Energy companies are taking conservative approach to ’09

Companies’ plans tied to U.S. economy

RBC — With the slowdown in the economy and the uncertainty of the markets, energy companies operating in Rio Blanco County are approaching the new year accordingly.
“We can’t speculate about 2009, because we don’t know what the economy will do,” said Jim Lowry of ConocoPhillips. “Our 2008 capital budget is progressing according to our previously developed plans. Our company’s 2009 capital expenditures will be released in mid-December.”
Companies are moving forward, but they are proceeding more conservatively.
Susan Alvillar with Williams Energy said, “We’ve made the decision to operate out of cash flows and not borrow any money.”
Alvillar said Williams expects to complete construction of a new $350 million gas processing facility in the Piceance Basin in late spring or early next summer.
“Ultimately, we will have about 21 or 22 people who will operate the plant,” Alvillar said. “They are being hired now and helping build the plant, so they will know the nuts and bolts of the plant inside and out.”
Energy companies are not only feeling the effects of the economic downturn, but they are also dealing with the state’s new oil and gas development rules.
“We are trying to figure out how to implement them,” Alvillar said. “We know they will cost us more money. Time will tell us how how much. Taking a look at all of the restrictions has taken a lot of time and effort.”
Rick Fullmer, regional manager for Enterprise Products, said development is slowing down, based on the economy also slowing down as well as the impact of new state regulations.
“As reported by various producers in the region, development is slowing down due to local production economics caused partly by regulatory requirements,” Fullmer said. “Since we are a service provider to the producers in the region, our expansion plans are also slowing down to match the producer needs.”
Meanwhile, Tracy Boyd, a spokesman for Shell Exploration and Production Co., said it is business as usual for its ongoing oil shale development project.
“At this point, we don’t see any changes to our ongoing research and development activities in Colorado, based on the U.S. economy,” Boyd said. “We started our research in 1981 when oil prices were very low, and we have known all along that this would be a long, slow process. We haven’t sped up the pace in times of high prices, and we haven’t slowed things down because prices were low.
“That said, we have had ups and downs in the pace of the project that have correlated to other factors, such as research and the flow of internal research funding,” Boyd said. “Our objective is to do it right, not do it fast, and to us, ‘Doing Oil Shale the Right Way’ means we will pursue our research toward a commercial project in a manner that is economically viable, environmentally responsible and socially sustainable.”
Doug Hock, a spokesman for EnCana, said his company is in the process of finalizing plans for 2009, and officials are keeping a close eye on the economy.
“We are actually right in the middle of planning,” Hock said. “We have not made any final decisions. We will be announcing our capital budget plans for next year by the middle of next month. However, given the current economic conditions, we are approaching (the 2009 budget) in a conservative and prudent manner.”
Hock called the Piceance Basin “the most economically sensitive in which we operate.”
“It is cost sensitive, due to costs, regulations or taxes,” Hock said. “Any kind of changes are felt much more in the Piceance Basin than some of the other basins. The margins are more sensitive. There are a couple of reasons for that. The topography, drilling in a mountain area. And the pipeline takeaway capacity. You have a situation where you don’t have the pipeline capacity to deal with the production, so you get a lower price.”
Hock said EnCana was “well-positioned” to move forward, but economics would dictate whether the company maintained its level of activity in northwest Colorado.
“As a company, we have a strong balance sheet,” Hock said. “We do have a strong presence in Colorado, and we will continue to do so. We have spent $500 million a year in Colorado for the last several years. Just how much we will spend next year will depend. We have a lot of opportunities and choices in a lot of different basins. We can choose where to allocate resources based on return. We may get a better return in Texas or Louisiana. We will look at that when analyzing our budget.”
Debbie Morlan, sales and use tax administrator for Rio Blanco County, said she has not noticed a drop-off in activity. But it was difficult to predict what would happen next year.
“It’s hard to say,” Morlan said. “I haven’t heard anything, to this point, that would make me believe there’s going to be a sudden, substantial downturn.”

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