Just finished going through an experience with the Rio Blanco County Informational service. They have begun to write a communication each week in the local paper, I guess to inform the folks of what is going on in the county, etc. Actually what is happening is that they are exposing their mind set to the people of the county for the first time. We are now seeing their closed door environment issuing forth weekly and their “justification” for it.
The first article was entitled “Drill, Baby, Drill” – an interesting title for the first communication. So it was a must read. I couldn’t get past the fact they are very sincere even if their numbers or facts are no where near correct. There is the “state” line to follow. Anyway, below is the article itself and my response to this article, which was published in the same local paper this July 8, 2010.
The Herald Times
Rio Blanco County
Article Published 6/29/2010
The County Cubicle: Drill, baby, drill is county policy
Editor’s note: In an effort to keep residents informed on happenings within county government, county employees will contribute biweekly articles for “The County Cubicle.”
These articles may include responses to reader questions or expression of interest. Readers are encouraged to submit questions or suggestions to County Administrator Pat Hooker at 878-9436 or firstname.lastname@example.org
Want to know one of the least-known facts about the natural gas industry in Colorado? The state produced a record amount of natural gas in 2009. What? How can that be, what with the drop in gas prices, the national recession and the new state drilling rules?
“I thought the gas industry was gone,” you say. Actually, the natural gas companies in Colorado produced 61.8 trillion cubic feet of gas in 2009, compared to the previous high of 44.4 trillion cubic feet in 2008.
“Well, maybe, but the number of drilling rigs operating in the state was way down, so isn’t the number of new wells also way down?” For Colorado, permits for new wells numbered 5159 in 2009 compared to 8027 in 2008, which was the highest year ever. But how does this number compare to previous years? Again a surprise, 2009 was the fourth-highest year on record for Colorado. In Rio Blanco County, there was an even smaller change. Here, 141 wells were drilled in 2008 and 139 in 2009. This compares favorably to the rest of the state and nation, where well numbers were off 30 to 40 percent.
The rig count is down in Colorado and in the county, yet with the recent advances in drilling methods many of the companies can drill a well in 30 percent less time than was possible just a couple of years ago. The gas companies are also drilling multiple wells from one pad and so do not have the usual downtime associated frequent moving the drilling rig. So a reduced rig count does not mean a reduced number of new wells. Wells are now being drilled with a lot fewer rigs.
What is Rio Blanco County doing to support the gas companies in the extraction of gas locally? The county has always taken the position that we support the responsible extraction of natural resources. By working closely with all the operators, we are able to process and approve applications for new wells in a matter of days, not the months typical of other regulators. We have also permitted a number of large pipeline projects in the county, which have allowed prices for local gas to equalize with the rest of the nation. This is in part why we have not seen the same reduction in the level of drilling experienced elsewhere.
Granted, things are much quieter in town than they were two years ago. That is to be expected with the completion of the fourth major gas plant and two major pipelines in the last three years. Each of these projects required hundreds of workers during the construction phases. The day-to-day operation of each facility requires only a few people. Other gas plants and pipelines are in the planning stages, but they will probably not go forward until the price of natural gas rebounds. With that rebound, we may again see full motels, restaurants with waiting lists and long waits to turn onto Market Street.
If you have questions or comments, contact the Rio Blanco County Planning Office at 878-9580.
My Response was originally four pages filled with real facts and statistics – way to big to print; hence the condensed version.
Enjoy the paper as usual! I especially enjoyed the fact that the county has begun an informational column entitled “The County Cubicle.” I believe the dialogue will be very useful. So in order to put the first article “Drill, baby, drill” into prospective with a solid footing, I would like to present information that is of record via the EIA, COGCC, Baker Hughes and other reference sources regarding the base statistics presented in the column and then introduce some public discussion points for the county.
First some basic definitions:
Tcf – means a trillion cubic feet of natural gas, predominately made up of methane, measured at a standard temperature and pressure.
Bcf – a billion cubic feet of gas.
MMBO – million barrels of oil
COGCC – Colorado Oil & Gas Conservation Commission
According to the EIA, the statistical arm of the DOE, the entire United States uses approximately 22 Tcf gas per year – this has been a fairly consistent number for more than a decade. The gas producers produce from 19-21 Tcf/year. Yes, the US has to import natural gas also – some 3.5 Tcf/year (source EIA).
According to the COGCC, the yearly production sales numbers for ALL the counties in Colorado are:
2010 First four months 0.546 Tcf + 7.94 MMBO
2009 1.839 Tcf + 28.57 MMBO
2008 1.792 Tcf + 28.78 MMBO
2007 1.669 Tcf + 24.51 MMBO
Current Production Numbers (Sales) for the county are (source COGCC):
2009 61.94 Bcf + 4.94 MMBO
2008 42.30 Bcf + 5.46 MMBO
2007 40.05 Bcf + 5.68 MMBO
2006 42.33 Bcf + 5.68 MMBO
Note the oil falling off – is Rangely Field is going away?
So far in the first four months of 2010 Rio Blanco reports production (well at least the State says so) at 14.44 Bcf. This would equate to a 43 Bcf yearly pace, clearly falling off as the Piceance Basin needs to be drilled heavily and consistently to keep the production numbers high. So how does that affect the severance tax base to the state and county? To address one of the points made in the article, yes 2009 saw a peak in the gas production, but that was mainly work coming on line which was budgeted, permitted and drilled by the crash. The lead time to come online here in this state is measured in years not months as in most other states.
As to the permit discussion:
There has been much said about this permitting action at the state level as an indicator of interest in doing business in the State of Colorado. The numbers in the article for a total of 5,159 new drilling applications are true as put out by the State of Colorado. As far as I can tell, there is really no way to get an independent check on that number – all we have are COGCC staff reports to sort through. In March 2009, the month before Ritter’s new environmental laws took effect, a record 1,476 applications were submitted. In the first two months of 2009 a total of 930 new drill applications were submitted, making a total of 2,406 drill applications submitted in the first three months of the year. The final note the State of Colorado released was that only 1, 274 new drill applications were approved during the last six months of the year. From the staff reports only 2,159 new drilling applications were received from April 1 through the end of the year, a nine month period. So it appears more than half of the business was conducted in the first three months of the year before the new law went into effect. I don’t see any joy in the permit fall off numbers. In actual practice, however, the number of drilling applications does not necessarily portend actual drilling.
Maybe we should just look at the “show me the money” approach to see the potential effects of all this state regulation upon this county in the era of the “low gas price.” Before the latest bust the Colorado rig count was clicking along at 120+ rigs drilling as the nation was clocking along at about 2,000. As we rolled through the elections and the new regulations; the gas companies began leaving Colorado for places unknown. Today the national drilling has recovered to the 1,500 rigs level (data is from the Baker Hughes). Nationally then the rig count has bounced back an average of 69% since this time last year but Colorado rig count is up only 25% from last year.
Here’s how various other states have recovered:
Wyoming: up 43%
Utah: up 68%
New Mexico: up 71%
Pennsylvania: up 93%
Oklahoma: up 59%
Texas: up 98%
Hmmm…wonder why interest in drilling in Colorado didn’t come back even as close as some of the neighbors with same gas price of course? Current rig count this week in Rio Blanco County according to Baker Hughes is a whopping 7 wells. The entire state lost over 70% of the oil/gas business in the crash and it hasn’t come back and may not ever if we are to believe VP Biden.
Some of the article’s discussion details the lack of “gas prices” as being the prime driver that keeps business away. As long as the free market can continue to hold on in this nation, prices are based on supply and demand. Costs of doing business in equipment long hauls because there is no infrastructure here, the radical environmentalists, the permits, taxes, and manpower hours to get approvals from every federal, state, county, municipal and yes even the neighborhood agency doesn’t give this state much of a chance to compete for business. In addition to all those front end load cost factors, there is an unknown amount of regulation and taxes associated with the construction of well pads and plant construction. So when a businessman looks at a project based in Colorado that has the same amount of geological risk (the normal risk he is trained to evaluate rate of return on) as say a Barnett Shale well in Texas or even a gas well in Wyoming and sees this cloud of regulation settled over Colorado – he doesn’t think too long before the decision is made to go elsewhere. This is basically what we are experiencing now – the remaining operators here are just drilling their current reserve base that they can make work for less than $4.00/Mcf – there is no new gas exploration going on.
As to the county’s motto “we support the responsible extraction of natural resources” misses the point of the energy industry completely. That statement focuses on the energy industry means and methods to generate income. What if we focused on competing for the support businesses for those gas companies that are left and develop our industrial areas that would support this community for this 100 year industry? What if we spent time working with the state on these severance issues so we don’t have to “negotiate” with them for our fair share all the time?
So the conclusion is that even with a rebound in gas prices, drilling, gas plants, pipelines, etc the energy business will not return here unless there is a complete new spirit inserted in the definition of “responsible extraction of natural resources.”
Some fast fact resources:
While digging through the files I came upon the following chart that gives a visual of what has happened to Colorado: