GREELEY – Although full half-year numbers aren’t entirely in, Weld County’s oil production is about 34 percent higher than it was last year, and it shows all the signs of continuing to grow.
Total crude production across the state – of which Weld County accounts for about 82 percent – is headed toward last year’s record production, according to numbers from the Colorado Oil and Gas Conservation Commission.
But analysts believe crude oil coming out of the Denver-Julesburg Basin will continue to topple historic flows and even double in the next five years.
“I would be utterly shocked if this year’s production was not substantially ahead of last year’s record,” said Pete Stark, vice president of industry relations for IHS in Englewood, a global consulting firm. “That’s just my gut feel. And any of the operators would tell you” the same.
So far, the numbers are showing, at least through May, that Weld’s crude production is about 34 percent higher than it was at the same time last year. Preliminary production shows that through May, Weld produced 25.8 million barriers of oil, compared with 19.29 million last year at the same time.
Last year, the state hit an all-time production record of 64.4 million barrels of oil for the year, shattering the previous high of 58.6 million set in 1956. In 2013, Weld County crude production had swelled about 40 percent from the previous year.
Production numbers for this year continue to trickle into the oil and gas commission, but each month this year has surpassed last year at the same time in some cases by close to 2 million barrels.
Natural-gas production is running about 5 percent behind the same time last year, but analysts say that is likely because of an infrastructure shortage. Companies are working to pipe gas out of Weld as fast as possible, but pipeline capacity isn’t quite there yet. More pipelines are being built to handle the increasing demand, but when the takeaway system is constrained, operators either must slow down production or practice flaring, essentially watching profits go up in smoke.
At present, about 200,000 barrels of oil equivalent a day are coming out of the Wattenberg Field. Some say by 2019, that number will surpass 500,000 barrels of oil equivalent per day, about half of what the Bakken in North Dakota is producing today. The Bakken ramped up just as fast, if not faster, than the DJ, analysts say, where operators are tapping tight shales, and using methods that are taking form here.
“If you look at what’s happening in other plays, and what producers are doing now, (500,000) seems ambitious, but in the context of shale plays, if you look at the ramp up in production historically, and see when producers unlock the basin, it’s a trajectory that’s not all that shocking,” said Adam Bedard, a longtime Denver crude market analyst.
Bedard said all he has to do is look at rig counts to see what he believes will be another record-setting year. The horizontal rig count grew from 10 in February 2012 to 55 today, Bedard said.
“If you look at new well starts, there’s about 120 new wells being drilled a month in Weld County,” Bedard said. And companies aren’t slowing down, or spending less.
Operators are hot on drilling in Weld County because the rate of returns are much better than areas where production is much higher, said Ryan Smith, a senior energy analyst with Bentek Energy in Denver. “What we’re seeing is the returns are phenomenal in the DJ,” Smith said. “It’s one of the highest rates of return plays in the country. It’s up there with economics in the Bakken and Eagle Ford. The DJ is interesting because the cost to drill a well here is much cheaper, mainly because it’s shallower and they’re not drilling as long of laterals as they are in other plays. The DJ is not getting high oil rates, but costs are cheaper here than other plays.”
A growing concern, however, is the pressure on infrastructure, Bedard said, which could slow production numbers.
“The pipelines and rail lines are getting full and unable to move the crude out of the basin,” Bedard said.
