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New rules blamed for cuts in oil, gas drilling

Up to $1 billion lost to state, legislators say

Gargi Chakrabarty

Published April 18, 2008 at 7:30 p.m.

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As much as $1 billion in oil and gas investment is bypassing Colorado because of what the industry perceives as interference from Gov. Bill Ritter's administration, state legislators told the Rocky Mountain News this week.

Sen. Josh Penry, R-Grand Junction, said several energy companies have told him they are cutting back on new investment that amounts to up to $1 billion. Sen. Chris Romer, D-Denver, said he has heard similar complaints from energy lobbyists, but he puts the amount at $500 million.

The companies say the Ritter administration's overhaul of drilling rules is not only turning Colorado into an uncertain regulatory climate but also increasing the cost of doing business.

"It's clear that the energy sector is significantly scaling back new investment in Colorado," Penry said. "There's tremendous uncertainty regarding where the new rules are headed, or what they mean. The sooner the certainty can be established, the better it is for Colorado."

The proposed rules were prompted by mounting complaints from residents living near rigs about noise, odor and adverse impacts on health, environment and wildlife. Some rules are scheduled to go into effect July 1.

"We'd be disappointed to see a company reducing their investment in Colorado," said Dave Neslin, acting director of the Colorado Oil and Gas Conservation Commission - the state agency writing the rules.

State officials and environmental groups supporting the proposed rules were skeptical that investment was being cut down because of regulatory reasons. Rather, Colorado's weak gas prices - the result of pipeline constraints - is the probable reason, they said.

EnCana Oil and Gas has said the new regulatory hurdles caused them to bypass Colorado while deciding where to spend $500 million in additional investment. The money went to Texas and Wyoming, they told the Rocky.

But on its Web site, EnCana touts the Piceance Basin in Garfield County as its "fastest- growing and highest potential resource play in the U.S."

Also, in a 2007 report, EnCana said: "Natural gas per unit production and mineral taxes in the U.S. decreased $0.15 per Mcf - or 31 percent in 2007 compared to 2006 - mainly as a result of lower natural gas prices in the U.S. Rockies and a reduction in the severance and ad valorem effective tax rate for Colorado properties."

EnCana spokesman Doug Hock said the company hedges production; hence, lower prices don't impact investment strategy. Moreover, the newly built Rockies pipeline is pushing up prices.

"Regulatory climate is part of business. You can't separate those two," Hock said. "We looked at this jurisdiction versus others and chose to allocate the majority of investment elsewhere."

Pioneer Natural Resources says its budget this year is $100 million less than last year because of additional (proposed) rules and related costs.

But Neslin took issue. "In an investor presentation dated April 2008, Pioneer said profits are going to increase due to operations in the Raton basin," he said. "It's hard to reconcile that with a statement that they are reducing operations in Colorado."

EnCana and Pioneer are among 600 companies operating in Colorado. Their decision comes as the energy industry continues its boom, with requests for drilling permits already more than 400 ahead of last year and on track to break the 2007 record of nearly 6,400 drilling applications.

"I can guarantee the oil and gas is not going anywhere," said Mike Chiropolos with Boulder- based Western Resource Advocates. "Somebody will come along and be willing and excited about developing that oil and gas in compliance with new rules, and who can turn a profit."

Romer said he believed companies were changing their investment strategy, but it was a temporary phenomenon.

New pipelines, coupled with appropriate changes in the proposed rules, will return Colorado among the top oil and gas investment destinations - as ranked by the Fraser Institute in December, Romer said.

chakrabartyg@RockyMountainNews.com or 303-954-2976

Revised rules

State regulators announced a revised draft of proposed drilling rules in March.

* Paperwork: New form eliminated. Information requests trimmed from 17 to eight.

* Consultations with other agencies: Must be conducted within 40 days instead of 60 and only if the operator seeks a variance

* Wildlife protections: Drillers restricted from habitats for a maximum of three months a year instead of most of year. Restrictions cut from 11 pages to four.

Comments

  • April 18, 2008

    9:08 p.m.

    Suggest removal

    dakar writes:

    There obviously should be certain rules and regulations associated with oil drilling and they have the money and technology to do it in a safe and clean way. However Ritter is slowly trying to push oil and gas away from Colorado. Oil is a big part of the economy here and to lessen it at a time like this isn't very wise or beneficial. It will further drive down home prices and leave fewer jobs available. And regardless of anyones opinion, oil and gas are very necessary part of our lives. Gasoline at $4/gal and high nat gas prices do not benefit most people. Limiting supplies only encourages those increases.

  • April 18, 2008

    10:40 p.m.

    Suggest removal

    justright writes:

    The massive increase in permits to drill is a result of these new rules. They want to get the permit before the rules change. Once the new rules take place, you can watch investment dollars flee to more profitable states like Kansas, Wyoming, North Dakota and Montana.

  • April 19, 2008

    9:35 a.m.

    Suggest removal

    mfas writes:

    This is from the Rocky Mountain Oil Journal:

    Rig Count04/11
    As reported by Hughes Christensen

    State/ Now/ wk ago/ mo ago/ yr ago
    Colorado 123 123 118 107
    Kansas 12 12 11 14
    Montana 12 14 10 23
    Nebraska 0 0 0 0
    Nevada 3 3 4 2
    New Mexico 76 74 74 76
    North Dakota 55 54 59 30
    South Dakota 3 2 2 2
    Utah 38 38 42 43
    Wyoming 72 68 66 70

    You can check it out yourself at www (dot) rmoj (dot) com

    We pay record high prices, oil and gas companies make record high profits, they drill record high numbers of wells, they plaad poverty, the politicians they pay defend them and the newspaper reports their press releases.

  • April 19, 2008

    9:59 a.m.

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    ffdwd writes:

    Using rig counts are a misnomer. Piceance Basin drilling targets the tight sands of the Williams Fork formation which require tighter drill spacings to produce natural gas (40-acres with trial tests going to 20-acres). DJ Basin drilling in eastern Colorado targets fractured Niobrara also on 40-acre tracts. Both plays require more wells to get the same about of gas out of the ground as other basins. Both areas are a margin game with average ROI per well in the 10-15% range, but revenues can be high given the large number of wells drilled - but this requires large investments. Any regulatory changes can effect these tight margins and change the economics substantially.

  • April 19, 2008

    1:02 p.m.

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    greenleaf writes:

    Froward69,

    I'm doing basically the same thing with my home and business. Good for both of us!

  • April 19, 2008

    2:13 p.m.

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    justright writes:

    Angry issues Froward69,

    I am glad you are working on getting off the grid. You and greenleaf are part of the solution but unfortunately it doesn't work for the masses. The school teacher down the street, or the policeman on the corner or the manager working the local Taco Bell just don't have the background or even care about getting off the grid. The school teacher doesn't even know what that means.

    Also you are clueless if you think there is unregulated drilling going on now. It takes months and months to get a drilling permit.

    Greenleaf,
    Do a search on "bakken shale". That will be the next major oil boom right here in the the good old USA. Especially if some of the estimates I am hearing are correct. The current USGS has the reserves at 4.3 Billion barrels. That is a 25 fold increase over a 10year time frame based on technolgy. I think the reserves will go up another 100 to 500 Billion barrels and be more than twice the size of Saudia Arabia. It is too early to tell for sure but....

    Now think about the 10 to 20 oil shale testing projects going on in Colorado, Utah and Wyoming. That reserve is in the trillions of Barrels of oil.

    I still support your wind mills, solar, geothermal, hamster wheels and other renewables has long as I don't have to pay for it. I hope you will support the development of these new unconventual resources for the masses.

  • April 19, 2008

    4:36 p.m.

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    bctele writes:

    Why do we live in Colorado? For profits or the quality of life for ourselves and our families? What's more important in our lives? History in the oil & gas indusry has shown that regulation is necessary. We all pay our fair share in taxes. Most who live here could make more money elsewhere, but we CHOOSE to live here. We don't need the oil & gas companies... they need Colorado properties... The oil industry needs to respect our environment and pay its fair share. If they choose to leave us alone then fine. The resources will be there for when it's worth there investment.

  • April 19, 2008

    5:40 p.m.

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    greenleaf writes:

    justright,

    How are you buddy?

    I always enjoy our discussions. We may disagree on some points but we can always speak civilly to one another. I will check out bakken shale in the next day or so. However, if its anything like our locally deposited oil shale I will likely still be opposed to the concept, but I'll try to look with an open mind.

    I appreciate your objectivity for renewable energy, especially my personal favourite, the hamster cages ( a grossly underutilized resource).

    Actually, you might want to pay for certain concepts justright as they may save you money in the long run. You know I believe in conservation being one tool in the tool box, maybe not the biggest but certainly the least controversial and the only one that promises immediate return on investment.

    As an early adopter of energy saving technology, I am helping to make it more affordable and available to the masses. Or did you mean shale technology?

  • April 19, 2008

    6:49 p.m.

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    justright writes:

    Yes greenleaf I know you are a big pusher of conservation and I think that is great. I have a house full of mercury laidened light bulbs. Of course I will have to get the haz mat team out here to clean it up if one of my children breaks one but I am doing my part.

    The Bakken shale play is a "traditional" oil play in that we drill a hole and out comes oil. It was technologically and economically not possible 12 years ago. It is part of the "unconventional resource" plays that are being developed. The Roan Plateau is also an unconventional resource.

    Conservation will happen but while you and I conserve China, India and the rest of the emerging markets are consuming those barrels of energy we chose to conserve. Therefore we will never conserve are way out of the situation.

    It comes back to we need ALL energy. Wind, solar and some renewables will have some play but carbon and still king.

  • April 20, 2008

    5:36 a.m.

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    TeresaBinstock writes:

    Worshiping at the altar of the growth economy may have to fade away as did the worshiping of golden calves.

  • April 20, 2008

    7:34 a.m.

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    greenleaf writes:

    justright,

    I had a chance to read a little about the Bakken shale. I am much more comfortable with the idea of a highly productive oil field that technology has suddenly made accessible than anything having to do with oil shale or tar sands. It would be our oil and wouldn't have to be transported thousands of miles past unfriendly nations and over dangerous seas. So far, so good!

    As one who does believe in Climate Change/ Global Warming, I still feel that we need to make a concerted effort to move beyond the carbon economy. I know that we will need coal, oil, and natural gas for decades to come and for that reason I would prefer that we develop the Dakota site over ANWR or oil shale. The Bakken field might buy some time as we finish the R+D of alternatives.

    I will always push conservation, just right, because it is the extravagant waste of a valuable resource that has gotten us into this mess in the first place. Unlike Al Gore, I put my beliefs in action and have always been an early adopter for conservation technology. You mentioned CFLS. I bought first generation CFLS nearly 20 years ago. I paid $28/bulb and they flikered to a start and had the harsh light quality of a shop light. They also had ballasts too big to use in many applications and had more mercury than modern units. As inferior as they were to modern bulbs, three of the original five came close to paying for themselves and two are still working today and may have paid for themselves two or even three times. By being an early adopter, in my small way, I kept production lines going and helped encourage improvements to the basic product. Many conservatives laugh and call this a "feel good" concept. It did make me "feel good" and I wouldn't go back in time and not buy CFLS just so that I could "feel bad". I am convinced it was the right thing to do.

    As for the mercury in the bulb, I am confident that solutions for that problem will be found before your bulbs burn out in 5-10 years!

    I remember 40 years ago in my high school chemistry class, we were allowed to play with little drops of mercury on the lab tables. Mercury is the only metal that is liquid at room temperatures. It was great fun moving it around and separating it into little drops and making it flow from surface to surface! Our teacher didn't warn us that ingesting one drop would probably kill us. He did, however tell us to wash our hands, but he told us that whenever we finished a lab. I didn't realize until more advanced college chemistry how potentially dangerous what we were doing was.

    A little perspective: people have been throwing long tube shop and office light fluorescents into the dumpster for generations now and you've never heard anything about it have you? My understanding is that a standard 60 watt long tube light has 4-5 times the mercury of a CFL. Maybe the CFL revolution will raise awareness of the need to recycle the mercury in long tube bulbs as well.

  • April 20, 2008

    10:03 a.m.

    Suggest removal

    justright writes:

    Man your old Greenleaf, just kidding

    I did not no that about Flourcent light bulbs and their mercury content. Thanks for the info. I have noticed there are some really good "posters" like yourselve, with great knowledge on some issues. I also like some of the tart tongues and quick wit that some of the posters have.

    Me on the other hand if there is a new beer that needs tested, I am the guy. I will leave the light bulb testing to you until the product is good for the masses.

    By the way I think conservation is always the "right" thing to do, fortunately I tend to pick and chose which things I want to conserve on. I am pretty much a market guy on conservation. Cheap gas big SUV, expensive gas wellllllll we will see.......

  • April 20, 2008

    12:03 p.m.

    Suggest removal

    greenleaf writes:

    justright,

    I may be getting old, but I like testing beer too! Its actually a lot more fun than testing bulbs!

    As for the SUV comment, what if you could have your big car and drive it too, even with expensive gas? About a year ago, I read an article in an auto magazine where engineers designed a full sized SUV that was able to achieve 35 combined MPG. They were able to do it with existing technology (true hybrid technology) and super light and super strong graphite ( if I remember correctly only the engine and moving parts had any metal). The only problem that I saw was that they were too close to the ground for any kind of off highway driving( my Prius has the same problem). Also , in an attempt to make them more aerodynamic, their streamlining made them look more like a sleek oversized sports car; it would take a little getting used to, but you know that someone somewhere is probably working on it.

  • April 20, 2008

    12:31 p.m.

    Suggest removal

    justright writes:

    Hey I would go for 50MPG if they made it. We should see some of that technology over the next several years. Unfortunately a lot of that technology is hype.

    But I am a "have my cake, ice cream, whip cream and cherry on top" kinda guy.