- August 4 is the deadline for two citizens’ groups that are attempting to collect the signatures required to land two statewide ballot proposals on the November ballot. If successful, they would give voters the power to inhibit Colorado’s future oil and gas development.
NOTE: This is the first of a two-part series looking at the economic impact of the shale boom on Colorado’s largest oil and gas producing county, home of the prolific Wattenberg Field
“Welcome to beautiful Weld County – home to growing cities, charming towns, thriving businesses and thousands of acres of prime agricultural land. As Colorado’s third largest county, Weld County covers 3,996 square miles in the northern part of the state and is larger than the size of Rhode Island, Delaware and the District of Columbia combined.”
The Discover Weld County website reads like a real estate brochure. And rightly so. The U.S. Bureau of Labor Statistics said Weld County led the U.S. when it posted the largest percentage increase in employment in the country in 2013—6.0% for the year compared with 1.8% nationwide, the Denver Post reported.
“Construction led the gain, adding 1,864 jobs, or 25.5 percent, followed by energy extraction and business services,” according to the report. In 2013, building permits were issued for $365 million in construction projects in Weld County. “So far this year, permits valued at $388 million have been pulled.”
New bedroom communities are springing up like wildflowers around the towns of Erie, Firestone and Dacono. Developers are building snappy model homes that offer popular upgrades, three-car garages and gourmet kitchens. Job growth, economic expansion and sweeping Rocky Mountain views lure families to the rural, small-town lifestyle in Weld County, portions of which are within easy commuting distance to Boulder and Denver. Families are buying homes, scooping up pick-up trucks, riding horses and eating in local restaurants from Greeley to Erie. Life is good in Weld County.
Weld County’s recent economic growth spurt tracks the increase in oil and gas development that began six years ago, when companies brought horizontal drilling and highly effective well completion and recovery techniques (multi-stage fracture stimulation) to the Wattenberg Field in pursuit of vast oil and gas resources locked in the Niobrara shale in the Denver Julesburg Basin (DJ).
If you drive the farm roads and the county roads that branch off of Colorado Highway 52, or go just a quarter or half mile east or west of US 85, near Platteville and Fort Morgan, you’ll see the signs of fuel being extracted from wells of multiple vintages. “Christmas trees” pinpoint natural gas wells, pump jacks dot the farmland, some pumping up oil, others frozen in time. Farmers driving story-high John Deere equipment navigate around these and other pieces of the underlying energy infrastructure that protrude through the surface all over Weld county.
Underground pipeline systems and stations with compressors and collection tanks are part of the natural gas gathering and processing infrastructure that can be seen around Weld County. Crude oil collection tanks are plentiful, generally near pump jacks that pump oil out of the reservoir rock below. Oilfield service company trucks and trailers pass by on dirt roads, heading for drill sites. It’s easy to look toward the horizon and pick out one or two big, horizontal drilling rigs operating in the Wattenberg Field.
The process goes something like this: E&P companies study the geology and production history of a field. If it is determined to be economic, they commit millions (or billions) of dollars to drill wells, add to infrastructure and develop a field. They pay mineral owners to lease the rights to extract and sell the minerals they own. Drill pads are built, drilling rigs are moved in during the drilling phase. Oil field employees and pickup trucks populate the countryside in the area where drilling is active. Produced oil and gas flows into collection systems and is sold downstream, production royalties are then paid to mineral owners, taxes are paid to the state and county, and the local economies thrive.
Economic Benefit from Oil & Gas Development in the Wattenberg Field
“The positive economic impact oil and gas has had on the county has been tremendous,” the Discover Weld County website reports. “Schools, fire districts, libraries as well as county and municipal governments all benefit from this recent oil boom.”
One of the county’s largest energy producers, Anadarko Petroleum (ticker: APC), made 2011 tax payments to the county of $52 million, of which $21 million went to the county’s school districts and $4.4 million, went to fire protection districts. Other beneficiaries include Aims Community College, water and sanitation districts, soil districts and special districts such as libraries. The county allocated $12.4 million for roads, bridges and related programs.
“Other benefits of the boom: Weld County has no long-term or short-term debt, no county sales tax, a low mill levy compared to neighboring counties, and is able to pay for long-term projects with cash. In fact, starting in 2011, the Weld County Board of Commissioners began setting aside $8 million for county road maintenance, $23 million for improvements to Weld County Road 49, $40 million for future expansion of the Weld County Jail and $4 million for construction of the North Colorado Regional Crime lab,” the website reported.
“If you drive on a county road, send your child to public school, use a public recreation center and library or are comforted knowing you have the protection of a fire department should you need it, then you are realizing the benefits of the oil and gas industry in our county,” said Weld County Commissioner Chairman Sean Conway in a 2012 press release heralding the receipt of Anadarko’s $52 million tax payment.
In its “Assessment of Oil and Gas Industry: 2012 Industry Economic and Fiscal Contributions in Colorado” conducted by the Leeds School of Business at the University of Colorado Boulder, the university summarized the economic impact of oil and gas operations on the state as follows:
“The oil and gas industry contributed substantial public revenues in 2012—totaling nearly $1.6 billion, of which $1 billion was derived directly from severance taxes, public leases, public royalties and property taxes. This industry is subject to taxes and assessments beyond what other industries contribute. Ad valorem taxes, for instance, are three times higher for oil and gas production than for commercial property within the state and 11 times higher than residential property. Oil and gas property taxes exceeded an estimated $600 million in 2012.
“Severance taxes paid by the industry totaled $163 million in 2012. The industry also paid $275 million in royalties to state and federal governments in 2012, of which $160 million stayed within Colorado. The State of Colorado received almost $80.7 million in state lease revenue from oil and gas in 2012, a record high. Oil and gas prices tended to be relatively volatile from 2000−2012, causing government revenue driven by production value to fluctuate year to year.”
Weld County Commercial/Industrial RE Snapped Up, New Facilities Built
Prosperity from oil and gas exploration and production comes with more than one face. In addition to oil and gas companies making substantial tax payments to counties and the state, in an active area they will often sweeten the pot with large construction projects to support their operations.
“As you know there are a lot of support industries in terms of oil and gas,” Weld County Commissioner Chairman Sean Conway told the Denver Post. “They are related to building things such as tanks, tools, and other oil and gas support manufacturing. Four or five years ago, there was plenty of vacant space in Weld County. That I’m aware of, there are only two large currently unoccupied buildings. One is the Hewlett Packard building in west Greeley and the other one is the old Abound Solar building in Firestone, right off I-25.”
Anadarko has built two large office facilities in Weld County to support its recent Wattenberg Field operations. As the anchor tenant for Platteville’s new 77-acre energy park, Anadarko constructed a 50,000-square-foot office building for its Wattenberg midstream unit where about 100 employees manage the gathering, compression, treating, dehydration and processing services of natural gas and natural-gas liquids. In 2011, Anadarko opened a 42,000-square-foot office building for about 100 employees in Evans, Colorado just south of Greeley, to support management of the company’s Wattenberg Field operations.
Other oil and gas operations have opened support facilities in Weld County as well. Halliburton (ticker: HAL) built the world’s largest frac sand transfer terminal in Windsor. Synergy Resources (ticker: SYRG) has its headquarters in Platteville.
Penny Salazar is no stranger to the boom and bust cycles of the oil and gas industry. “I was here in the ‘70s when we had the first oil boom, and then the exploration ended and it was over. I know this new boom is going to go away eventually, but people are pretty happy about things right now. They all want the town to spend, spend, spend, but we have to have a plan for how we will sustain things after the boom is over.” Penny is the owner and operator of Suzanne’s Small Town Café and Mayor Pro Tem of Platteville.
But the industry doesn’t see the development in the Wattenberg as part of a typical boom and bust cycle. Instead operators view the Wattenberg Niobrara/Codell play in Weld County as a “factory” style of drilling and production, where companies go by a proven formula for success: acquire the acreage, drill to the productive formations on multi-well pads, fracture the shale using high tech completion techniques, constantly tweak for improved recoveries and lower costs, move to the next location.
It’s a formula that delivers predictable economics that the E&P companies can’t get enough of. John Ford, manager of Anadarko’s Wattenberg program told the Greeley Tribune: “We love the Wattenberg Field. If you were drawing up the ideal place to produce, you would want a large resource base, large acreage position, knowledge of the basin, extensive infrastructure, access to qualified workers, years of experience and lower-cost wells.”
Industry analysts predict there could be about 15 to 20 years of drilling in the Wattenberg Field. Some experts make projections that oil production from the Niobrara could reach as high as .5 MMBOE/day, about half the present production of North Dakota’s 1MMBOE/day coming from the Bakken formation in the Williston Basin. Anadarko holds about 4,000 drilling locations in the Wattenberg Niobrara plays, and Bonanza Creek Energy says it has about 17 years of drill sites in the Wattenberg, approximately 1,500 wells at its present rate. Noble Energy announced plans to commit approximately $2 billion in capital expenditures in the DJ Basin in 2014, doubling its Niobrara drilling. Noble holds more than 610,000 acres in northern Colorado.
According to industry observers, either of two key factors could end Weld County’s good times—(1), if oil prices go south in a significant way, or (2), if regulations are enacted that limit or end fracturing and/or horizontal drilling. Without the magic combination of those two technologies, there is no shale boom. Other risks to continued production growth include lack of enough pipeline capacity to take the oil to market, or a natural disruption such as flooding that suspends production.
Colorado citizens groups are presently circulating two statewide ballot proposals for signatures that would mandate drilling setbacks to 2,000 feet from the nearest structure and/or impose further strict environmental regulations on drillers.
Colorado Governor John Hickenlooper has publicly expressed his concern that a highly restrictive statewide setback rule, if it lands on the ballot and is approved by voters in November, could potentially eliminate 60% of the potential Niobrara drill sites in Weld County. If true, this would negate the opportunity for operators to engage in future horizontal well development. The growth of oil and gas operations in Weld County would quickly come to an end.
Note: coming tomorrow—part 2 of Oil and Gas 360®’s look at the Wattenberg Field in Weld County: Oil & Gas Companies are bending over backwards to be good neighbors, but will voters kill Colorado’s Golden Goose?
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