Survival mode: energy industry hurting locally

The number of natural gas drilling rigs in the Piceance Basin declined from 102 in September 2008 to 26 last week, and energy companies have slashed their capital project budgets twice this year.

So far in 2009, companies have invested almost $1.5 billion less in the Western Slope than during the same time frame in 2008 and expect to continue layoffs throughout the summer and fall.

"The industry is in a survival mode, locally," said Carter Mathies, a partner with Arista Midstream Services, during the Fueling Thought Energy Summit 2009 event last week.

He hoped his presentation, which included the above statistics and others, would awaken politicians and residents to the real possibilities of what the near future might hold for the Western Slope.

"The purpose of my work is so you can never again point at the industry and say, 'Well, we didn't know, they didn't talk to us,'" he said. "Governments and all businesses, you need to change the way you do business and get out in front of what's going on."

That means saving money and reconsidering any big spending items.

Mathies is a partner with Golden-based Arista Midstream Services, an energy industry support company that gathers and treats oil and gas for producers, in addition to handling byproducts like contaminated water and carbon dioxide.

He said he was given access to the information in his presentation because he is trusted within the industry and after he promised to keep the information anonymous. Companies don't hold back information because they want to keep the public in the dark, but because they don't want to give sensitive business information to their competitors.

By combining data and keeping specific statistics anonymous, Mathies can protect their interests and also give those outside the industry what he considers "vital" information.

In short, the worst of the energy industry's downturn is yet to come and may not hit bottom until the end of 2009, he said.

Mathies refused to put the situation in terms of booms and busts, despite the state of the industry now in the wake the heights it reached in 2007 and 2008.

The driving force behind the recent escalation in activity, and one of the primary factors in its collapse is cash, he said. The industry had "unlimited" access to capital loans for six years until the national recession began last fall, without which, far less would have been possible.

"When we have access to capital in a decent profit environment, you see activity levels drive up," Mathies said.

The country never will have the same loan availability as it did 10 months ago, however, so waiting for a national economic recovery to save Colorado's energy industry is foolish, he added.

"Never again will there be over 100 rigs operating at the same time in the Piceance Basin," Mathies said.

But, there are other issues that, if addressed and coupled with an end to the recession, could help the Rocky Mountain region recover.

The state's new drilling regulations - approved by the Legislature this year - increase industry costs, which means companies have to fetch a higher price for natural gas before they're willing to develop and sell their product.

Although natural gas prices have sunk nationally, they are even lower in the Rockies because limited pipeline capacity has caused a regional supply buildup.

Mathies said the Ruby pipeline project that will connect pipeline systems in Wyoming and Oregon, slated to go online in 2011, will be the first major increase in capacity from now.

In the meantime, the new regulations will discourage investment, which will drive down production, Mathies said.

"The new rules have a significant impact," he said. "It's no coincidence that the worst losses in activity in the country have been in Colorado and New Mexico, places with adverse-to-industry governments, sweeping new rules instituted in the last few years and a predominance of federal lands, which take longer" to permit.

Without companies drilling new wells, there will be less work, less demand for construction projects and less tax revenue, Mathies said.

That is why he said businesses and governments need to get out in front of the situation instead of hoping for things to turn around soon.

Collin Smith can be reached at 875-1794 or cesmith@craigdailypress.com.

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