Williams revises drilling cutbacks

9 to 10 rigs planned, down from 20 in Piceance Basin

The Williams Companies Inc., the most active drilling company in the Piceance Basin, will “dial down” drilling in 2009 even more than it had previously anticipated, the company said Thursday.

Williams expects to maintain nine or 10 rigs in the Piceance Basin, down from the 25 rigs it ran through most of last year. Company officials had planned to run about 20 rigs through the coming year, but halved that number for reasons including economic upheaval and the advent of new drilling rules in Colorado.

The tight credit market forced Williams to stop
borrowing to maintain its drilling program and put it on a cash-flow basis, Williams spokeswoman Susan Alvillar said.

New drilling rules scheduled to go into effect in April “were a big consideration for us,” Alvillar said.

“The rules are not even in play yet, and they’re already costing the companies quite a bit of money” because compliance jobs now are being filled to meet the demands of the new regulations, she said.

As it stands, she said, “It’s more expensive to drill in Colorado than it is in Wyoming.”

Dave Neslin, acting director of the Colorado Oil and Gas Conservation Commission, didn’t return calls for comment Thursday.

The state isn’t alone in making it more expensive to drill, Alvillar said. Rio Blanco County last year levied new fees that increase costs, she said.

The Williams announcement put an exclamation point on the trend in recent months of drilling reductions that began with the announcement of major drilling cutbacks by EnCana, the second-largest player in the Piceance Basin. EnCana said it plans to run five rigs in the region next year, down from a dozen in 2008.

“Welcome to the new economy,” said Garfield County Commissioner John Martin, a Republican. “There’s no fun and games anymore. It’s going to be tighten your belt and hold on.”

Martin said he doubted that rule-making by the Colorado Oil and Gas Conservation Commission is at the heart of the pullback in drilling, noting it “happened to be at a bad time.

There’s a need for new rules and regulations.”

His major concerns, Martin said, are for subcontractors, sales-tax revenue and residents’ disposable income.

Martin said he hasn’t heard much complaining from companies about the new rules, and that they seem willing to adapt to them.

But they’re also considering factors such as low natural gas prices, the high cost of living in western Colorado and sweeter production fields elsewhere.

Steve Carter, a Rifle attorney who ran unsuccessfully as a Democrat for Garfield County commissioner in a campaign that included independent spending by energy interests on behalf of his opponent, said he hopes the region will be better prepared to deal with the industry when it comes back strong again.

This first time, the region was blindsided by the infrastructure, housing and road needs, he said.

“We didn’t have in place anything so we could work with the energy companies,” Carter said. “It just sort of happened all of the sudden.”

One subcontractor, Old West Oil Field Services in De Beque, hasn’t laid off any workers, but it did ramp up staff in an office in Rock Springs, Wyo., six months ago in anticipation of a slowdown in Colorado, said Trevor Taylor, vice president.

“My biggest frustration is that we’re chasing work out of this state” and into other areas because of the new rules, Taylor said.

“Colorado is really missing out. Grand Junction is really missing out.”

To date, he said, Old West has had no layoffs, “and we’re hoping to dodge that” while hunting for drill-services business in other states.

Williams officials told employees Thursday that layoffs at the company’s Parachute office, which employs 250 people, “aren’t even on the radar screen,” Alvillar said.

Williams anticipates drilling its 3,000th well in the Piceance Basin this year, and it could be that the company will need to hire people to maintain the production grid of wellhead equipment, pipe and other materials the company already has installed, Alvillar said.

Williams anticipates opening a $350 million natural gas processing plant near Meeker, called Willow Creek, this year and spending about $500 million on its drilling program of 300 new wells and other projects.

“I don’t see any dramatic impact as a result” of Williams’ announced drilling cutback, Grand Junction Area Chamber of Commerce President Diane Schwenke said.

“This recession has been going on for a long time, and we’re just starting to see the impact,” Schwenke said.

The western Colorado economy might not see any improvement until the third or fourth quarter of this year, she said.

The regulatory environment that will be in place by then will make it more difficult for Colorado to emerge from the recession, however, said Nate Strauch of the Colorado Oil and Gas Conservation Commission.

Parachute, once the focal point of the energy boom, has seen much change in recent months, Town Manager Robert Knight said.

“We’ve got new positions we’re not filling, and we’re putting on hold all but the most critical capital projects,” hoping to build a reserve “and ride out the storm,” Knight said.

As the energy business boomed, one of Parachute’s major problems was the constant traffic jam at the town’s major intersection.

“For anybody who knows anything about Parachute, it speaks volumes,” Knight said, “that people are able to get on and off the Interstate 70 on- and off-ramps.”


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