Encana suspends drilling in basin
In the biggest setback in years involving the local oil and gas industry, Encana is suspending drilling that has dated back continuously to the early-2000s, leaving WPX Energy as the only company still conducting significant levels of drilling in the Piceance Basin.
Encana told local employees of the decision Friday, a little more than a month after its announcement of 20 percent companywide layoffs and a shift in emphasis toward drilling in oil and liquids-rich areas due to the low price of natural gas.
“The decision was made to take a break,” said Encana spokesman Doug Hock.
“A handful” of western Colorado employees were laid off following last month’s announcement but no further local layoffs are planned, he said. The company has about 150 to 160 employees in its Parachute office and another 55 in an office in Rangely.
The company has more than 3,000 wells in the region that it will continue to operate. Hock said company drilling personnel are being offered work in other areas where Encana operates.
“Certainly we realize it has an impact on drilling contractors,” he said.
Encana was operating five rigs as recently as November. Hock said he believes that number is down to three now, with plans to do no drilling next year.
Encana has a joint operating agreement with steelmaker Nucor to drill potentially 4,000 wells over 20 years in the region. Hock said the companies mutually agreed to “take a pause” next year.
“But that (deal) remains in place going forward. We still have the commitment in place,” he said.
While gas prices have ticked up recently thanks to heating demand due to the cold start to winter, Hock said they still aren’t up substantially.
“The fundamental piece of it is, there still is a huge oversupply and so looking out longer term we don’t see any real appreciable rise in price,” he said.
Prices dropped dramatically in 2008 after drilling escalated in shale formations in many parts of the country. Locally, the falling prices precipitated a major dropoff in drilling activity in and around Garfield County. As many as 74 rigs were operating in the county in 2008. About a dozen now are operating in the area.
WPX alone is running seven of those rigs. It expects to spend $400 million locally in 2013 as it drills about 200 wells for the year.
WPX spokeswoman Susan Alvillar said the company won’t be announcing its 2014 budget for the Piceance Basin and other areas until later in February, so it’s too soon to say what local activity will be next year.
“I have not heard of any wavering of our commitment to the Piceance,” she said.
WPX does have oil-based development activities in other areas. But Alvillar said its Piceance Basin gas project is WPX’s most developed and prolific asset in the company’s portfolio, and it relies on cash flow from new and existing wells to fund drilling companywide.
Currently, Ursa Resources and Black Diamond each are running a rig apiece in Garfield County. A representative with Berry Petroleum said at the Northwest Colorado Oil & Gas Forum in Rifle this week that the company expects to look at starting a local drilling program in 2015 following completion of a merger with LINN Energy.
Despite the price disparity between natural gas and oil, some companies have been investing in natural gas assets in the area with hopes for a longer-term price uptick. These include Ursa, which bought Antero Resources’ local assets; Caerus Oil and Gas, which acquired the local holdings of PDC Energy; and Vanguard Natural Resources, LLC, which bought a partial interest in the assets of Bill Barrett Corp. south of Silt.
As of Dec. 6, energy companies received approval for 748 drilling permits in Garfield County this year, compared to 1,046 permits for all of last year. Through mid-November, drilling had started on 370 wells in the county so far for the year, compared to 497 for all of last year.