Occidental suspends its area drilling
Occidental Petroleum has temporarily suspended all drilling in western Colorado’s Piceance Basin, largely as a result of low natural gas prices.
Company officials weren’t commenting Thursday on the employment effects of the decision. As of early December, Occidental had been running nine rigs in the Parachute and
De Beque area and had 68 workers.
The company has begun removing rigs from the region and paying contract cancellation fees to rig companies in some cases.
Occidental spokesperson Stacey Crews said a seasonal slowdown also was a factor in the shutdown, and Occidental remains committed to its long-term plans in the Piceance Basin.
“We have an excellent inventory of assets in the area and plan to expand our production when costs are in line,” Crews said.
Occidental is cutting its overall capital spending program from $4.7 billion last year to $3.5 billion this year. It is focusing on ensuring that returns remain above capital expenses given oil and gas prices and contractor costs.
Company officials say they consider gas drilling unattractive where gas is yielding less than $5 per thousand cubic feet. A lower price for gas produced in the Rockies also has been a primary factor in other companies cutting back operations in western Colorado.
Rockies gas is fetching a lower price than elsewhere in the country because of limits in pipeline capacity to transport it to more lucrative national markets.
Based on rig count, Occidental had become one of the most active energy developers in the region. As of mid-December, a total of 66 rigs were operating in Garfield County, 12 in Mesa County and 15 in Rio Blanco County, but area rig numbers have declined since then.
In September, Occidental announced it had agreed to pay $1.25 billion to purchase all of Plains Exploration & Production Co.’s interests in the Permian Basin of West Texas and New Mexico and the Piceance Basin. In a deal announced in 2008, it previously had acquired a 50 percent interest in the properties.
Occidental has oil and gas interests on about 125,000 acres in the Piceance Basin, including 84,000 acres from recent acquisitions.
Its announced cutbacks Thursday come as the Colorado Oil and Gas Conservation Commission reported that it expects to issue a total of about 550 drilling permits this month.
That’s down from 608 in January 2008 and 789 last month, but comparable to 558 permits issued in November.
The state issued 8,027 permits in 2008, up from 6,368 in 2007 and four times as many as were issued in 2002.
De Beque Mayor Dale Rickstrew said he expects Occidental’s decision will result in some people leaving town, but he doubts the economic impact will be huge. He also is optimistic Occidental will resume drilling again when the price is right.
“Let’s face it. Natural gas isn’t selling for very much right now. There isn’t a lot of incentive for them to drill,” he said.