Black Hills Corp. is getting out of the business of oil and gas development, selling off assets including its sizable holdings in the De Beque area.
The action comes after the company stopped pursuing efforts in Colorado and other states to be able to participate in a "cost-of-service" gas program, under which the company would have invested in drilling projects and sold that gas to its regulated utilities. Black Hills said that approach would have provided customers with a long-term hedge against natural gas price volatility. But in 2016, Colorado's Public Utilities Commission rejected Black Hills' application for approval to participate in such a program, saying it failed to provide information needed to evaluate the costs and benefits to ratepayers.
Black Hills' gas and electric utilities serve 1.2 million customers in Colorado and seven other states.
Black Hills Corp., which is based in South Dakota, owns wells in several Western Slope counties, with many of them in Mesa County. In November, Black Hills said it had signed agreements to sell its San Juan Basin oil and gas assets in New Mexico and some Powder River Basin assets in Wyoming for a combined $28 million. It also said then that its board had authorized the sale of all of its remaining oil and gas assets.
It said in a quarterly earnings news release this month that as of Jan. 29 it "has either closed transactions or signed contracts to sell more than 90 percent of its oil and gas properties for an aggregate value of approximately $75 million."
It said it had executed agreements to sell all the oil and gas properties it operates, "and has only non-operated assets with minimal value left to divest. The company plans to conclude the sale of all remaining assets by mid-year 2018."
Black Hills spokesperson Carly West said it's her understanding that the company isn't identifying buyers of assets at this time.
"I know that we've got things that are still in process," she said.
At the time of Black Hills' cost-of-service proceedings before the Colorado PUC, John Benton, then vice president and general manager of Black Hills Exploration and Production, told the PUC it operated almost 700 wells in Colorado, New Mexico and Wyoming.
He said then that Black Hills had about 337,000 net acres under lease, with one of its most significant assets being its 73,000 acres in the Mancos shale in the southern Piceance Basin.
That acreage is in the De Beque area, where Black Hills a few years ago drilled horizontal wells into the Mancos and was reporting encouraging results in an appraisal phase that it hoped might lead to eventual full-scale development there.
Benton told the PUC that Black Hills engineers estimated its Mancos acreage had about 2 trillion cubic feet of gas resource potential. By comparison, in the United States, natural gas consumption totals about 27 trillion cubic feet a year, according to the Energy Information Administration.
Black Hills' investments in the De Beque area have included $8 million for a pipeline and water pump station. While it was built to help supply water for hydraulic fracturing of wells, most of the water provided by the project is for irrigation, including by the town, reducing De Beque's need to exercise its senior water rights at the expense of area ranchers.
In late 2016, Black Hills paid about $1.3 million to buy 12 federal leases totaling nearly 16,000 acres in the De Beque area of Mesa County.
Black Hills had hoped to be able to develop its De Beque holdings under the cost-of-service concept. But West said the Colorado PUC decision and Black Hills' assessment of the situation in other states led to it deciding against pursuing the cost-of-service approach.
"Certainly our exploration and production assets were part of the picture of us looking at a cost-of-service program, so we are in a place where we are currently divesting our oil and gas properties," she said.
Black Hills cut its oil and gas capital expenditures a few years ago due to anticipated low gas prices. It has been limiting its Piceance production to the minimum required to meet contractual processing commitments, it says.
Its oil and gas sector lost $7.6 million over the first three quarters of last year, although that was down from a $35 million loss over the same period of 2016.