WPX puts well completions on hold
Falling price of natural gas forces cuts in expenses
The area’s largest and most active natural gas developer has suspended completion operations on newly drilled wells in northwest Colorado’s Piceance Basin due to low natural gas prices.
The move by WPX Energy is expected to be followed by a cutback in drilling this year, although the company has yet to announce its plans.
“Basically we’re slowing down here in western Colorado right now. The low commodity price is affecting what we can do here locally,” said WPX spokesman Jeff Kirtland.
In a blog post at http://www.wpxcolorado.com, the company said it is “hitting the pause button” on well completions to help reduce expenses. Completing wells involves hydraulically fracturing them to free up and produce gas from underground formations.
In its blog, WPX noted that while oil prices have dropped dramatically, natural gas prices also are trending downward.
“Both factors are great for consumers filling up a vehicle or paying a heating bill, but not for companies like WPX who produce energy and depend on prices to run our business,” it said.
Last year natural gas was selling for more than $4 per thousand cubic feet of gas.
“Now we’re seeing prices dip below $3. These prices directly impact profitability and revenue,” the company said.
The fracking freeze currently applies to about 20 wells the company has drilled, but could affect more in the future because the company continues to have rigs drilling in the area.
It’s currently operating eight rigs, in what Kirtland said he thinks is a carryover of its 2014 drilling plan. WPX hasn’t announced its 2015 drilling plans, having pushed off its capital expenditure decisions for this year to take into account the continuing decline in oil and gas prices.
The company had been running nine rigs locally at the end of the year. Company officials indicated in October the possibility that its Piceance drilling might be cut back to five or six rigs, while cautioning that no decision had been made.
Since then WPX and other energy companies have dealt with a big hit to commodity prices, particularly in the case of oil. Oil’s price drop has come as WPX has been looking to step up production in oil-based basins because oil has been more favorably priced compared to natural gas.
For the short term, at least, WPX has some protection from the drop in oil prices. It says on its website that for this year, through hedging contracts, it has locked in prices for more than half of its projected oil volumes at an average of nearly $95 a barrel. That’s roughly twice oil’s going rate.
Piceance Basin natural gas continues to be a major part of WPX’s assets, and the company has been by far the most active energy company locally in drilling activity. Altogether, companies currently are operating 13 rigs in the basin.
“For WPX the Piceance is a huge part of what we do,” Kirtland said. “Obviously it’s one of our core basins in terms of long-term value.”
Last year the company invested more than $400 million in its local natural gas development.
“We are talking with our vendors and asking for help on the cost side of this issue, and hopefully once the economics improve we’ll start to complete the wells again,” Kirtland said.
David Ludlam, executive director of the West Slope Colorado Oil and Gas Association, noted that the boom in oil drilling in places like North Dakota has driven up the costs of fracking and other services that contractors provide to energy companies. As oil drilling slows down and those services are in less demand, those costs should go down. Ludlam hopes a point can be reached where service companies can still have a good rate of return but drilling is more attractive for Piceance Basin gas producers.
He said a mild winter that has reduced gas use for home heating is part of the reason gas prices have declined.
“At any given time we’re a couple polar vortexes or an economic recovery away from having prices that can sustain development in the Piceance,” he said.
John Harpole, president of Littleton-based Mercator Energy LLC, which is involved in natural gas brokering, consulting and other services, said that for now, there continues to be a problem of higher gas production than consumption in the United States and Canada.
Another problem for gas producers is that the price of natural gas liquids such as propane and ethane tends to run in tandem with oil. Relatively high prices for such liquids produced along with gas used to help make gas drilling more economical, but liquids prices have fallen.
He said WPX’s announcement isn’t surprising given current market conditions, as it’s probably focused on where it can get higher rates of return.
“It’s just, everybody’s trying to husband their capital to make sure their capital outlays are where they should be,” he said.
Given current market conditions and the efforts by Saudi Arabia to depress oil prices, “I’d be surprised if I heard about one oil company that didn’t have an emergency board meeting in the last month,” Harpole said.
Ludlam said he expects it to be a difficult year all around in the Piceance Basin in terms of drilling and completion activity. But in the long term, it remains a mature gas basin with “tremendous” pipeline and other infrastructure in place.
“The Piceance Basin is not going anywhere. It’s one of the premier gas basins in the country,” he said.
He believes it’s well positioned to capitalize as the nation increasingly looks to natural gas for electricity generation, and as efforts continue locally and nationally to make more use of natural gas in transportation and facilitate its export in liquefied form overseas.