Record in making

Oil and gas drilling permits on pace to surpass 2005 high

Gargi Chakrabarty, Rocky Mountain News

Tuesday, April 18, 2006

Colorado's rambling oil and gas industry isn't slowing down, and by the end of the year it likely will notch another record.

The state issued 1,327 permits to drill oil and gas wells from Jan. 1 through April 14 this year, according to the Colorado Oil and Gas Conservation Commission.

At that rate, Colorado is projected to issue a record 4,650 permits by year's end, said Brian Macke, the commission's director.

That would be a 6.5 percent jump from the record of 4,363 permits approved in 2005. And last year was nearly 50 percent higher than the 2,917 permits approved in 2004.

The only potential roadblock is that the drilling is coming in conflict with the state's growing population.

More permits, of course, mean more oil and gas.

Based on year-to-date reports, the commission estimates that Colorado will produce a record 3.37 billion cubic feet of natural gas per day by the end of this year - 6 percent higher than a year ago.

"We expect this high level of oil and natural gas activity to persist because of continuing high energy prices," Macke said. "Colorado's very rich natural gas resource has made it a state that oil and gas operators are very interested in, regarding their exploration and development activities."

The construction of new pipelines in the region is encouraging operators to drill more, Macke said. Operators now can ship oil and natural gas to other areas - mainly the energy-hungry Midwest and East Coast - where the commodities fetch higher prices.

For example, Houston-based Kinder Morgan Energy Partners LP and Sempra Pipelines & Storage, a unit of San Diego-based Sempra Energy, are planning to build a $3 billion pipeline to carry natural gas from Weld County to the Midwest and East.

The 1,350-mile pipeline would begin partial service by late 2007 and full service by 2009. The pipeline already has secured commitments from several companies to use it for energy shipment.

Two other Texas companies, El Paso Corp. and Kinder Morgan Inc., also are building pipelines in the Rockies.

Greg Schnacke of the Colorado Oil and Gas Association said Colorado has potential for higher energy production but operators are stymied by various challenges.

Top-producing counties such as Weld and Garfield are experiencing population growth, leading the energy industry to lock horns with the housing industry over land use.

Schnacke referred to the recent case before the oil and gas commission regarding expanded drilling in the Wattenberg Field, near the Denver International Airport. Three energy companies - Kerr-McGee, EnCana Oil & Gas, and Noble Energy Inc. - want to drill 60 percent more wells in the field, despite concerns from residents.

Although the companies got the nod from the commission, some residents have taken the case to the courts.

"Colorado has attempted to address those challenges," Schnacke said. "The problem is, on one hand the public opinion is to have more domestic production of energy but nobody wants drilling near where they live."

The oil and gas industry often has pointed out that higher production means more royalties and severance tax, and ultimately more revenues for local and state governments.

In fiscal year 2005, the state land board received $41.7 million, up from $25.8 million in fiscal 2003, from mineral royalties and rentals on state-owned land. The state owns more than 4 million acres of mineral land, and the revenues from these lands are distributed to the state's school districts.

The highest jump, nearly 70 percent, was in property taxes collected by local governments from minerals properties. Counties collected $227 million in property taxes from mineral properties in 2005, compared with $134 million in 2004 and $153 million in 2003.

Questions persist about the energy boom's impact on the environment. Activists have criticized leasing federal lands for oil and gas drilling, often in environmentally and ecologically sensitive areas.

"Hunting, fishing, recreation and retirement income are more important to our economy than the oil and gas industry which accounts for less than 1 percent of the total personal income in Colorado," said Pete Morton, an economist with the Wilderness Society. "As the fast pace and large scale of the oil and gas drilling increases, so do the risks to Colorado's clean air and water, our wildlife and our economy."

chakrabartyg@RockyMountainNews.com or 303-892-2976