Mountains east of Durango.

Five of the conservation groups, including the San Juan Citizens Alliance and The Wilderness Society, are being represented by Earthjustice in the lawsuit, filed in 2008. It asks U.S. District Court Justice Richard Matsch to stop any new drilling while he considers their request to overturn Forest Service approval of the wells.

At the heart of the controversy, says Earthjustice attorney Mike Freeman, are planning documents that outlined protections for the area — protections that the Bureau of Land Management (BLM) and Forest Service now say were not set in stone.

“The Forest Service has promised the public in its forest planning documents that it would protect the HD Mountains and preserve the wildlife habitat that’s there for elk and deer and other species that Coloradans really cherish. It disregarded those commitments when it approved this project.”

The San Juan Basin is already home to tens of thousands of oil and gas wells, according to Freeman. He calls the Forest Service stand on this project “a shell game.”

“When they approved the project, they acknowledged that it was inconsistent with a lot of the commitments they made to protect the HD Mountains. But they said that they would just address those violations and correct them, when they approve individual wells to implement the project.”

Freeman says the area’s combination of rugged terrain and low elevation makes it good wildlife habitat, and it is also part of a larger watershed used by farms and ranches for irrigation. About 20 of the wells are already underway.

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Larry Parrish knew something was wrong as soon as he wheeled his state-owned pickup off the West Virginia highway and onto the rocky field where the natural gas well was supposed to be. Oak trees 18 inches in diameter looked dead as boards, and brush as brown as kindling stretched across a piece of farmland the size of a football field.

The dead zone in this otherwise lush mountain country meant one thing to Parrish: Gas drillers had been illegally dumping briny water mixed with chemicals, and the waste had killed everything from the rusty well head all the way downhill into a creek. The worst part, Parrish said, was that the devastation could have been avoided if the West Virginia Department of Environmental Protection had had enough inspectors to make sure the state’s growing number of gas wells were checked regularly.

“It was sad — sickening,” said Parrish, a former field inspector for the DEP’s office of oil and gas. “It probably had been years since anybody had been out there.”

West Virginia has added a handful of people to oversee its growing drilling industry since Parrish retired in 2006, but other than that not much has changed. For the state’s 17 inspectors to visit West Virginia’s 55,222 wells once a year, they would have to inspect nine wells a day, every day of the year — no weekends, no vacations.

“We are doing what we can do,” said Gene Smith, a regulatory compliance manager for West Virginia. “But that still leaves thousands of wells that are not inspected yearly or even every decade.”

Regulators in other states are equally overwhelmed as they try to keep tabs on the nation’s nearly one million active oil and gas wells, a number that’s likely to climb as the feverish growth in natural gas exploration continues.

Search ProPublica’s database to find how many gas regulators work in your state.

A ProPublica investigation comparing the rapid expansion of drilling in 22 states with staffing levels at the agencies charged with policing the wells found that the nation’s capacity to enforce its environmental protections is weakening. The picture strikes at the heart of the industry’s long-standing argument that state regulatory agencies will be more effective industry watchdogs than the federal government.

While the number of new oil and gas wells being drilled in the 22 states each year has jumped 45 percent since 2004, most of the states have added only a few regulators. Those with the widest gaps are Texas, which is already grappling with the most drilling, and New York, which is expected to soon have the fastest rate of growth.

As regulators’ workloads have grown, enforcement actions — the number of times violations were recorded and acted on — have dropped in many states, often by more than half. That could mean companies are complying with the law — or that inspectors aren’t checking the wells.

“You just can’t do it, physically,” said Parrish, who received a $31,000 salary and said he was chronically overworked. “You’ve got to put out the hottest fires and there was a lot of stuff that slipped through the cracks because no one was looking.”

In 2005 the U.S. Bureau of Land Management offered up thousands of acres of federal land in Colorado to drilling. Because the land was in the heart of an area that supplies drinking water to 55,000 people in the western part of the state, the plan drew strong opposition from local communities.

The concerns they raised — that the disruption and chemicals used in drilling might ruin their water — foreshadowed similar concerns that have since rippled across the country as drilling operations expand from Wyoming to New York. And their solution may be a lesson that ripples to those communities as well.

The communities — the city of Grand Junction and the neighboring town of Palisade — began by making their concerns clear: drilling is important, but protecting the water supply is paramount.

“Our feeling all along was that you shouldn’t drill in our watershed. It’s the last resort,” said Tim Sarmo, the town manager for Palisade, who, together with the city of Grand Junction, fought the development. “Shouldn’t someone say these are areas of higher priority, greater vulnerability?”

Their concerns focused on the chemicals pumped underground by drillers in hydraulic fracturing and then disposed of in the area’s dozens of open waste pits — fears echoed in upstate New York, where the Marcellus Shale underlies the watershed supplying New York City’s 9 million residents, and in other parts of the country where gas is being drilled.

At first, Grand Junction and Palisade tried to buy the mineral rights themselves. In early 2006 they bid more than $300 an acre at auction — eight times what gas companies were typically paying for mineral leases in that part of the state at the time — but were outbid by Genesis Gas and Oil.

Then they tried a different tack: If drilling had to go forward, they wanted to define the terms, making sure the safest techniques would be used to protect the quality of their water. In this case, they wanted measures more stringent than what state regulations required.

With BLM officials arbitrating — the agency made a goodwill agreement a condition of the leasing and permitting process — the municipalities and Genesis Gas and Oil spent the next two years negotiating a compromise that could now stand as a model for towns across the country.

The result is a 60-page Watershed Plan (PDF) that dictates that Genesis will only use “green” hydraulic fracturing fluids, will reveal the chemical makeup of those fluids and will inject a tracer along with those fluids so any alleged contamination in the area can be quickly linked to its source.

Though the agreement has yet to be tested — Genesis has not yet applied for permits to drill in the area — local representatives found that there was more opportunity for them to steer oversight of drilling, and reach beyond what state regulations require, than they had thought.

Genesis Oil and Gas did not respond to requests for comment.

“There wasn’t a lot of resistance,” said Greg Trainor, the Grand Junction utilities director who sought the concessions from Genesis and says they put him at ease with the drilling. “It may not be a legally binding agreement, but it’s a political agreement. It’s a very good template.”