Energy companies plan for regional pullout
November 27, 2008
The lights are dimming on Northwest Colorado’s energy future.
Energy companies across the country are reducing their capital budgets, and there are issues discouraging development in the Rocky Mountain states, despite the area’s wealth of resources.
Moffat County has seen the slow down. Whereas it saw between 125 and 145 drilling applications in each of the past five years, only 42 have been filed in 2008 to date.
Jeff Comstock, county Natural Resources Department director, termed the change “dramatic.”
“These applications are typically good for one year, so I look at that as a pretty good forecast into what’s coming,” Comstock said. “I haven’t seen that kind of a drop since I’ve been doing this, so I don’t know what that will mean for the county.”
However, one thing is certain: The county stood to earn about $100,000 on a land lease with Pioneer Natural Resources, not including future royalties. Comstock learned Monday the deal would not go through because of the company’s budget cutbacks.
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Marianna Raftopoulos, Moffat County resident and a consultant with the Colorado Oil and Gas Association, said she knows of three companies drawing down their investments in the Rocky west and Colorado: Chevron and EnCana, big players in the Piceance Basin, as well as Questar, which operates one of the biggest natural gas fields in Moffat County under its subsidiary, Wexpro.
EnCana spokesman Doug Hock said there is a “one-two punch” affecting his company: low natural gas prices and low pipeline capacity. Chevron officials could not be contacted by press time.
Although EnCana invested between $500 and $600 million in 2008, Hock said there would “certainly” be less in 2009. He expects the industry as a whole to do the same thing, and added there were estimates of a 40 percent decrease in active drill rigs in the Piceance next year.
Although the basin is known as the richest in natural gas in the state, it also is one of the most economically sensitive areas EnCana works in, Hock said.
“There’s not enough pipeline capacity,” he said. “We can’t ship it out of the Rockies, and consequently, we can’t sell it for a very good price, compared to the rest of the country.”
It’s also relatively expensive to drill and lay pipe, Hock said. Added together, there’s not much wiggle room before EnCana can’t profit from its investment, and there are more profitable options out there.
“We have lots of land in the U.S. and Canada, and we have a lot of choices of where to operate,” Hock said.
At the moment, Louisiana and Texas may be better for business, he said.
Paul Matheny, Questar vice president for the Rockies region, said the same thing.
“We have certainly rearranged our drilling plans and significantly decreased the amount of money we’re going to spend on natural gas drilling in the Rockies, at least for one year,” he said. Wells “cost more to drill than they make in revenues.”
Questar plans to cut about $1 billion from its overall 2009 budget, all coming out of money previously invested in drilling and buying land, Matheny said.
“Had business conditions remained attractive, we probably could have spent the same or more again,” he said. “But, what we’re going to do as a company is not really that different than most other companies in our business, which is not spend any more money than our cash flow.”
Over the past few years, companies reinvested about 120 to 130 percent of their revenues into drilling new wells, Matheny said. However, companies can’t borrow money now because the credit markets have closed up, so the industry will have to live off of earnings and savings.
Neither EnCana nor Questar plan to cease new Rocky Mountain developments, but neither plan to put much money into the region until business conditions improve, either.
Moffat County may be among the hardest hit, Comstock said, because it’s not that easy to find gas here. It’s known as an exploratory area, a place for companies to sniff around and see what they find.
“We’re the place they go when they have extra money,” Comstock said. “We’re the surplus, the bonus. (Companies) may stay in their proven operations elsewhere.”