Researcher sees drilling moving into other states

Out-of-state basins filled with greater portions of natural gas and long permit periods could endanger Colorado drilling, energy trend researcher Porter Bennett said in his keynote address Thursday at the Mesa State College Energy Management Symposium.

While production and natural gas storage levels increase, gas rig counts are down 70 percent from last year in the Piceance Basin, said Bennett, who is CEO and president of Bentek Energy research firm in Evergreen. Meanwhile, rig counts are up in western Pennsylvania and Louisiana. Louisiana’s Haynesville Basin is suspected to have five times more natural gas deposits than the Piceance, while Pennsylvania’s Marcellus Basin holds more than twice the gas deposits tucked within the Piceance, according to Bennett.

“Exploration is shifting to other areas,” he said. “It could be ominous for the Rockies.”

The Rocky Mountain region currently produces the third-highest volume of natural gas in any gas-producing sector of the United States, followed by the Gulf of Mexico and southeast U.S. regions. While Bennett expects natural gas prices to rise to at least meet break-even levels in basins across the country a year from now, he does not predict another boom — or bust, for that matter — because of hefty storage.

Drilling efficiencies such as longer drill lengths and shorter drill times have helped increase production and bring down costs for energy operators, he said. Combine more production with conservation efforts, and that means storage levels have gone through the roof. And as long as supply is higher than demand, Bennett doesn’t see prices rising.

“It would take the coldest November in five years, the coldest December in five years, the coldest January in five years, the coldest February in five years and the coldest March in five years to chew up all that storage,” he said.

With all the severance tax and federal mineral lease dollars energy companies pay to be in Colorado, Bennett cautioned the state should be wary of its permit-granting practices. In 2007, it took 40 days to get a drilling permit in Colorado compared to 12 days in Texas and 10 days in Wyoming. In 2008, it took 56 days in Colorado, 19 days in Texas and 12 days in Wyoming.

“Regulatory and tax policies in Rockies states must recognize the competitive disadvantage inherent in the Rockies’ position,” Bennett said.

Bennett said Colorado Oil and Gas Conservation Commission rules going into effect this year could lengthen the permit period in Colorado and potentially cost the state some business.

Denver attorney Andrew Bremner, who represents oil and gas companies through his practice at Beatty & Wozniack, echoed Bennett’s thoughts during his time at the lectern during the symposium. Bremner argued the new rules will slow drilling with measures such as a 60-day comment period for any potential drilling area and taking time to come to an agreement with a landowner where roads, wells and production facilities should be placed.

“What we’re talking about is delays,” Bremner said. “When a rig is delayed, it costs money. These new rules create burdens — administrative, financial. At a different economic time, it was easy to make these rules. Times have changed.”

No one has forgotten how bad the economy has become since the commission first re-examined the rules and presented suggested changes, said Nathan Keever, a Grand Junction attorney who represents land surface owners through Dufford, Waldeck, Milburn & Krohn law firm.

But that doesn’t make the rules any less necessary in the present, he said during his speech at the symposium.

“They don’t want to add expenses ... but at least this way (surface owners) have a chance,” Keever said.

Keever showed pictures of a pit liner that had once carried unknown concoctions that had been disposed of on a hillside and a landowner’s irrigation system that had materials washed over it after a large wastewater pit leaked. Keever said the landowner was not told about the leak until he asked about the mess.

“Some companies are saying the rules are so tough. Well industry, some of you brought this on yourself,” he said.

In some cases the rules don’t go far enough, Keever said. He used the example of a contractor not having to release the ingredients of fracking fluids if the contractor says he or she cannot reveal the vendor’s trade secret ingredients, even if a person accidentally drinks or comes in contact with the fluid and seeks medical attention and the fluid’s vendor has already refused to disclose the ingredient list.

Keever also said some rule language is too vague to win a person’s case, such as if the surface owner finds dust and odor from production personally hazardous but can’t prove it’s a hazard to public welfare or believes a pit is not being monitored or used properly but has no way to test the pit contents daily or videotape work at the pit.

Keever added permit waiting periods will decrease, according to the rules, if companies devise a comprehensive drilling plan. But so far, he’s only heard of one company making a plan in Colorado — Antero.

The two-day energy symposium continues today with discussions on oil and gas regulations and predictions on the future of natural gas in Colorado.


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