Energy firms mix message
Investors told of riches, public of rule hardships
By Todd Hartman, Rocky Mountain News (Contact)
Published June 2, 2008 at 12:05 a.m.
Photo by Matt McClain © The Rocky/2007
EnCana Oil and Gas Inc. workers replace corroded pipe at a 3-year-old gas well outside Rifle in July 2007. Applications for drilling permits in Colorado have tripled since 2003.
Energy companies are bullish on Colorado's future, at least when speaking to investors and business audiences.
But oil and gas firms often sound a worried note when talking to regulators and the public.
Why the mixed message?
It's a reflection of the energy boom on one hand and the prospect of tougher state-imposed drilling rules on the other.
The message to the corporate and investor world is that Colorado has a bonanza of energy riches that's ready to be harvested. The message to the state and the public is that the proposed rules are so onerous that companies might have to reduce drilling, cut investment, even possibly take their rigs and go elsewhere.
Industry officials see no contradiction; critics see a good deal of spin.
The issue arises against the backdrop of an unprecedented rush for energy in Colorado, where applications for permits to drill have tripled - to beyond 6,000 a year - since 2003.
That surge in activity has sparked a backlash in some areas, where complaints about drilling's impacts on roads, wildlife and scenery have led the state to draft tougher environmental rules for the industry.
"I've been working on oil and gas policy now for 20 years in Colorado and across the country, and every single time we have tried to get a new regulation or a new law passed, industry's always had the same response: It will simply cost us too much money and we'll have to leave the state," said Gwen Lachelt of the watchdog group Oil and Gas Accountability Project in Durango.
The companies, Lachelt notes, are still here and doing better than ever, particularly as prices for oil skyrocket and natural gas increases as more pipelines open access to more U.S. gas markets.
Defending the message
Industry officials, however, defend the mixed messages, arguing they're an accurate reflection of reality: The companies are upbeat about Colorado, but worried that overly stringent rules will limit the pace of development.
"There's no question we have outstanding assets in Colorado; however, it's important to understand, when we look at the various places where we operate and allocate capital, we look at a number of factors," said Doug Hock, spokesman for EnCana Oil and Gas Inc.
"There are those pieces controlled by nature - the geology; then there are those pieces controlled by people - legislators and regulators chief among them," Hock said.
The industry's competing messages are reflected in statements from Pioneer Natural Resources, a major presence in southern Colorado's Raton Basin.
"New Shale Play in Our Backyard!" said a recent PowerPoint presentation to Pioneer shareholders. The company predicted a ramp-up in drilling in 2009 and the potential for 1,200 drill sites.
"We are very excited to increase our long-term production growth target while continuing to generate significant free cash flow," said an April news release on the discovery of more natural gas in the Raton Basin. "With extensive infrastructure in place and no incremental entry costs, the additional potential . . . is expected to generate strong returns."
Points of view differ
But executives with the same company also have sounded numerous alarms in media interviews, in public relations campaigns and other forums.
In a letter to local businesses in Trinidad, according to the Trinidad Times Independent, a top Pioneer executive, Jay Still, painted a dire picture of the company's future in the area should new state environmental regulations come to pass.
"(It) would be impossible for Pioneer to continue our present level of investment, employment and economic activity in Trinidad and Las Animas County," the letter said. "We cannot afford to maintain a 'seasonal' work force, nor can we reasonably plan our business around the vagaries of bureaucratic decision-making. All this adds up to lower employment, a declining tax base."
Asked about the discrepancy in the company's comments, Still, in an e-mailed statement, said that "based upon the current operating environment," there are strong prospects for the company's continued growth in Colorado. But, he said, that could change.
"If regulations, taxation or gas prices change and negatively impact profit margins or cause undue delays in our ability to conduct business in Colorado, we will redirect new capital investments to projects in more business- friendly areas with stronger economic returns," he wrote.
Ron Rizzuto doesn't see a contradiction in the companies' messages. He is a professor of finance at the University of Denver's Daniels College of Business who has consulted for energy companies.
"On the one hand, they can tout to the financial community, 'Look, these are great assets. They're valuable to us,' " Rizzuto said. "On the other hand, if the state is looking at imposing restrictions where it makes it more difficult to drill, more expensive to drill, they can similarly come back and say, 'You're impacting the value of our investment.' "
But Colorado's state geologist, Vince Matthews, who spent more than two decades in the oil business, said that despite the rhetoric, energy companies are eager to get in on Colorado's underground bounty.
"This is where the action is: Colorado, Wyoming and New Mexico," he said. "I think the companies that aren't in, want in badly. The problem is, the acreage is all tied up" by companies already in the game.
"People have large investments here that they're not going to walk away from. And if they did, some other company would come in and pick them up and develop the gas," he said. "I can't see that rule changes are going to cause a mass exodus."
hartmant@RockyMountainNews.com or 303-954-5048
Oil and gas industry's alternating tempo
The oil and gas industry is upbeat when describing its Colorado prospects, called "plays" in energy parlance, to investors and in news releases to business media. But it sounds far more pessimistic when talking to regulators or local reporters about the potential effects of proposed state environmental regulations on energy companies.
Here's a sample of upbeat and downbeat statements by companies operating in Colorado.
Pioneer Natural Resources (PXD)
628 Colorado employees
* Net income (2005-07): $1.65 billion
* Upbeat: "Our resource- rich Permian and Raton Basin (Colorado) acreage is expected to generate strong returns . . . This new resource potential further expands our inventory of low-risk drilling locations supporting consistent, repeatable production for years to come."
Company press release, April 2008
* Downbeat: "Our projects in Colorado must compete with projects in other states for capital investment. Additional regulations and related costs will make Colorado projects less competitive and less likely to be funded."
Kimberly Mazza, Pioneer's Western Division senior public relations adviser, as reported by the Craig Daily Press, April 2008
Williams Companies Inc. (WMB)
450 Colorado employees, plus 2,700 contract workers
* Net income (2005-07): $1.61 billion
* Upbeat: "Northwest Colorado is really a mecca for this type of operation. There's a lot of acreage to be drilled. We've barely scratched the surface. It's a world-class play that's going to be around for a long, long, long time."
Dean Tinsley, senior staff petroleum engineer, speaking at Fueling Thought Energy Summit, as reported by the Craig Daily Press, May 2008
* Downbeat: "The draft rules could result in shutting down industry operations for up to 90 days. Potential consequences could include the scaling back of industry operations and capital expenditures, resulting in serious economic impacts to the communities on the Western Slope."
Williams statement to media, April 2008
EnCana Oil and Gas Inc. (ECA)
1,000Colorado employees, plus about 1,000 contract workers
* Net income (2005-07): $12.72 billion
* Upbeat: "The Piceance Basin (in northwest Colorado) is one of EnCana's highest potential resource plays in the U.S. . . . Thick gas accumulations primarily in the Williams Fork formation . . . make this an ideal resource play - an area where technology can be methodically applied to increase recovery and reduce costs."
EnCana Web site, 2008
* Downbeat: "By creating uncertainty in the permitting process, the proposed rules could impact EnCana's capital investment decisions in Colorado."
Letter to Western Slope nonprofits, December 2007
Chevron (CVX)
* Colorado employees: Unavailable
* Net income (2005-07): $49.92 billion
* Upbeat: (Citing the Skinner Ridge Field, Piceance Basin) "Total project will eventually cover up to 40,000 acres . . . Initial facilities designed to produce up to 50 million cubic feet gas/per day, to grow over time . . . Project expected to have a 50-year life."
Presentation to Northwest Colorado Oil and Gas Forum, June 2007
* Downbeat: "These production operations are cost sensitive and the costs attributable to increased regulation will likely have a significant chilling effect on Chevron's continued operations and future investment in Colorado."
Written comments to the Colorado Oil and Gas Conservation Commission critical of proposed rules, May 2008
Bill Barrett Corp. (BBG)
* Colorado employees: Unavailable
* Net income (2005-07): $112.57 million
* Upbeat: "The Piceance program continues to be a key, low-risk, high-growth development area for the company. The company has four operating rigs in the area and plans to drill up to 125 development wells in 2008."
Company news release, May 2008
* Downbeat: "The result (of the draft rules) will be the creation of a hostile business environment for oil and gas development that will discourage needed investment."
Written comments to the Colorado Oil and Gas Conservation Commission, May 2008
BP
270 Colorado employees, plus 500 contract workers
* Net income (2005-07): $61.27 billion
* Upbeat: "The company anticipates a steady drilling and facility development program that will increase current BP net production of 12 million cubic meters per day by more than 20 percent and maintain production above present levels for more than a decade. . . . The San Juan Basin has the size and production potential that everyone seeks as a coal-bed methane prize."
BP online magazine, Frontiers, April 2007
* Downbeat: "The severity and pervasiveness of portions of the draft rules, if adopted in present form, would have a substantial effect upon producers' operating costs, industry investment decisions and ultimately would cause direct and indirect financial impacts to the citizens of Colorado."
Written comments of the Colorado Petroleum Association, which BP adopted as its position, to the Colorado Oil and Gas Conservation Commission, May 2008
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June 2, 2008
7:10 a.m.
Suggest removal
SockRayBlue writes:
Heavy on the BS to investors. Whining about regulations. Threats to leave the state. All BS!
Any ruse to empty the pockets of the unwary. Regulations are what keep them from spoiling an area. Leaving the state is a joke because where else will they go? China?
The road going west from Trinidad through the mountains is nearly impassable because of the truckers from the oil companies. The countryside looks worse than when the coal miners were there nearly a hundred years earlier.
Now there is a methane problem in the water wells around Trinidad.
Perhaps things were better when peoples in far away places were displaced and otherwise inconvenienced by the need for more resources from a more modern and distant society. Now that the chickens are coming home to roost I think a good rethink is in order about energy.
June 2, 2008
7:20 a.m.
Suggest removal
ghoax writes:
Think about this..it is a GOOD thing that energy companies are profitable and can stay in business to provide that which we NEED. As a matter of fact, here's one...it's a good thing when businesses ARE PROFITABLE period...that's why they're in business..a far reaching concept for the left. Second, it is TRUE that energy and oil and gas production has been thwarted by environmentalists who've succeeded in STOPPING development and production, go back to the Clean Air Act all the way to protecting the fruit fly....It's time for clear thinking and production, mother nature worship with their goddess needs to be removed from government. Where's the separation of church and state crowd on this issue?
June 2, 2008
7:27 a.m.
Suggest removal
DougH writes:
Saquatch: Thanks for the lecture on capitalism and the free market.
A couple of things: As Capital Investors have no loyalty to the people and resources of Colorado, but are only loyal to where they can profit the most, then why should the people not tax this resource and at least retain part of the profit for our own well being ?
The underlying resource that is being extracted for profit is part of our state , Colorado citizens are entitled to a share in the proceeds. When it is gone, the capitalists will be gone and the jobs will be gone. So a reasonable tax on the depletion and extraction of Colorado resources is fair to the State.
June 2, 2008
7:59 a.m.
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DougH writes:
Yes, but, the resource is in Colorado. Not in Wyoming or India.
I am sure the extraction people would say that ANY tax in Uncompetitive, and this news story seems to bear that out.
And Please , enough with the Capitalists that create jobs and tax receipts.. it is resources and demand that creates jobs, Caplitalists just provide the capital with an expectation of profit for their investment. That is all well and good, but resources of the people of Colorado should not be given away without compensation .
June 2, 2008
9:46 a.m.
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farsidefan writes:
I'm not up to speed on this topic but I have seen what has happened on the west slope where the drilling has taken place.
The folks over there say the impact is significant from water usage, to the area around the drilling, to infrastructure, etc.
I can understand why Wyoming has such little concern about the enviroment, there is not a whole of it from Rock Springs to Baggs ;).
I don't have the answer, but I suppose a modest compromise on both sides would work best.
I just got gas and had to restart the pump because it totalled out the first time.
June 2, 2008
9:52 a.m.
Suggest removal
windbourne writes:
Gee hank, lets ignore the fact that NM and Wy. BOTH tax big oil at much higher rates and yet have more work going on. Capital flows NOT to where it is treated best, but where it can make money. Sometimes, it is where it can make the most money. Other times it is just anyplace that it can find. But in the end, it wants the most return, and at this time, ALL of oil capital are expecting oil to go up in returns. IOW, they just want to plug wherever they can find a reserve of oil, since even at 20% extraction, they are still making large amounts of money (assuming that nearly all wells produce). BTW, the big money is chasing north dakota and they have 11.5 tax. Other than California, we are one of the lowest.
June 2, 2008
10:09 a.m.
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farsidefan writes:
I just saw this article.
http://www.nypost.com/seven/05292008/...
Can anyone comment on this without giving us a partisan viewpoint ?
I would be interested in some knowledgable insight.
June 2, 2008
10:28 a.m.
Suggest removal
soccermom writes:
The regulators are keeping the prices high, not environmentalists. The oil and gas industry is too invested in this state to go anywhere. To view maps of the areas that are leased and who owns the leases go to 'Who Owns the West? Oil and Gas Leases' at http://www.ewg.org/oil_and_gas/execsu...
Colorado's price of natural gas went up after they completed the pipeline in Northern Colorado last year. This is a global market and prices will reflect global demand.
To view the 6,055 mile long planned network of pipelines that was mandated by the Energy Policy Act of 2005, go to: http://corridoreis.anl.gov//eis/dmap/... This is a network of energy corridors that spiderwebs across 11 western states (West Wide Energy Corridor)
To make comments on the Colorado Oil and Gas Conservation Commission draft of the Standard Operating Practices (required by House Bill 1298 which was passed last year) go to: http://oil-gas.state.co.us/Rulemaking...
Comments are due June 5. If you value your property rights, clean water in your well, preservation of state wildlife areas, clean air on the Western Slope, etc. please go to their website and leave a comment. Anyone can participate, not just the oil and gas interests.
To see what the impacts that are caused by drilling that doesn't have sound operating practices in place go to the Rocky Mountain News page Spotlight 6, Saturday May 31, 2008 and see what they have done to the Pinedale area in Wyoming.
These regulations will make the playing field even for all companies and will protect the land, air and water resources. Don't let them scare you into thinking they are going to leave.
June 2, 2008
12:56 p.m.
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DougH writes:
Soccermom, we are truly in an Alice in Wonderland World when you say the regulators have kept prices high. Perhaps you have lost track that it was DEREGULATION that allowed for the takeover of our Public Service Company by Excel Energy of Minneaplis and the subsequent building of the gas pipeline. Our gas prices will be much higher now thanks to Deregulation of a vital resource.
I am am quite sure that any regulations you may be citing were written by lobbyists for the energy companies and paid for with campaign donations.
June 2, 2008
1:09 p.m.
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DrillingTrinidad writes:
It's truly a two edged sword, sharp as heck on both sides....
West of Trinidad every other 35-40 acre parcel is subject to having a Gas Well on the property. We are talking the entire area in Las Animas County west of I-25. This just happens to be where most residents in the County live. So if you don't have a gas well on your property there will be one next door.
The taxes paid by the Oil and Gas Industry to Las Animas County has made a huge difference for the County, which is good. The County Roads are much better than they were 10 years ago mainly due to the Gas Industry so that is very good.
The drawback is that the County Roads and Ranch Roads were not designed for Semi-Truck and Drilling Rig traffic, in fact most are not wide enough for two cars to pass. This is very dangerous and although the heavy equipment needs Pilot Cars on Highway 12 I don't believe they are required on the County or Ranch Roads. I could say that is a fact because I have personally been run off the road too many times to count. It's go off the road or get run over.
There is not much other choice on this and there is no local enforcement to slow these rigs down and hence no type of protection in the matter for local residents. Its' move over or get run over because those heavy rigs and water trucks are carrying a lot of weight. So far the only people that I know of who have been killed have been Gas Company Employees. I have said for a long time that until a County Commissioner's family member gets seriously hurt or worse (God Forbid) this will not change.
Now imagine you are escaping the Big City for a Weekend of enjoyment to your property in Las Animas County. And let's suppose that there is not a gas well on your property then most likely there will be one on each of the four properties adjoining yours. And each Gas Well Site has at least one if not two 8 cylinder gas motors converted to run off methane gas running on each well pad. They run 24 hours a day 7 days a week. Can you imagine the noise?
In order to harvest the Coalbed Methane the Gas Companies have to pump off the water and dispose of it somehow either by deep injecting it else where or by putting it on the roads. Very little of the water can be put to beneficial use as it would then be considered under the jurisdiction of water rights owners and is also regulated by the EPA.
They say that it doesn't affect our ground water but who with good common sense could think otherwise?
to be continued below...
June 2, 2008
1:10 p.m.
Suggest removal
DrillingTrinidad writes:
Continued...
Numerous water wells have gone dry and some have even had water shooting up 4-6 feet high out of their well as they drilled a gas well 1/4 mile away or more. Oh but didn't you know that the Gas Wells don't affect our water wells, that is what the Gas Companies tell us. Sure some local wells go dry from the drought and just because of the area we live in, water is sometimes difficult to find and to keep. A good reason why the Gas Companies disposing of millions of gallons of water per day is not good for local residents.
Everyone is looking the other way when it comes to the water issue. Every day we see Water Issues in the news all over the State of Colorado with farmers and ranchers and cities and towns dealing with the water issues. But when it comes to the Gas Industry the issue of the value of water is overlooked. Why is that?
In particular in Las Animas County a few years ago when Trinidad and most of the other front range cities went on water restriction it was mentioned by local residents that the City of Trinidad should cut off all outside the city water haulers. Seems the only source for water for local county residents is from a City Supplied Water Source. Now if we should go back into a drought and many of the local wells have gone dry from the effects of Gas Well drilling or the drought and the City of Trinidad shuts off all outside water haulers where would the County Residents get their water?
Las Animas County has no water sources! Period. The Division of Water Resources turns their head when it comes to the produced or what is called waste water from the Oil and Gas Industry but I can tell you that the minute you start selling your water from your Domestic Water Well they will shut your well down so quick. So where would a resident from Las Animas County get its water if they can't get it from their own well that went dry or from the City of Trinidad?
I am pretty sure that the local or state officials have not considered these issues. How much would our properties be worth if you could not get water locally after the Gas Industry has removed the water from the ground and harvested their methane gas, who is going to bring us the water that they took?
Yes there should be serious regulations imposed to protect our water! And to protect us on our roads and to protect us from the noise polution too.
We want our gas too but at what price do we have to pay? They make the money and we pay the price....
June 2, 2008
1:21 p.m.
Suggest removal
DrillingTrinidad writes:
Here is a visual of the permitted Gas Wells in Las Animas County here on this link below.
http://blog.trinidadco.com/wp-content...
Each red dot represents a Gas Well that is pumping out many gallons of what is called "Waste Water" each and every day.
this was taken from the Colorado Oil and Gas web site at
http://oil-gas.state.co.us/infosys/Ma...
June 2, 2008
2:39 p.m.
Suggest removal
Copow writes:
Using cost as a barrier rings hollow. Oil and gas companies will leave after this finite resource has been completely harvested, and not until then. So the question becomes, do we allow this to happen in our lifetime without enviromental barriers and leave a wasteland for our children, or allow this with enviromental barriers that will provide the positive economic impact in the future, benefitting our children. Why the rush? Why not wait until all the resources of the Middle East are depleted first?
June 3, 2008
5:59 a.m.
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soccermom writes:
DougH,
Yes, I should have worded that differently. I made it sound like the COGCC regs are going to keep the prices high when that is not the case. We need better regs to protect the environment, and protect landowner rights such as the ones that Drilling Trinidad gave as examples.
DT
That map is scary, lots of red dots. They are having water issues in Huerfano County also, and the oil shale extraction process that Shell is working on requires a lot of water as well.