Region’s oil, gas drilling on fast track

WELD COUNTY – Oil and gas drilling in Northern Colorado, particularly in oil-rich Weld County, is on a fast track in 2010 and may rival the boom year of 2008 for permits issued.

“Through July we issued 1,206 drilling permits and we have another 340 applications pending,´ said David Neslin, director of the Colorado Oil and Gas Conservation Commission. “That puts us on track to be the second-highest level of activity in Weld County history.”

Recent discoveries of big-producing wells in northeast Weld County near Grover and elsewhere have reignited interest in oil and gas drilling in the traditionally reliable Wattenberg Field in the Denver-Julesburg Basin.

SPONSORED CONTENT

Select your Republic Services residential cart now!

In preparation for Republic Services becoming the primary provider of residential recycling, yard trimmings, and trash, residents should now select the best cart size and service schedule for their household needs.

One gusher well, nicknamed Jake, hit an average of 1,750 barrels of oil a day last October for Houston-based EOG Resources, and Noble Energy – another Houston company – saw its Gemini well south of Greeley spurt out huge volumes of oil and gas.

Both wells, along with many of the newer wells in the region, are horizontal wells, employing new technology that allows companies to drill laterally into promising rock formations and pull out more oil than from a traditional vertically drilled well.

Ed Orr, who owns Orr Land Co. in Greeley and has his own drilling operation, said horizontal wells have opened up huge new areas of the county.

“There’s been a handful of horizontal wells that have sent things off the charts in northern Weld County and stretching into Wyoming,” Orr said. “There are interested parties from afar that have been here the last eight to nine months leasing up the map.”

Horizontal drilling increasing

Orr said while the publicity around those strikes perked up interest in oil and gas drilling in the region, the arrival of horizontal drilling has taken production to a new level.

“Part of what’s driving that is the new technology in horizontal drilling,” he said. “It puts operations in a position to go hit gushers.”

But the technology is not cheap. Orr said the cost to drill a vertical well is roughly half a million dollars, while a horizontal well can run at least three times that, depending on its length. And they don’t always strike oil.

“There’s been wells drilled horizontally that didn’t yield much production,” he noted.

Given that, Orr said he’s not yet ready to spend the money it takes to do horizontal drilling.

“We’re learning all we can about the horizontal technology and have some properties where we want to try it out,” he said. “What we keep hoping for is the technology to keep improving and those kinds of well costs continuing to fall.”

Orr said his oil and gas company is keeping busy in Weld County in the Greeley-Windsor area, with five wells in operation and another five to seven wells expected to be drilled by the end of 2010.

Big companies like Noble Energy, already a major player in the region, have cranked up their production. Steven Flaherty, spokesman for Noble’s Denver office, said the company averaged 46,000 barrels of oil equivalent per day in the Wattenberg Field in 2009 and through the first half of this year was averaging 53,000 barrels per day.

“We had five rigs in operation at the end of 2009, and we hope to have six to eight rigs running (by the end of the year),” Flaherty said. He said Noble Energy bought Petro Canada’s assets in the Wattenberg Field in January for about $485 million.

“It was a good bolt-on addition to our operations,” he said. “We expect we’re going to be there (in Weld County) for a long time.”

Neslin said the number of oil rigs in Weld County has climbed back to 18 after having dropped to just nine last year in the wake of new oil and gas drilling laws that went into effect in April 2009. The new laws, passed in the 2008 legislative session, were intended to make drilling activity more transparent to the public and protect wildlife.

Record oil prices coupled with the impending implementation of the new laws, set off a frenzy of permit applications in 2008, when more than 8,000 permits were issued. Last year, the number of permits issued dropped to 5,159 – still the fourth-highest number on record.

This year through July a total of 3,825 permits have been approved, positioning 2010 to pass 5,000 permits for the year and putting it in the top five years on record.

New laws not hampering

Neslin said the strong uptick in oil and gas activity in 2009, when the greatest number of barrels of oil ever was extracted in Weld County, along with the strong showing so far this year indicates the new laws have not seriously diminished the interest of oil companies in Colorado.

“I think it demonstrates that the rules are reasonable and the industry has worked in good faith to comply with those requirements,” he said. “Certainly I think the industry’s performance shows it can be compatible with the environment and people’s quality of life.”

Flaherty said the new rules “didn’t really” affect Noble’s operations in Colorado.

“The rules are a factor, but they’re not preventing us from investing in Weld County,” he said. “I think we’ve had a chance to partner with the state and adapt to the changes any new rules can bring.”

Flaherty said Noble Energy now has about 750,000 acres under lease in the Niobrara formation of the Wattenberg Field, where most of the biggest recent strikes have been.

Colorado recently signed deals with 10 oil and gas companies, including Noble Energy, to speed up permit approval time if the companies agree to consult with wildlife officials before drilling.

Orr said he’s seen the heightened interest in drilling in Weld County result in escalating lease payments to landowners.

“We’ve seen bonuses paid for leases grow by hundreds of percent, by several hundred dollars per acre,” he said. “What that has done for the sellers of ranches in northeast Colorado is (for them) to sell the land with the mineral rights separate.

“If (the rights) are included, the cost is prohibitive,” he said. “Land that went for $500 an acre a couple years ago is now $500 just for the mineral rights.”

Orr said he’s seeing growing interest in just about every land parcel in northern Weld County from I-25 east to Grover. “Even those small, five-acre tracts are getting leased,” he said. “That proves to me they’re leasing up everything.”