Drilling hits bumps in economy

No. 2 Top Story of 2008

Look at what fuel prices have done this year, and it gives a pretty good indication of the changing fortunes of western Colorado’s energy industry over 12 months’ time.

With gasoline prices topping $4 a gallon at the pump and natural gas prices also high earlier in the year, energy drilling in the region soared. As of early December, the number of 2008 oil and gas drilling permits issued statewide and in Garfield County — which leads Colorado in drilling activity — surpassed record-setting totals for 2007. Even as the national economy began to suffer, energy development was shielding western Colorado from the blow.

But the national recession caused energy prices to plunge late in the year, meaning that the pace of energy development will be slowing considerably in 2009, including in western Colorado’s Piceance Basin, the state hotbed for oil and gas development. Numerous energy companies have announced intentions to either cut back drilling in the Piceance next year or cancel plans to expand drilling in the region.

Many have cited as a primary reason falling natural gas prices — a problem exacerbated in the Rockies by limited pipeline capacity for shipping gas to more lucrative markets. The virtual collapse of the nation’s lending market also was a major factor, but companies also pointed to concerns about the anticipated costs and delays associated with the state’s rewrite of its oil and gas development rules.

That work, by the Colorado Oil and Gas Conservation Commission, dominated headlines all year. It also led to dire warnings by companies that some of their Piceance Basin operations might be shut down some months by proposed seasonal prohibitions on energy development in sensitive wildlife habitat.

The commission later adopted less stringent wildlife-related restrictions. But the industry continues to contend that in some respects the new oil and gas rules go further than envisioned in 2007 legislation requiring energy development to be balanced against protection of wildlife, the environment and public health. The legislature will review the new rules early next year, and some lawmakers are likely to introduce bills seeking to repeal some of the new rules.

This year also saw voters reject a ballot measure that would have resulted in an increase in severance taxes paid by the industry, partly by eliminating a credit that companies receive for the local property taxes they pay. And in another energy-related development, the U.S. Bureau of Land Management in August leased some 55,000 acres on the Roan Plateau for oil and gas development. The auction followed years of controversy over the proposal to open up the gas-rich public lands northwest of Rifle to development, over objections from those who particularly sought to keep drilling rigs off the plateau top.

Conservation groups have sued over the Roan management plan. The BLM has agreed that no ground-disturbing activities related to drilling will occur on the leased parcels until June, to allow a ruling on the lawsuit’s merits.

Also this year, the Bush administration proceeded with designating nearly 2 million acres of public land in Colorado, Wyoming and Utah for possible commercial oil shale development, and issued final oil shale leasing rules covering matters such as royalty rates.

Entities including the state of Colorado argued that technologies that might be used in commercial oil shale development, and their impacts, aren’t yet known, and the government should have waited to see results of companies’ research and development projects on federal leases. But companies said the rules are needed now to provide some certainty as they plan for oil shale research and development.


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