Garfield drilling lowest since ‘99
Mesa County rises in rank after burst of production
Garfield County last year held onto the No. 2 spot statewide in terms of oil and gas drilling activity, despite the lowest level of activity since the 1990s.
Mesa County bucked the statewide trend in 2015, however, seeing a sharp increase in drilling and ranking third among Colorado counties.
Falling oil and gas prices resulted in drilling beginning on just 1,437 wells statewide last year, down from 2,239 the prior year, according to Colorado Oil and Gas Conservation Commission data. Much of the decrease occurred in Weld County as companies slowed oil drilling there thanks to falling prices. But the county still continued to see the bulk of activity last year, with drilling begun on 1,084 wells.
Garfield County had just 173 well starts last year, down from 362 in 2014. The last time the county saw less drilling, with 94 well starts, it wasn’t Jeb Bush but his brother, George, who was harboring presidential aspirations, in the year 1999.
Mesa County last year had 76 well starts, compared to just 16 the prior year. Some of last year’s drilling was done outside De Beque by Black Hills Exploration & Production, which was appraising the economics of horizontal drilling in the Mancos shale formation. However, it eventually finished that project and ceased drilling there, while announcing later in the year it was significantly cutting its overall planned oil and gas capital expenditures for this year and next due to expected continuing low commodity prices.
Piceance Energy also has been doing some drilling in the Collbran area of Mesa County, where last year it also agreed to a joint venture with Questar Corp. to drill 80 wells through early 2017.
Piceance Energy isn’t currently operating a rig in the area, according to http://www.communitycountscolorado.com. The website currently shows three rigs operating in the region, all in Garfield County. WPX Energy, Ursa Resources and Caerus Oil and Gas are operating a rig apiece.
Much of the drilling slowdown last year in Garfield County was a result of a sharp cutback in local drilling by WPX. It was running nine local rigs at the start of 2015 but cut back to concentrate on drilling elsewhere for oil, rather than for the natural gas that companies produce locally.
At the peak of Garfield County drilling activity in 2008, more than 70 rigs were running in the county, and it saw nearly 1,700 well starts, more than anywhere else in the state.
The county has been bracing for the impacts of the continuing drilling slowdown. Garfield Commissioner Tom Jankovsky recently said the county is expecting a $15 million drop in property tax from oil and gas revenue in 2017.
That tax derives mostly from the value of production. According to a presentation to the commissioners Tuesday by the county’s oil and gas liaison, Kirby Wynn, the county’s gas production peaked in 2012 at about 700 billion cubic feet for the year. The final total for 2015 production is expected to be around 550 billion cubic feet, as not enough new wells are being drilled to offset the production declines of existing wells.
Garfield County last year topped 11,000 active wells. Mesa County had 1,088 active wells as of Dec. 1, the COGCC reports. Rio Blanco County had 2,905 active wells, while Weld County had about 22,700 of the statewide 53,719 active-well total.
Rio Blanco County had just 17 well starts last year. At its peak in 2008, it had 205 well starts, and that year Mesa County peaked at 225.
Jankovsky noted Tuesday that even without much drilling occurring in the county, having so many wells provides a lot of jobs for people who tend to the producing wells and work in midstream capacities involving gas transportation and processing.
“It’s still an important part of our economy. It’s creating jobs on our western end,” he said.
Western Colorado natural gas drilling activity largely has mirrored prices for the commodity. The spot price at the Henry Hub distribution point in Louisiana topped $13 per million British Thermal Units in 2008 before starting a steep decline. According to the federal Energy Information Administration, it was around $4.50 in late 2014 and sat at $2.30 by last week. Last year’s spot price averaged $2.61, the lowest annual average since 1999, and daily prices last year fell below $2 for the first time since 2012, the agency recently reported.
Don Simpson, an Ursa vice president, said that with prices so low, “right now we’re just trying to pick our most profitable locations and drill them first.”
Some wells are productive and economical to drill even now for Ursa, meaning that the company is making plans on where to drill next locally rather than whether to stop, he said.
“There are some places that work for us,” he said.
One key is to cut costs when prices are so low, he said. When prices are low, drilling, well-completion and other costs also can drop because contractors often agree to pay less in order to compete for the smaller amount of available business.
Simpson said he’s seen other challenging price environments for the oil and gas industry, going back as far as the 1980s.
“This is certainly a tough one. Very, very tough,” he said.
Last year, the state issued 532 drilling permits in Garfield County, down from 1,066 the previous year. For Mesa County, 126 were issued, up from 74 in 2014. Another 107 were issued last year in Rio Blanco County.
In Weld County, 1,841 were issued. Statewide, 2,987 were approved, down from 4,190 in 2014. Permits are good for two years.