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Enjoy the paper as usual. I especially enjoyed the fact that the county has begun an informational column titled “The County Cubicle.” I believe the dialogue will be very useful. So in order to put the 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 and 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 U.S. 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 the Rangely Field 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. he 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 plus 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 percent since this time last year, but Colorado rig count is up only 25 percent from last year.
Here’s how various other states have recovered:
Wyoming: Up 43 percent
Utah: Up 68 percent
New Mexico: Up 71 percent
Pennsylvania: Up 93 percent
Oklahoma: Up 59 percent
Texas: Up 98 percent
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 seven wells. The entire state lost over 70 percent 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/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.”