The natural-gas industry’s long decline in La Plata County seems to be deepening, with few signs of a turnaround on the horizon.
The decline is the result of low prices for natural gas that have discouraged drilling and bustling business in other basins fed by a rush for oil.
Colorado’s portion of the San Juan Basin largely produces natural gas. Drillers are chasing oil, which is more profitable. Producers in other basins are finding massive amounts of natural gas along with oil.
“Natural gas is a byproduct of these other areas,” said Julie Westendorff, a La Plata County commissioner. “Our principal product is natural gas, and when that’s somebody else’s byproduct, that’s not good for exploration and production here.”
The county produced only 358 billion cubic feet of natural gas in 2013, the lowest level in at least 15 years, according to Colorado Oil and Gas Conservation Commission data.
Production peaked in 2003, at 473 billion cubic feet, and has been declining ever since. Production in 2013 fell 9 percent compared with 2012. So far, 2014 is showing the same trends.
Oil production also has fallen locally by 18 percent last year.
Thirty-two drilling permits were issued in the county in 2013, down from a high of 328 in 2008.
Natural-gas production remains an important industry in the county. An analysis by the University of Colorado-Boulder Leeds School of Business estimated the industry employed 2,675 workers in the county in 2012.
Still, La Plata County is getting used to a new normal of reduced drilling.
The county’s Long-term Finance Committee, a panel of volunteer residents with finance expertise, recently forecast three to eight new wells would be drilled per year for the next 10 years.
Westendorff said she doesn’t expect “much, if any” new drilling in 2015.
Christi Zeller, executive director of the La Plata County Energy Council, said there are some rumblings drilling could increase next year.
“I’m hearing that a couple of different companies are going to bring back some sort of a drilling program in 2015,” she said. “So we may see some additional drilling next year, which would be nice.”
One potential bright spot quickly fizzled. Swift Energy Co. raised the prospect of a La Plata County oil find last year, drilling an exploratory well south of Hesperus in the Niobrara formation in August 2013.
The Niobrara is where drillers are finding oil on the southern portion of the San Juan Basin in New Mexico, as well as Weld County and North Dakota. But Swift has not completed that well, nor drilled any others in the county.
Seven wells in the county were hydraulically fractured this year, according to FracFocus, a chemical disclosure registry.
Unless oil prices recover, drillers will have little incentive to drill exploratory wells. Oil prices have crashed, falling from more than $100 per barrel as recently as July to $75.40 by Monday. Drillers typically plan their drilling programs one to two years in advance.
Drilling is booming elsewhere, most notably in the Bakken formation in North Dakota. The closest significant drilling activity is occurring on the opposite side of the San Juan Basin, south of Farmington. The geology in the south basin tends to yield more oil, and activity is booming after promising early signs.
WPX Energy recently added a third drilling rig in northern New Mexico’s portion of the basin, the company said in a Nov. 4 release.
WPX drilled 25 net wells in the south San Juan Basin oil play during the first nine months of the year. The company said it had sold its one millionth net barrel of oil only 18 months after initial production in the area.
Encana Corp. is also heavily involved in the emerging oil play. The company is running three rigs and had drilled 24 net wells during the first nine months of the year.
“What we’ve kind of seen here in the last couple of years is that oil and gas companies can realize higher returns on their investment if they send their resources to other areas,” Westendorff said. “It doesn’t make sense to drill here and get gas when you can drill in places where you can get oil.”
cslothower@durangoherald.com
