Local drilling activity triples; firms eye frack crew shortage
Natural gas drilling activity is picking up considerably this year locally just like elsewhere in the country, as local energy developers monitor a developing shortage of hydraulic fracturing crews.
“All in all, what a nice problem to have,” David Ludlam, executive director of the West Slope Colorado Oil and Gas Association, said of local companies facing service company availability issues versus market problems a few years ago that deterred the desire to drill.
Nine rigs were operating in the region as of Friday, compared to three during much of last year. Terra Energy Partners is up to three rigs. Laramie Energy is operating two, both in the Plateau Valley.
Ursa Resources is running one rig in the Parachute area and a second in Rio Blanco County, although the company doesn’t plan to continue running the latter rig after it’s done with a four-well exploratory/pilot program, said Don Simpson, an Ursa vice president.
“It’s going to go away until we complete (frack) those wells and evaluate it,” he said.
Caerus Oil and Gas is continuing to operate one rig. Encana, which suspended its local drilling operations years ago, is currently running one rig, but company spokesman Doug Hock said that’s only to maintain lease acreage. Leases can expire if not drilled on within a certain amount of time.
With natural gas prices having picked up some, companies have begun drilling on 121 wells so far this year in Garfield County, compared to 147 for all of last year, which was the lowest number since the 1990s. That’s according to Colorado Oil and Gas Conservation Commission data updated as of the start of this month.
Thanks to Laramie’s activity, Mesa County has seen drilling start on 32 wells so far this year, compared to four for all of last year and 77 in 2015. Mesa is the state’s third-most active county for drilling so far this year. Weld County is way out front, with 550 well starts.
Rio Blanco County has had four well starts this year, after no drilling occurred there last year.
Drill permitting activity in Garfield County isn’t particularly strong so far this year, with 164 permits issued compared to 724 for all of last year. Permits are good for two years.
Mesa County permitting activity is way up, with 110 issued so far this year compared to seven for all of last year. Thirty-one have been approved to date in Rio Blanco County this year.
The Mesa permitting activity reflects Laramie’s desire to get even busier.
“We’re preparing to add more rigs if prices improve and we’re hoping that they do, and so we’re getting permitted and ready to go,” said Bob Hea, Laramie’s executive vice president and chief operating officer.
Even now, Laramie is taking advantage of natural gas prices that Hea said have risen over the last year about $1 per million British thermal units at the White River Hub in the Meeker area, to an average of about $2.75 per million Btu in May.
The price increase is just part of the reason Laramie has been able to ramp up activity. Hea said it’s also been able to reduce costs for drilling and fracking. Local companies have gotten highly efficient with better technology and are able to drill wells faster, he said.
Hea said Laramie is watching natural gas prices closely as it heads into summer, when prices traditionally drop between winter heating seasons.
But unless prices take a big drop, one of the biggest threats to its local activity levels is the potential of losing frack crews, he said.
While the shortage of crews is becoming an issue, it’s not holding back Laramie yet, Hea said.
“We’re keeping a close eye on it,” he said.
Bloomberg has reported that companies looking to expand oil drilling in shale basins are scrambling to obtain fracking services after service companies laid off workers during slower times.
Hea said frack operations in shale basins are bigger than is the case for companies developing gas locally, so frack companies can make more money in those places. A lot of local fracking operations also are done without the need to use sand, which also removes a revenue source for fracking firms. Ludlam said local fracking is fairly standardized now as well. That means less revenue for frack companies for specialized services they offer.
Simpson said Halliburton is going places offering a higher profit margin, like basins containing more oil than gas.
“Fracking crews are harder to come by in the Piceance,” he said.
He said Halliburton’s locally based crew left to do work elsewhere, although he understands the crew might be coming back. The company couldn’t be reached for comment Friday.
Simpson said Ursa had been using Halliburton but turned to Calfrac Well Services to complete its wells.
Ludlam said companies such as Halliburton, Calfrac and TOPS Well Services wouldn’t have local offices if they weren’t going to supply local needs, but they are just juggling resources to get the best return on investment.
Said Hea, “They are trying to keep a (local) presence, as always. It’s a good idea. Basins always come back. This is a massive natural gas basin. While natural gas may be second fiddle to oil right now, that could change.”
Ludlam noted that a few years ago, energy developers were in a position of trying to control costs and reduce pricing for fracking services because of reduced demand for services due to the drilling slowdown. Now the service companies have a little more leverage, which is a natural kind of supply-chain swing that happens to all businesses, he said.
“These are all things that are short term. They’ll work themselves out,” he said.
He said he thinks local energy developers that are able to undertake long-term drilling programs and contract for rigs and service crews accordingly will be able to somewhat offset the challenge of losing crews to other basins.
Still, it’s a far better situation today than when just a few rigs were even operating locally, he said.
“There’s optimism that you’re having to hire people. That’s good,” he said.