Slowdown in natural gas to continue during 2010

As little as a year and a half ago, it seemed energy companies couldn’t drill fast enough as they sought to tap some of the trillions of cubic feet of natural gas along the north side of Energy Alley in western Colorado.

Starting in late 2008, however, they’ve taken a much more measured approach, and that apparently will continue to be the case in 2010.

For some companies, that means little to no drilling, a strategy they’ve followed since natural gas prices plummeted in 2008, resulting in a sharp drop in rig count numbers in the region.

For others, it means pressing on with relatively active gas development programs even with the depressed gas prices.

“I think we still project a continued, measured pace of development,” said Jim Branch, Piceance Project executive for ExxonMobil Production Co.


As of a few weeks ago, ExxonMobil was operating six drilling rigs in its program in Rio Blanco County.

“We continue to evaluate our rig fleet. We’ve moved around between seven and eight rigs the last few years,” Branch said.

He said the price of gas “certainly makes things more difficult, but our focus is on the things we can control.”

ExxonMobil continues to work on improving efficiency in drilling, fracturing and other operations. That means that, for all of the attention rig counts receive as a measure of activity, Branch is happy if he can get away with a lower rig count, while still getting the job done.

“To me it’s kind of good news if we can drill the same number of wells with fewer rigs,” he said.

“It’s really about kind of a learning process. We take a very long-term view of things. We’ve got lots and lots of wells to drill over time,” Branch said.

ExxonMobil has oil and gas interests in 300,000 acres in the Piceance Basin. It recently moved to expand its domestic natural gas holdings by announcing plans to acquire XTO Energy Inc.

In 2009, ExxonMobil added gas-processing capacity of 200 million cubic feet per day in the Piceance Basin. That gives it 250 million cubic feet per day of total capacity in the basin, and it’s producing about 150 million cubic feet per day. Branch said it is committed to completing a 30,000-acre drilling program that would increase its production to match its processing capacity.


Williams Production RMT, the basin’s largest natural gas producer, plans to add three rigs in 2010 to the one it is running in the mountains north of Parachute, while maintaining seven rigs in the Colorado River Valley. The company has been encouraged by the completion of pipeline projects that have boosted capacity to ship Rockies gas to distant markets, largely eliminating a prior price differential between gas produced in the Rockies and elsewhere.

In 2009 Williams also was able to take advantage of a sharp decline in drilling-related costs, largely resulting from the fact there’s much less competition today for contractors and equipment.


Another major local producer, EnCana Oil & Gas (USA) Inc., has yet to announce its local drilling plans for 2010. An EnCana representative told the quarterly Northwest Oil & Gas Forum in Rifle in early December that the company was operating four rigs in the basin.

- Bill Barrett Corp. said at the forum it plans to operate two rigs in 2010 in its program south of Silt, down from three currently.

- Occidental Petroleum, which had nine rigs operating locally as of December 2008 before suspending drilling, plans to begin drilling with one rig in 2010.

- Noble Energy has one rig running in the Piceance Basin and says it hopes to keep it operating in 2010.

- Laramie, likewise, is operating one rig, but may suspend drilling sometime in the next 12 months.

“We’re going to try to keep it going, but there’s certainly a lot of uncertainties out there,” Laramie official Ken Leis said at the Rifle forum.


Among those uncertainties are where natural gas prices are headed, and what the ultimate impact of new, stricter oil and gas rules in Colorado will be. Companies are worried about the rules’ cost and the challenge of complying with them.

Branch said one difficulty in writing new rules is that each Colorado oil and gas field is unique, and there can be unintended consequences. But he said ExxonMobil has felt it has had open lines of communications with state oil and gas, wildlife and health officials and can raise concerns if aspects of the rules don’t seem to make sense.

“I’d say we’ve been pleased with the communication channels we’ve had with all the state agencies as all of us have implemented the new rules,” he said.


Whatever the challenges energy companies currently face in the Piceance Basin, many industry officials and observers agree some level of development will continue to occur here, even though it’s not likely to return to the frenzied pace before the recession. There’s simply too much gas here to ignore.

ExxonMobil provides a good example of that. Its leases in the basin contain an estimated recoverable resource of 45 trillion cubic feet of gas, enough to power 50 million homes for almost a decade.

As with all companies, ExxonMobil constantly reassesses its plans, Branch said. But it has the long-term potential to produce 1 billion cubic feet per day locally.

“This is a world-class resource, and certainly the resource could support that type of development,” he said.


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