Falling oil prices may take payrolls along

GREELEY — Oil and natural-gas drilling permits approved in Weld County remained flat during the third and fourth quarters amid plummeting oil prices, and economists anticipate further challenges.

As oil prices sank from highs topping $100 last summer, the number of drilling permits approved by the Colorado Oil and Gas Conservation Commission remained essentially flat at 1,235 from July through December, from 1,219 drilling permits during the same period a year earlier. The number of drilling permits approved by the state oil commission especially slumped during August, September and October.

The stagnant permit activity comes as half of area energy firms plan to cut their capital spending by more than 20 percent and several firms expect sizable layoffs, according to a survey released by the Federal Reserve Bank of Kansas City this month. The survey monitors energy-company activity in Colorado and nearby states each quarter.

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Firms surveyed said they needed an average oil price of $79 per barrel to earn a profit, although oil prices have sunk below $50.

More than a third of firms said they expected a decrease in their workforce in the next six months. More than half said they expected to cut workers’ hours.

Last week, the Denver-Julesburg Basin lost two rigs, according to a weekly rig count compiled by Baker Hughes Inc. (NYSE: BHI). The D.J. Basin, which spans Weld County, had a total of 55 rigs, one fewer than the 56 rigs the region had during the same time last year.

Losing two rigs in a week may not seem like much, but the decline can make a difference, said Bernard Weinstein, associate director of the Maguire Energy Institute of the Cox School of Business at Southern Methodist University.

“All the energy-producing counties are starting to feel the drop in oil prices,” Weinstein said. “Colorado is going to feel it just like the other energy-producing states.

“That’s going to vary from company to company and from well to well,” he added.

Whether larger companies have shed jobs remains unclear. Representatives of Anadarko Petroleum Corp. (NYSE: APC) and Noble Energy Inc. (NYSE: NBL), two of the largest oil producers in the region, declined to comment on employment.

Another large company operating in Northern Colorado, Encana Corp. (NYSE: ECA) (TSX: ECA), says the downturn has not affected its workforce.

Colorado State University economist Martin Shields said uncertainty over oil prices could lead to less hiring this year.

The oil and gas extraction and support activities for mining sectors added about 3,500 jobs between the second quarters of 2013 and 2014. The two sectors employed a total of 28,000 workers during the period, for year-over-year growth of 14.3 percent.

Colorado added about 80,000 jobs for a year-over-year increase of 3.4 percent during the period.

“Although these two sectors (oil and gas extraction and support activities) represent only 1.1 percent of total employment statewide, they generated 4.3 percent of the state’s net employment growth,” Shields said.

Weinstein said states such as Texas, which lost 44 rigs last week from the previous week, have seen modest drops in oil and gas employment.

Colorado also may see layoffs this year, as oil prices are not expected to rise to the highs seen last summer anytime soon, he said.

“It’s really going to start to hit over the next six months,” said Weinstein, noting that the actual number of layoffs will not be immediately apparent because smaller companies typically do not announce job cuts.

Larger companies have announced layoffs.

Oil field services company Schlumberger, for example, said this month that it cut 9,000 jobs of its approximately 120,000 global workforce. Other global oil field services companies that operate in Weld County, Baker Hughes Inc. (NYSE: BHI) and Halliburton Co. (NYSE: HAL), planned to lay off thousands of workers.

Schlumberger announced in September that it would build a $20 million facility employing 30 people in the Great Western Industrial Park in Windsor.

Meanwhile, producers such as Platteville-based Synergy Resources Corp. (NYSE MKT: SYRG) are trying to cut costs to offset the decline in prices. Synergy executives told analysts recently during an earnings conference call that they planned to meet with vendors to see where the company could find additional cost savings.

A previous version of this article contained an error. The oil and gas sector did not add the most jobs statewide in 2014, Shields said. 

Steve Lynn can be reached at 970-232-3147, 303-630-1968 or slynn@bizwestmedia.com. Follow him on Twitter at @SteveLynnBW.