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Colorado's gas industry following trend in the United States
Herald Denver Bureau
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The Colorado Democrat and the Alaska Republican could hardly be more different politically, except for this: Both governors used their power to take on the gas and oil industry, and both paid a price for it.
Ritter rewrote the book on environmental regulations for the industry. Palin raised oil taxes.
They both take blame for chasing the industry out of their states. Palin resigned last summer, and Ritter is not running for a second term - although both governors say the gas and oil fight had nothing to do with their career choices.
Alaska Republicans now have plans to lower the taxes Palin approved. Colorado Republicans kept up their steady criticism of Ritter last week.
“The results are in," said Senate Minority Leader Josh Penry, R-Grand Junction. “If you compare the loss in drill-rig count in Colorado, and in particular the Piceance Basin, to surrounding states - New Mexico, Utah, Wyoming, for example, not to mention states like Pennsylvania that have seen an increase in energy production - it's clear that these rules have taken a bad situation in the commodity environment and made it dramatically, dramatically worse."
It is a criticism often heard from Republicans and shared by the party's leading candidate for governor, Scott McInnis.
In both Colorado and Alaska, defenders of the governors blame the energy industry's decline on the recession and the low prices it caused.
To see who is right about Colorado, The Durango Herald looked at data on drilling rigs and gas production.
The analysis shows that Ritter's defenders are mostly right. The industry crashed nationwide, and it now is on a nationwide rebound, largely because companies are turning their efforts to shale gas in big Eastern states.
However, critics can point to data that shows slower drilling activity here in recent months than the national average.
National decline followed prices A chart of drilling rig numbers in Colorado looks a lot like the national numbers. And both charts closely track the price of natural gas. There's a spike in 2008, followed by a steep drop and now a recovery.
Alaska State Sen. Hollis French made the same point when defending his state's oil taxes at a hearing against critics who blamed the industry's decline on high taxes.
“It just happened to start two years ago, when we passed (the oil tax)," said French, a Democrat who is running for governor. “I think we need to be cautious about drawing too many conclusions when we see this kind of drop across the nation."
A similar situation happened in New Mexico, which adopted tougher rules for gas and oil waste pits about the time Colorado was passing its environmental rules.
The state's industry didn't fall until national prices crashed, said Jodi McGinnis Porter, a spokeswoman for the Energy, Minerals and Natural Resources Department.
“What we've noticed is everything correlates to price. The price of gas peaked in the summer of 2008," Porter said. “Drilling was going nuts."
Pa., La. lead the pack It's going nuts again in Pennsylvania, Louisiana and a few other states.
McInnis pointed to Pennsylvania in a campaign speech last Monday. (His Democratic opponent, Denver Mayor John Hickenlooper, also has said he doesn't support all of the rules, although he hasn't specified which ones he doesn't like.) “This is punitive - the toughest rules in the United States. What happens? What happens is what you would expect to happen. They've left," McInnis said. “We have lost thousands of jobs. The actions of the governor and the inactions of the mayor have been the best jobs program the state of Pennsylvania could have ever had. And it isn't just Pennsylvania. It's Wyoming."
Wyoming, in fact, is recovering its rigs as slowly as Colorado. Meanwhile, Pennsylvania and Louisiana now have as many working drilling rigs as they did before the recession started.
Industry leaders and regulators attribute the boom to a special type of natural gas, called shale gas, which both states have in abundance. Both states also are close to large Eastern markets.
In Louisiana, the big play is called the Haynesville Shale. Last week, 136 drilling rigs were working on the Haynesville. Without the shale, Louisiana probably would have only 15 drilling rigs, said Don Briggs, president of the Louisiana Oil and Gas Association.
Shale is special because even though the wells are expensive to drill, they pay off big and fast. Most of the production comes in the first year, and by the 10th year, four-fifths of the well is dry.
The typical Haynesville well has up to 7 billion cubic feet of gas to recover, Briggs said. That makes the average Haynesville well's first year more productive than the very best well in La Plata County.
“Even at low gas prices, the Haynesville is still profitable," Briggs said.
Colorado has an experimental shale gas project north of Cortez but nothing on a large scale.
Colorado lags in recent months The drilling rig count by Baker Hughes shows that the recession hit other states just as hard as Colorado. The state lost 70 percent of its drilling rigs, a number in line with most major gas states, including Pennsylvania, Utah, New Mexico, Texas, Oklahoma and Wyoming.
“I do not see these rules as having had a significant effect on drilling activity last year," said Dave Neslin, director of the Colorado Oil and Gas Conservation Commission.
Neslin had a large role in writing the environmental rules.
The year 2010, however, is starting off differently. Colorado's rig counts still are down by 60 percent from their two-year high. Most other states are recovering faster, although the neighboring states of Utah and Wyoming also are lagging behind in the same neighborhood as Colorado.
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Durango Herald Calendar of Events
Tuesday, March 09, 2010
at 10:50:24 PM
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a worried parent says...
Are you aware how much money the oil and gas industry donates to the community mostly the ones that the children are involved in? BP and Williams are a very large impact to the Boys and Girls Club, FOUR H, FFA and providing funds to have safety oriented programs(Safety Town, McGuff the Crime fighting dog) at the schools. With them pulling out of Colorado and the surrounding states, they are pulling the funding with the them. Then who is going to give the funding McDonald's, maybe Walmart? But they are to busy donating the charities to help those families who depended on the oil and gas for survival and raising their kids. I'm a proud oilfield wife who can claim her hubby keeps you warm at night and your cost down for keeping the natural gas local and not to have to pay transportation and maintence fees down the pipeline to you. Another reason for the government to hit your wallet....more taxes that are past on to you.
Tuesday, March 09, 2010
at 1:29:40 PM
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Clinton W says...
I just wonder why, if these rules, regulations, and new taxes on the oil and gas industry have not affected the economy that the "Great Ritter" is not going to run for office again? I have made my living for the last 15 years working in the oil and gas fields as a mechanic. Never have I seen the amount of pullout if production and drilling than I have in Colorado. When given the high amount of cost to drill the well,then add the new rules and regulations, gas prices, the profit margin isn't there. Then the state loses all revenue and income sources that were previously available. The impact of oil and gas was taken way to lightly by legislators, think about the impact of all the jobs and money spent here just in our state by employers, businesses that catered to oil and gas and so on..its a trickle down effect that no one planned on because our governor overlooked the impact of the gas industry. So to those liberals and environmentalists that hailed the change welcome to budget shortfalls and cuts from state government that are here. Look at the states that haven't done what Colorado did, they are booming right now, they aren't facing shortfalls in revenue.
Monday, March 08, 2010
at 9:09:48 AM
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Brenden says...
The gas companies might have left do to a cheaper supply out east, but as the article mentioned these wells dry up very quickly. When they dry up in the next 1-4 years where are the gas companies going to look? Back out west, i.e. Colorado, New Mexico, Utah and Wyoming. When they come back to the region they are going to choose the states with the lower overhead cost. Having to pay an exaggerated tax in Colorado is going to force them to move to the surrounding states. The numbers show now that they left for cheaper reserves in east, but with the taxes in place there is no incentive for them to return.
Monday, March 08, 2010
at 9:08:27 AM
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mr bear says...
Taxes are going up in La Plata County, Friends and family are losing jobs due to these jobs going to other states. Colorado is now one of the most expensive and hardest places to drill do to the new requirements. I have watched property values drop in durango when these local families loose there jobs. Just wait you will be paying for this mistake and already are. The left side is happy companies are leaving, I may have to get some more of that medical weed to keep me from think how much are taxes are going up. Stop smoken and start working.
Sunday, March 07, 2010
at 4:41:49 PM
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Lena says...
Right on Busted!
Politics are always behind. Economic laws are proven over and over; politics are proven mostly late !!! Politic decisions are prevention campaigns based on good theories. I'm all for prevention and discouraging bad ideas :)
Sunday, March 07, 2010
at 11:57:45 AM
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john says...
McGinnis is full of bull. The reason they are drilling in Penn is new technology and ecconomics. Colorado did not drive the oil companies to Penn.
And specifially, in La Plaa County where we have low production coal gas wells, they are not drilling here because shale prospecs in Penn and Texas can out-produce a coal well by 10 times or more. These tea-baggers want to blame the bad ecconomy on regulation when its the lack of regulation (on Wall Sreet and AIG) tha got us into this mess.
Sunday, March 07, 2010
at 8:03:47 AM
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goinganyway says...
Many in the industry like to lay blame squarely on officials and new regulations. There is much more to it.
As the spot price for commodities reached record levels, producers were going 110%. The years leading up to the bust saw new technology increase production significantly across the nation. Now all that production sits as reserves or is shut in and there is a steady supply of cheaper than domestic LNG imports coming to the San Diego gas terminals. All of this occurs as the nation's economy tanks, and demand is reduced.
Then take into account the proximity of other field areas to pipelines feeding tens of millions of customers from Chicago to New York. All of this sits on the biggest (volume) gas field in the U.S, so cost of doing business there is a fraction of the West. They would have left if begged to stay.
This only scratches the surface. A perfect storm of "business is business" created the CO drilling bust, not Gov Ritter & the OGC.
Sunday, March 07, 2010
at 7:08:26 AM
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to Samson 2 says...
Well DUH--make it more expensive and watch them go. Colorado and La Plata County have been posturing for this for a long time now. Gee maybe the environmentalists will chip in and make up the difference in Gross Receipts until our California look-alike state can get some clean energy stuff here and working. Reckon??
Sunday, March 07, 2010
at 3:48:40 AM
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Sarah P. says...
Drill Baby Drill!