Wells Fargo assesses fallout for Colorado oil and gas operators

The cut natural gas flowline that preliminary investigations have said caused the house explosion incident in Firestone, Colorado, in Weld County, has led Anadarko Petroleum (ticker: APC) to take significant action to shut in and inspect gas lines from its vertical wells in northeastern Colorado.

Anadarko Details its Response to the Firestone, Colorado, NatGas Home Explosion

“We temporarily shut in all of our more than 3,000 operated vertical wells across northeastern Colorado. When a well is shut in, it means that no oil or natural gas is being produced or flowing through the associated equipment,” the company posted on a web page addressing its response to the incident.

“We have begun the process of inspecting all wells, with priority being placed on wells and infrastructure that are in closer proximity to homes and communities.

“All wells (both newer horizontal and older vertical wells) will undergo a thorough safety inspection, consisting of more than 25 steps to look at the wellhead, infrastructure and flowlines (see Inspection Process Overview). We are looking to ensure each has integrity (no leaks, drips or spills); is secure and well maintained; is upgraded, if necessary; and receives a site survey to identify any changes in surroundings (i.e. new developments or construction occurring nearby).

The company said that no well will be turned back on until it and all associated equipment has undergone and passed these inspections.

Investigators thus far believe the flowline had remained attached to an older vertical well drilled decades ago that is now operated by Anadarko, and that the line was accidentally severed during residential construction in 2015.

Permanently disconnecting all underground 1-inch low pressure supply, return lines from every vertical well

“We also are taking an extra step to permanently disconnect all underground 1-inch low-pressure supply or “return” lines from every vertical well (see Vertical Well Schematic). Once the inspection process for all vertical wells, associated flowlines and facilities is complete, we will provide an update on this web page.

Anadarko said that more than 200 Anadarko team members are working to complete the inspections and to comply with the COGCC’s directive by the expected completion date for each phase.

The company said its horizontal wells are still on production, but it is inspecting those wells as well, even though the well gas flowline that was identified near the home that exploded was from a vertical well.

Anadarko Details its Response to the Firestone, Colorado, NatGas Home Explosion

http://www.anadarko.com/content/documents/apc/Operations/CO_Inspection_Process.pdf

In inspecting flowlines, Anadarko said its process includes the following steps:

  • Check for Leaks, Drips,
  • Verify All Connections
  • Facility: Check Signage, Fencing, Piping, Connections, Access

After the inspections, the company said it would:

  • Ensure and Document Integrity of All Flowlines within 1,000 feet of a Building Unit
  • Integrity will be Verified by Pressure Testing Flowlines in Accordance with COGCC Rules and Guidelines

The company emphasized that “no well will be restarted until it passes both the inspection and flowline integrity testing.”

What are the impacts of the Firestone incident on Colorado oil and gas regulation and development?

In a recent research note to clients, Wells Fargo addressed possible regulatory and political fallout from the incident.

“Our view is that additional regulation is likely on the horizon, but we don’t believe it will take the form of increased setbacks (most detrimental to E&Ps). And even though we don’t see dramatic changes ultimately being reflected in the law, we do see enough regulatory noise to keep pressure on stocks.

“Furthermore, with the NTSB now leading the Firestone investigation, it will likely be a while (12-18 months) before any definitive conclusions are reached. And given that 2018 is an election year, we expect the state legislature to be more aggressive with the only potential mitigating factor being the Governor stepping in and providing more direction and clarity,” the bank said.

Several Colorado media outlets reported in recent days that the National Transportation Safety Board has taken charge of the Firestone investigation. The NTSB has a long history investigating natural gas accidents.

“The NTSB will make recommendations, and we note that while lacking formal authority to enforce, since inception 80% of their recommendations have been implemented,” Wells Fargo said in its note.

“And importantly, we note that [NTSB]recommendations could be directed at the federal, state, or local level as deemed appropriate – this means the Marcellus, Eagle Ford, Permian, SCOOP/STACK, and Bakken could potentially be impacted as well.”

“We expect the Governor to issue some proposals/recommendations in the next 3-6 months, with subsequent state legislative response in 2018. Our best guess is the Governor will propose more regulation, but will stay away from suggesting increased setback requirements.

“Otherwise we see numerous other legislative proposals, including another setback ballot proposal in 2018 as likely. And even though changes dramatically impacting oil and gas operators are unlikely to be signed into law, the possibility is enough to weigh on the stocks, as we see it.

“1,000’ and 1,500’ setback scenarios put an additional 8.2% and 16.3% of Weld County off-limits, respectively,” Wells Fargo said.

“While again it is unlikely, we quantify the impact of a 1,000’ and 1,500’ setback for Weld County operators, which we view as the worst-case scenario to frame up downside risk. The possibility alone will remain an overhang for DJ Basin names, in our view. Within we have detailed maps illustrating these scenarios and how acreage positions (APC, NBL, PDCE, SRCI, and XOG) overlay in a 1,000’ setback scenario,” Wells Fargo said in its research note.

 

 


Legal Notice