GarCo’s rig count now lower than 2009
The oil and gas rig count in Garfield County has fallen below the level during the worst of the industry slowdown in 2009, and one company last week halted its local drilling program after a drop in natural gas liquids pricing.
Drilling permit activity in Mesa County this year is third-highest in the state, however, thanks largely to permits sought by Delta Petroleum, which is working to reorganize after filing for bankruptcy late last year.
Ten rigs are drilling in Garfield County, according to Colorado Oil and Gas Conservation Commission data it received from Anderson Reports. After natural gas prices dove in 2008, the local drilling boom started to fizzle, and the county’s rig count bottomed out at 13 at the end of 2009.
Before companies had reacted to the price drop, 64 rigs were operating in the county at the start of November 2008, when it was leading the state in drilling.
Although the boom never returned, drilling recovered and steadied in recent years. Garfield County had averaged around 20 or so rigs last year.
Natural gas prices slipped this year as a warm winter cut heating demand, and growing domestic production boosted supply. But companies increasingly counted on better prices for natural gas liquids such as ethane and propane, which are produced along with natural gas, to help sustain their local drilling programs.
However, those prices also have been slipping, in part thanks to rising supply as energy producers have increasingly tried to take advantage of the NGL market.
Bill Barrett Corp. announced last week that it was suspending all drilling in Garfield County, where it most recently has been operating two rigs.
“The second quarter was again challenging due to low commodity prices, with May regional natural gas prices hitting a low not seen since September 2008 and NGL prices declining approximately 40 percent from January to June,” company chairman, chief executive officer and president Fred Barrett said in a news release.
In Garfield County, 668 drilling permits have been issued so far this year. It’s second in the state in permitting, behind Weld County, where 1,169 permits have been issued.
Last year, 1,323 permits were issued in Garfield County. Drilling was begun on 329 wells in the county during the first half of the year, putting it behind pace to match the 853 wells started last year.
In Mesa County, 132 permits have been issued so far this year, compared to 124 for all of last year.
Delta Petroleum has been unavailable for comment on the recent permitting activity that has driven this growth.
Delta’s holdings are centered in the Collbran area. Under a Delta bankruptcy reorganization proposal, it and Laramie Energy II would form a joint venture under which they would pool their assets in the Piceance Basin.
Increased permitting in Mesa County hasn’t translated into much drilling. Just three Mesa wells had been started during the first half of the year.
Encana USA is operating five rigs in Garfield County, down a few from recent years. Encana spokesman Doug Hock said that number could go down by one, but added that drilling gas with a higher NGL content, known as wet gas, continues to be favorable to drilling so-called dry gas.
He said Encana expects propane prices to rebound this winter as demand picks up.
“For ethane, used in manufacturing, we see relatively volatile prices for the next couple of years. That being said, a majority of Encana’s ethane production is sold under long-term contracts at prices significantly higher than the current market,” he said.
Susan Alvillar, spokeswoman for WPX Energy, said price-hedging contracts are helping sustain its local natural gas and NGL drilling program, consisting of four rigs in Garfield County and one in Rio Blanco County.
“That’s our plan right now for this year and possibly into next year, is running those five rigs,” she said.
She said WPX also benefits because its NGLs are piped to Mont Belvieu, Texas, which provides better pricing than another regional delivery hub in Conway, Kan.
Alvillar said WPX continues to focus on improving drilling efficiencies to help keep making local drilling profitable. It has cut the time to drill a well by 54 percent in its high-elevation Ryan Gulch drilling program in Rio Blanco County, she said.
Hock said Encana continues to be bullish about not just NGL but natural gas prices over the long term. Natural gas recently tied coal as the leading domestic electricity power source, and also provides an alternative to overseas oil for meeting transportation needs, he said.
He said energy companies have been their “own worst enemies” in creating an oversupply that has driven down prices.
“The market will take care of that over time,” he said.