MARCH 2015 ENERGY PIPELINE 1
OIL & GAS PRODUCTION POWER
Wagner Power Systems is built to provide you with the engines and related equipment you need to generate power for oil and gas exploration, recovery and transmission and with engines that power applications in several industrial market sectors, including construction, mining, agriculture, forestry/waste, material handling, light/ construction/general industrial, irrigation and other pumps. It’s our people who make the difference by standing beside you and our products. We know specific power requirements, fuel consumption, fuel tolerance, and overall operating cost are vital to your production. That’s why we are there from system design to operational support.
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2 ENERGY PIPELINE MARCH 2015
MARCH 2015 ENERGY PIPELINE 3
Features Wel
38
40
ROAD TRIP
WELD COUNTY
By Sharon Dunn
By Sharon Dunn
What does a slowdown look like in northeastern Weld County?
16
AFTER THE DRAIN
New water system works to recycle oil camp waste water. By Sharon Dunn
20
OPEN FOR BUSINESS
Anadarko officially opens Wattenberg operations hub in Platteville. By Sharon Dunn
24
HONOR OF A LIFETIME
Former Anadarko employee becomes namesake for compressor station.
30
MISSING PIECES
Industry experts worry slowdown will affect midstream infrastructure. By Anne Cumming Rice
4 ENERGY PIPELINE MARCH 2015
King of Colorado oil production.
TECH TALK
The drones are coming to the oil field.
ON THE COVER Photo illustration by Darin Bliss
By Gary Beers
44 51
OIL PLANS
America’s oil hoarding mentality. By Sharon Dunn
WHAT IFS?
Leeds School of Business attempts to answer what ifs in oil-gas industry.
Departments 8
Support Company Profile
10
Field Worker Profile
12
Executive Profile
52
News Briefs
70
Data Center
By Tracy Hume
54
CONSTRUCTION QUALMS Low prices raise alarm in North Dakota oil patch. An Associated Press story
By Linda Kane
26
d C ounty
67
MAKING HOLE A look back at the origins of oil and gas. By Bruce Wells
Clearwater Sediment & Erosion Control
Meet Mandee Juarez, Compliance Specialists of Colorado
Meet Matt Owens, Extraction Oil & Gas
See What We’re Made Of. Storage, separation and control solutions when you need them, where you need them.
Let us show you the Worthington difference.
1.800.835.9136 Energy@WorthingtonOilandGas.com
Columbus, OH
Skiatook, OK
Dickinson, ND
www.WorthingtonOilandGas.com
Wooster, OH
Bremen, OH
Garden City, KS MARCH 2015 ENERGY PIPELINE 5
We have the
ENCORE WIRE products you need
PUBLISHER Bart Smith EDITOR Randy Bangert GENERAL MANAGER Bryce Jacobson CREATIVE MANAGER Alan Karnitz BUSINESS MANAGER Mike Campbell MANAGING EDITOR Sharon Dunn
UNDERGROUND/SECONDARY DISTRIBUTION CABLE (UD) 600 V 1350 alloy - compact aluminum conductors UL-854: Single-rated Use-2 Applications »Primarily used as secondary distribution an underground service entrance cable for direct burial, ducts or conduit installations. »Single-Rated USE-2 per UL-854 to be installed outside or up to the exterior service point of a building, house or structure. »Suitable in wet or dry locations not exceeding 90° C, 130° C for emergency overloads, and 250° C under short circuit conditions »Direct Burial Rated
Greeley CO | 2414 4th Ave, Unit A 970.356.1150 | borderstates.com
CONTRIBUTING WRITERS Gary Beers Tracy Hume Linda Kane David Persons Anne Cumming Rice Bruce Wells
ADVERTISING DIRECTORS Bruce Dennis Gary Loftus Sabrina Poppe ACCOUNT MANAGERS Paul Dovenbarger Cristin Peratt Mary Roberts Kristy Zado ACCOUNT/PROJECT MANAGER T.J. Burr CREATIVE TEAM SUPERVISOR Afton Pospíšilová ART DIRECTION & DESIGN Darin Bliss
ENERGY PIPELINE MAGAZINE 501 8th Ave. P.O. Box 1690 Greeley, CO 80632 For all editorial, advertising, subscription and circulation inquiries, call (970) 352-0211. Send editorial-related comments and story ideas to: editor@energypipeline.com For advertising inquiries, contact: bjacobson@energypipeline.com March 2015, Volume 2, Issue 7. Published by Greeley Publishing Co., publisher of The Greeley Tribune, Windsor Now, the Fence Post, and Tri-State Livestock News.
6 ENERGY PIPELINE MARCH 2015 30-250 (2014-09)
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MARCH 2015 ENERGY PIPELINE 7
SUPPORT COMPANY PROFILE
Clearwater Sediment and Erosion Control
CORPORATE HEADQUARTERS 1760 Weld County Road 31 Platteville, CO 970.737.1100
NUMBER OF EMPLOYEES 3
WEBSITE www.clearwatercolo.com
SERVICES OFFERED We manufacture Filtrexx and EcoGuard products. Filtrexx and EcoGuard are high performance perimeter, stormwater, sediment, and erosion control devices that are very easy and fast to install. They are manufactured locally with recycled materials. Many oil and gas operators are using Filtrexx for perimeter control on pads and pipelines, as well as containment for the HydroLoc process.
8 ENERGY PIPELINE MARCH 2015
HOW LONG HAS YOUR BUSINESS BEEN OPERATING IN WELD COUNTY?
our products are manufactured in Colorado with locally recycled materials without sacrificing performance.
4 years.
WHY SHOULD CUSTOMERS DO BUSINESS WITH YO UR COMPANY? We manufacture high-quality, highperformance site containment products that save our clients time, money and headaches. All of
HOW LONG DO YOU ANTICIPATE BEING IN BUSINESS IN NORTHEAST COLORADO? We’ve had good sustainable growth and expect to be in business for many years to come.
IS YOUR COMPANY IN A GROWTH MODE? Absolutely.
WHAT KIND OF SKILLS, EXPERIENCE OR EDUCATION DO YOU LOOK FOR IN EMPLOYEES? We highly value talent, experience and education ... but more than that, we look for character and integrity, people we can trust and count on.
CLEARWATER SEDIMENT AND EROSION CONTROL JOB OPPORTUNITIES, CALL 970.737.1100
Specializing in custom mixes for Pasture - Reclamation - CRP Serving the Western U.S. Call for a dealer in your area 800.421.4234 101 East 4th Street Rd. Greeley CO
MARCH 2015 ENERGY PIPELINE 9
FIELD WORKER PROFILE
Mandee Juarez COMPLIANCE SPECIALISTS OF COLORADO BY STAFF REPORTS
HOMETOWN Sealy, Texas.
WHERE DO YOU LIVE? Greeley.
HOW LONG HAVE YOU BEEN WORKING IN NORTHEASTERN COLORADO? 15 years.
HOW DID YOU GET INTO THE INDUSTRY? A friend worked for (owner) Dawn Tesch when I was looking for new employment. She left Dawn to go back in to the medical field and I replaced her.
WHAT IS YOUR JOB TITLE AND DUTIES? I am not sure there is a title for all I do. I am
10 ENERGY PIPELINE MARCH 2015
the office manager, and this means I manage everything coming into the office, along with the safety staff as the safety supervisor. I am also an account manager for a third of our clients. Last but not least, Dawn’s right hand.
and I do for our drivers does make a huge difference in their lives.
WHAT IS THE HARDEST PART ABOUT YOUR JOB?
WHAT IS THE MOST INTERESTING THING ABOUT YOUR JOB?
There is so much involved in the federal regulations for our drivers. I have only begun to scratch the surface, and it is always changing.
That no two days are the same. Prior to working for CSC I had no idea of the trucking world, so every day is an opportunity to learn something new.
WHAT DO YOU DO IN YOUR SPARE TIME?
WHAT IS THE BEST PART OF YOUR JOB? The clients! Nothing is more rewarding than knowing what the staff
Volunteerism, school, sports? I am the mother of an amazing 5-year-old son, and my spare time is spent with him and my husband. Nothing is more important than family and being there for them.
WHAT ARE YOUR FUTURE AMBITIONS IN THE INDUSTRY? I plan to continue to learn and grow at CSC and hope to one day be half as knowledgeable as Dawn.
HOW DO YOU FEEL ABOUT THE CURRENT ENVIRONMENTAL DEBATE GOING ON WITH “FRACKING” IN COLORADO? Like anything when it comes to the environment, I do worry that our planet will be safe for my great-greatgrandchildren. I feel like there is not enough information on the
effects of fracking to our environment and this could be due to the age of this practice.
HOW DO YOU FEEL ABOUT THE POLITICS OF THE INDUSTRY AND HOW IT MIGHT AFFECT YOUR FUTURE IN THE INDUSTRY? I do think that the politics of the industry can get a bit crazy but if anything, they will help ensure the safety of our drivers and anyone else on the road. I do not do safety just for our drivers, but for everyone. If I can keep even one driver safe, that is hundreds of lives I keep safe.
ficiencies of state programs, and improve Powell National Park began detecting adult end user to take precautions to avoid stomer service for boaters and anglers. mussels and is now infested. Many Colo- spreading invasive species. If every boater ne of the many products of this effort rado boaters frequent Lake Powell, Lake and angler takes a few seconds to clean, cludes a Model Legislative Provisions Mead, Arizona and Kansas waters, among drain and dry; we can stop the spread of r Watercraft Inspection and DeANS and protect our waters for future generations. Recognizing ntamination Stations, which was the importance of education in proved by the Association of stopping new introductions and sh and Wildlife Agencies at their enver North American Confercontaining current infestations, CPW has expanded its statewide ce in March 2013. educational campaign to all recExpanding the partnership that reational users. In doing so, the olorado has created to other state invasive species program ates is imperative to long term launched a new campaign Protect stainability. The threat of zebra Colorado’s Lands and Waters quagga mussels entering Coloto inform all recreationists and do from another infested state professionals about the harm greater than ever before. While, Powerful small machines the work invasive get species posedone. and simple ere has never been an adult With John Deere’s ways top of they the line capable can help protect Coloussel found in Colorado, we compacts and 4 Rivers Equipment backing you rado’s great places. The every step of the way. You can be confident that campaign e surrounded by infestations in Decontamination of watercraft you can get the job, any job, done. launched at the International her states. Almost all states to - We are Your Expo Working Partner. Sportsman in January 2014 e east of Colorado have mussel estations, including Kansas, Oklahoma others. Boaters using infested waters must and is expected to expand over the next take extra care not to transport mussels five years. d most recently in northern Texas. Thewww.4RiversEquipment.com across state lines and to comply with ColFor information, visit www.cpw. wer Colorado River is heavily infestedAlb Paso, TX Fort more Collins, CO Albuquerque, NM Col Colorado d Springs, CO El Paso inspection regulations. (915) 598-1133 (970) 482-7154 884-2900mandatory (719) 475 475-1100 7 -1100 75 state.co.us. th quagga mussels from Lake Mead, NV(505)orado’s ownstream through Lake Mojave to LakeFarmington, A huge of CO the program’s ob-NM NM portion Frederick, Hobbs, Pueblo West, CO (505) 326-1101
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MARCH 2015 ENERGY PIPELINE 11
EXECUTIVE PROFILE
EXTRACTION OIL & GAS President
Matt Owens BY DAVID PERSONS • FOR ENERGY PIPELINE if you want to be an oil and gas executive before the age of 30, you have to have a lot of skill and confidence. And, some luck. Matt Owens, the 28-year-old president of Extraction Oil & Gas Company, had an abundance of the former and just enough of the latter to slingshot his career into orbit long before most oil and gas professionals complete their first postcollege job. His good fortune began early in his pre-teen years - although he didn’t know it at the time - when Mark Erickson, the CEO of Gasco Energy, moved into a home next door to Owens. Over the years, they became good friends. “We interacted a lot while I was in middle and high school but I never knew that he was the CEO of Gasco Energy,” Owens said. “I ended up going to Colorado School of Mines on a baseball scholarship but had no idea what engineering really was or what degree would be most interesting to me.” That’s when a conversation with Erickson began to shape the future for Owens. “While I was home for the summer after my freshman year, I talked to Mark and when he found out I was attending CSM, he really encouraged me to pursue petroleum engineering,” Owens said. “He 12 ENERGY PIPELINE MARCH 2015
told me all about his experiences in the industry and it was really exciting to hear.” During his sophomore year at Mines, Owens declared petroleum engineering as his major. He then had another conversation with Erickson. “I asked Mark if I could have an internship the following summer,” Owens said. “He told me I could work for Gasco over the summer but that the most beneficial experience I could get would be doing the actual hands-on work on a drilling rig.” That turned out to be the best advice Owens ever received. “So right before my sophomore year was over I cold-called several rig companies that were drilling on the West Slope and asked for a job,” Owens said. “I ended up being a roughneck for SST Drilling out in Silt, drilling wells for Bill Barrett Corp. in the Piceance Basin. “I still look at that as one of the best decisions I have made because the experience I got during that summer was invaluable - not something you could read in a book or learn in a classroom.” After graduation, Owens went to work as an operations engineer for Gasco Energy and later, for PDC Energy. In 2012, Owens and Erickson co-founded Extraction Oil and Gas Company.
QA &
with Matt Owens
Owens recently talked with Energy Pipeline about his rapid-pace career and his company. ENERGY PIPELINE: You worked for a number of oil and gas companies initially. What did you learn from those experiences? MATT OWENS: Once I graduated, I decided to work for Gasco Energy instead of a larger company. Gasco was still a very small and I wanted that environment so I could gain experience in multiple disciplines at the same time. I worked for two incredible engineers, Chuck Wilson and John Longwell, and gained several years’ worth of drilling and completion experience in a short amount of time. In 2010, I made the jump to PDC Energy because the industry was shifting to horizontal drilling and I really wanted to be exposed to the technology while it was still in its infancy. At PDC, I
ABOUT
Matt Owens AGE 28
SPOUSE Fiancée Alyson Vahling.
SIBLINGS Troy and Jenna.
CITY YOU GREW UP IN Highlands Ranch.
HIGH SCHOOL YOU ATTENDED Thunder Ridge High School.
COLLEGE ATTENDED/ DEGREES Bachelor’s of science in petroleum engineering from Colorado School of Mines.
CITY YOU LIVE IN NOW Denver.
WHAT DO YOU DO IN YOUR SPARE TIME? I love to exercise and hang out with friends and family.
LAST GOOD BOOK YOU READ “The Seven Sisters” by Anthony Sampson.
SOMETHING ABOUT YOU THAT FRIENDS AND CO-WORKERS DON’T KNOW I played baseball in college.
CURRENT JOB TITLE President of Extraction Oil & Gas.
YEARS WITH EXTRACTION OIL AND GAS 3 years.
YEARS IN ENERGY INDUSTRY 6 years.
PROFESSIONAL BACKGROUND Matt Owens is co-founder and president of Extraction Oil and Gas. From 200810, he served as operations engineer for Gasco Energy working deep, highpressured gas in the Uinta Basin. While at Gasco, he drilled and completed over 50 wells in the Mancos, Blackhawk and Mesaverde formations. In 2010, Owens moved to PDC Energy as an operations engineer leading the horizontal completion and production activities in the Wattenberg Field. He completed over 45 horizontal Codell and Niobrara wells and was responsible for optimizing production for the program.
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was able to play an integral role in the first horizontal wells the company had ever drilled and spent a lot of time in the field trying to figure out ways to innovate the current practices. EP: At what point did you decide that maybe you could be an oil executive and run your own company? MO: My father raised me and my siblings to be entrepreneurial - I started my first company when I was 19 and sold it when I was 22, so of course starting an oil company had always been a dream of mine. But in this industry it takes a lot of capital to be able to compete with already-established companies unless you can figure out something new that doesn’t have a lot of competition. The team we have put together at Extraction was able to do just that. Our engineering group is extremely talented not only in operations, but also in identifying new opportunities. However, being able to formulate new ideas is only half the battle in oil and gas - raising money is the other half. This is where Mark came in and really helped us get off the ground. Mark has decades of start-up experience and knows how to raise money for early stage companies with high-potential ideas. Mark bought into the vision we had right off the bat and because of his connections and track record, we were able to quickly raise capital and begin executing our game plan.
with Matt Owens continued We both have different strengths which makes working together very effective because of how we complement each other. And I think the fact that we have been friends for so long is a key reason for how quickly we have been able to build Extraction. EP: You have been quoted by other publications as saying that your key strategy is to lease sites - primarily in the Wattenberg Field - that haven’t already been leased by the other larger players. Is that still your strategy or has it evolved a little bit? MO: We have accomplished our goal and leased most of the areas we thought were prospective. Our main goal going forward is to keep a close relationship with the communities we work in and execute on our development plan. EP: Early last year, your company was producing 150 barrels of oil a day. By the end of the year, you were producing in excess of 20,000 barrels of oil equivalent grow and 10,000 barrels of oil equivalent a day net. That’s a tremendous growth curve. Are you surprised that your company grew that fast?
EP: Before starting Extraction Oil and Gas, you had a discussion - or several - with Mark Erickson. Ultimately, it led to Erickson being the CEO and you being the president. Has that been easy for the two of you to delineate your responsibilities and maintain your friendship?
MO: 2014 was a great year for Extraction. The models our technical staff put together have panned out exactly as forecasted and we were able to raise the capital needed and build the asset base in a short time frame. I am not as much surprised as I am excited to see that we have been able to meet or exceed all of the goals we set in early 2014. I can’t say enough about the team we have assembled, and if we continue to hit our goals, I would expect the growth to continue.
MO: Mark and I have a great relationship and have known each other and worked together for many years.
EP: Do you see your company continuing to grow or are you reaching a saturation point?
14 ENERGY PIPELINE MARCH 2015
MO: I think most of our growth in 2015 is going to be in personnel and production. We have assembled several great assets and did that with a very small team of people. Now we are concentrating on filling out the rest of the team with more high-caliber people so we can effectively execute our production growth plans. EP: What has your company done to help minimize the impacts of drilling on nearby residents and the environment? MO: We have done many things to help minimize impacts on residential communities. We were the first company in the basin to install sound walls to help reduce noise during the drilling and completion phases. We were also the first company to run a drilling rig off of electricity - also to reduce noise and emissions. Another thing Extraction tries to do is consolidate as many pad locations as we can into a single area. We would rather drill several wells off of a single pad site rather than spreading those wells out over many pad sites because we want to have the smallest disturbance footprint as possible. We are implementing a new sand delivery system that virtually eliminates silica dust from sand used during the completion process and we’ve also been able to pipe the vast majority of our water to development locations, which has eliminated tens of thousands of trucks from the roads. EP: Over the past six months, we’ve seen the price of oil plummet. It eventually fell below $50 per barrel but has stabilized and even gone back up in recent weeks. Did that drop hurt your company? And, how will you be able to fare if it keeps roller-coasting up and down? MO: The drop in oil price has affected everyone in our industry from a revenue
standpoint, but we are still able to drill economic wells in the current environment. Crude price fluctuations have changed our plans only with respect to the development pace. Instead of picking up rigs as quickly as we planned last year, we are practicing capital discipline and prudently slowing the pace of operations until we feel there is better line of sight on what commodity prices are going to do over the next few years. EP: Up to this point in your young career, what has been the highlight for you and why? MO: There have really been two major highlights that stick out in my mind. The first was the initial start-up process of Extraction and everything Mark and I went through at the very beginning. Those several months were definitely some of the most intense and memorable times of my life. The second highlight is the group of people we were able to assemble at Extraction. We really have a unique team of individuals and it’s a great feeling to come to work every day in an environment where everyone works hard and has been friends for a long time. The best thing about getting up every morning is that I believe, both for myself and all the Extraction team, that our greatest moments are still ahead. EP: What advice would you give other young professionals if they wanted to pursue their dream and own their own company? MO: Work ethic is just as important as knowledge and don’t be afraid to fail. Even if it doesn’t work out, the experience gained during the first several months is something you can’t learn until you try it. Also, keep networking all the time - trying to start a company can be just as much about “who” you know as “what” you know.
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The FilterBoxx Energy Services’ box functions like a municipal wasterwater system, attached like a caboose at the end of a row of temporary housing trailers on well sites.
AFTER THE DRAIN
New water system works to recycle oil camp waste water BY SHARON DUNN • SDUNN@ENERGYPIPELINE.COM
in all oilfield drilling, the one
essential ingredient is water. And many parts of the drilling, rigging, fracking and production process have a claim on a specific piece of that pie. While it’s essential in mixing drilling muds, and an imperative in hydraulically fracturing a well, water is just as important to those who live and work on the rig for months on end. Most are dependent on their freshwater needs for personal use from the trucks that ship that water in. A new process on a couple of rigs in Weld County is taking the waste stream from that personal use, and giving it new life - making water good enough for re-use in downhole drilling, mixing cement and 16 ENERGY PIPELINE MARCH 2015
ON AVERAGE, ESSENTIAL PERSONNEL ON A RIG SEND 2,000 GALLONS A DAY DOWN THE DRAIN muds, fire retardant, boiler systems and dust control, to name a few. On average, essential personnel on a rig send 2,000 gallons a day down the drain to be loaded into trucks that would normally be trucked out. “It’s such an important resource here, it’s called beneficial reuse, and it’s looked
at completely differently,” said Brian Edwards, director of business development for FilterBoxx Energy Services. The company has been recycling waste water from oil and gas camps and other industrial settings in Canada for 15 years, the largest of which is a 3,500-man camp in the Great White North. The company spent the last six years doing the same in the Piceance Basin on the West Slope gas fields before companies refocused their efforts on Wattenberg oil. Now, FilterBoxx is venturing into Weld County’s oil patch, for now conducting two pilot tests to convince operators their process is worthwhile. FilterBoxx is just like adding a municipal wastewater treatment system
MARCH 2015 ENERGY PIPELINE 17
LEFT: Brian Edwards, director of business development for FilterBoxx Energy Services, discusses how the system works to recycle oil camp waste water. RIGHT: James Ullrich, the onsite operator of a FilterBoxx wastewater treatment system on a multiwell pad in northern Colorado, shows off a vial of water treated onsite from the camp’s waste stream.
to a remote site. But this one is on skids, is the size of a small construction trailer, and attaches at the end of a row of about eight temporary housing trailers on site, like the caboose of a train. Wastewater streams in, gets cleaned up through a variety of nanoscopic membranes, aerators and filtration systems, and it comes out clear as day. Once it’s clean, the water is put it in a day tank for re-use.
use it for surface uses, like dust mitigation, but mostly it was used for drilling and completion processes.” The box runs off of rig power, it’s skid mounted, meaning it can just be hauled in, dropped off and plugged right in, said James Ullrich, who monitors the FilterBoxx installed on a well pad in Redtail. Monitoring the site 24/7, Ullrich can even tweak machinery remotely via his smart phone.
routine maintenance. Typically, wastewater is shipped off site into other municipal wastewater treatment centers; much of the wastewater in Weld is being hauled away to Wyoming. That means trucks on the road hauling heavy loads. In North Dakota, for example, such waste is put in open pits, Edwards said. “I eliminate all those trucks and in exchange for eliminating the trucking ... and once it gets to site, it never leaves. They
“They are authorized to use it for surface uses, like dust mitigation, but mostly it was used for drilling and completion processes.” MORGAN HILL, environmental health specialist for Garfield County While they were in Garfield County, two FilterBoxx units were attached to drilling rigs. Morgan Hill, environmental health specialist for the county, said the units were the only ones in the county permitted, in which the recycled water could be re-used. “Companies (here) primarily used it for downhole operations,” Hill said of the recycled product. “They are authorized to 18 ENERGY PIPELINE MARCH 2015
The system is so smart, he knows where every drop of water is going before the people on site do - even from his home town in Grand Junction. “I can call the company man and tell them about their leaking toilet,” Ullrich said. “A leaky toilet can lose from 500 to 1,300 gallons a day.” Ullrich stays on site to monitor the system to ensure there are no sewage blowouts and
don’t have to truck (more) water in or out,” Edwards said. Eliminating the continued need to replenish water sources, and reducing hauling costs for the waste can save oil and gas exploration companies from $40,000 to $50,000 a year, Edwards said. In this environment, where companies are continually trying to shave drilling costs every little bit counts.
BELOW: A look inside one of three tanks wastwater goes through inside the Filter Boxx treatment system onsite. Each tank functions in a different way to filter and clean the water for re-use onsite for purposes such as boilers, dust control and cement mixing.
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“Everyone likes to build a better mousetrap,” Edwards said. “That has nothing to do with soft costs of reducing construction costs. We take enormous amount of trucks off the road. It’s right and the prudent thing to do.” The process also solves the problem of trucking in extra water for downhole purposes, Edwards said. The process, a big hit in Canada and coming soon to Texas, has gained the stamp of approval from the Weld County Board of Health. “We are the only wastewater treatment reuse company that has technology certificate by state to treat domestic sewage on well sites,” Edwards said. Ullrich said oil well workers usually frown at the idea of reusing their own wastewater, but they quickly come around. “It’s a great idea,” Ullrich said. “Companies are looking at how to save money. When you talk about re-using sewage water, they kind of get cold feet. But it sells itself.”
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Platteville Mayor Bonnie Dunston cuts the ribbon to officially open the Anadarko Petroleum building on Feb. 11. She is surrounded by Weld County commissioners and Anadarko employees. Left to right, front row: Weld County commissioners Mike Freeman and Barbara Kirkmeyer; Brad Holly, vice president of Rockies operations for Anadarko; Dunston; commissioners Steve Moreno and Julie Cozad; John O’Dell, Anadarko project manager, and Keith Kilcrease, Anadarko production superintendent.
OPEN FOR BUSINESS
Anadarko officially opens Wattenberg operations hub in Platteville BY SHARON DUNN • SDUNN@ENERGYPIPELINE.COM
company’s core values top of mind among the roughly 240 employees it was a typical meeting of employees assembled at the new who use the building as a hub in the Platteville Energy Park. Anadarko Petroleum facility in Platteville. That’s how he starts every meeting. Production Superintendent Keith Kilcrease, in a crisp, longsleeved blue flame-resistant shirt and jeans, stood before a host Today, Feb. 11, was different. Brad Holly, the company’s vice of others wearing much the same, alongside a few county and president of Rockies operations was there, with a warm handshake and city officials in the an unassuming smile for all. long meeting room And so was Platteville Mayor of the company’s new Bonnie Dunston, and a handful 114,000-square-foot Weld of Weld County commissioners County hub of operations. - all there to celebrate the He asked for a safety official ribbon cutting of the moment, to which an $20 million facility that will be a employee described a nexus of Anadarko operations BRAD HOLLY, vice president of Rockies operations for Anadarko Petroleum dangerous traffic situation in the Wattenberg Field for at that week, capped with least 20 years to come. a warning for others to watch out. Then he called for a core value “It’s real exciting to be in Weld County, and we appreciate the moment, in which another employee chimed in with a situation that partnership and we are glad to be in Platteville,” Holly said. displayed a moment of leadership - ideas that keep safety and the “This is a big statement,” Holly told the group, while sugar
“This is a big statement that Anadarko put down roots and a building to stay for a long time.”
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anadarko’s rockies assets delivered sales
Anadarko’s Fourth Quarter
volumes averaging 371,000 barrels of oil equivalent per day during the fourth quarter, a 17 percent increase over the same period in 2013. Total same-store sales oil volumes increased by 54 percent from the fourth quarter of 2013, including a more than 34,000-Bbl/d increase from the Wattenberg Field. The company averaged 13 operated rigs and drilled 104 wells in the fourth quarter, with the majority of the activity taking place in the Wattenberg field.
cookies decorated with oil derricks awaited them at the refreshments table, “that Anadarko put down roots and a building to stay for a long time.” The long building, which was enlarged three times before its completion, took more than two years to build, and consolidates employees in a central spot. The company also has an Evans operations center, and a Brighton field office, which is mainly for the company’s midstream department. The company will close the Brighton office, and disperse the 20 or so employees between Denver and Platteville. The Evans center will remain in operation, Holly said. Dunston, mayor of Platteville, welcomed the company and its 240 employees to the town. “We love Anadarko in our community,” Dunston said. “Now, because of Anadarko, I’m chair for the energy council to teach people how energy works. Thanks for coming to our community.” The timing of this opening day event, however, could’ve have been better. The building was planned and built during a swell of oil and gas production in Weld County, and the country. Employees were housed in the offices as soon as last summer, when oil peaked at over $100 a barrel. On this grand opening day - which already had its employees
Fourth Quarter Highlights in the Wattenberg The Wattenberg Field averaged approximately 195,000 BOE/d of net sales volumes during the fourth quarter, an increase of 78,000 BOE/d or 67 percent from the fourth quarter of 2013. The company operated an average of 12 horizontal rigs and drilled 82 wells (115 type-well equivalents) during the quarter. The company’s operated horizontal program averaged roughly 148,000 BOE/d, an increase of 126 percent from the fourth quarter of 2013. Source: Anadarko Petroleum’s fourth-quarter 2014 operations report.
comfortably nestled into cubicles and offices and seated happily before the computer screens at the Integrated Operations Center - crude prices had fallen more than $2 to $48.11 on West Texas Intermediate, the local price benchmark; Brent crude, the international price benchmark, was sitting squarely at $54.66. Holly remained calm. Anadarko officials don’t make moves like this lightly. They of all people know the volatility of markets and look for a bigger picture than just a few months. Company officials have seen the dark days when oil prices sunk below $10 a barrel. The recent drop only surprised them in how quick it happened, Holly said. “This building is a big statement because we hope to be here for decades,” Holly said after the bright red ribbon had been officially cut. “We’re committed to staying here. We feel commodity pricing is a challenge for everyone.” Anadarko is one of Weld County’s top two producers in the Wattenberg Field. The company in the last quarter spent $596 million to develop its assets in the Wattenberg, alone. The field takes up an 80 percent of the company’s capital spending in the Rockies. Later this month, the company will unveil its 2015 capital plan, which will undoubtedly be less than originally planned. “We have to cut costs and work hard ... and get the most out of our wells,” Holly said. “Will activity slow down? Absolutely. Will it cease? No.” What it will not mean for now is employee layoffs, he said. “We always use some caution and try to stay lean at all times,” Holly said. “As long as there’s a good tension over employment, where they’d like more employees, it’s good.” He added: “We don’t know if this is going to be two months or two years. We try to focus on how we manage in this environment and be efficient. We’ll focus on what we can control.” Anadarko doesn’t own the building, but they do have a 20-year lease with Platteville Energy Partners, led by Dale Boehner and Terry Wiedeman, who are developing the area around them with other oil and gas related businesses. Anadarko Production Superintendent Keith Kilcrease explains equipment in the Integrated Operations Center to Brad Holly, the company’s vice president of Rockies operations, after a ceremonial ribbon cutting of the Platteville facility on Feb. 11.
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HONOR OF A LIFETIME Former Anadarko employee becomes namesake for compressor station
D avid Mildenber ger (1955-2013) David Mildenberger died in March 2013 at the age of 58. He most recently served as a compression foreman at the Hudson station and worked for other natural gas processing and compression stations throughout the DJ Basin.
BY LINDA KANE • FOR ENERGY PIPELINE
monuments are raised all the time to honor presidents or
fallen heroes of war, but to honor an oilfield worker who spent his life dirtying his hands is almost unheard of. Until now. After serving the oil and gas industry his entire working career, David Mildenberger of Anadarko Petroleum Corp. was memorialized posthumously by his co-workers, supervisors and friends. Mildenberger’s name now enshrines the Hudson compressor station on the east side of the Wattenberg shale play located at 9501 Weld County Road 47. “Dave was very dedicated to the company and its employees and would help you in time of need and work with you to the bitter end,” said senior field analyst Dennis DeSotel. “He was very passionate about making something work correctly and not give up.” Mildenberger lived in Brighton and died in March 2013 from a heart condition at the age of 58. He would have been humbled to know how much he meant to the company, his colleagues said. It took about six months to figure out how to honor Mildenberger, but once management caught on to the idea of renaming the compressor station, Anadarko fully backed the idea. A large blue sign stating “Mildenberger Complex” now greets employees when they head in to work each day. A dedication ceremony was held in October and people attended who hadn’t worked with Mildenberger for 20 years. “Very seldom do we have the opportunity to celebrate a dedication like this,” said production superintendent Tim Bates. He said large companies like Anadarko rarely commit to
24 ENERGY PIPELINE MARCH 2015
A DEDICATION CEREMONY WAS HELD IN OCTOBER AND PEOPLE ATTENDED WHO HADN’T WORKED WITH MILDENBERGER FOR 20 YEARS memorials such as this because of all the regulatory red tape they have to go through, like seeking new permits. “But, Anadarko is the type of company that said it’s important to you folks, so it’s important to us.” The impact to employees at this station in Platteville was tremendous, Bates said. Both, in honoring a friend and co-worker, but also in receiving support from Anadarko’s management. Mildenberger, who worked more than three decades for Anadarko, most recently served as a compression foreman at the Hudson station and worked for other natural gas processing and compression stations throughout the DJ Basin. He reviewed construction plans, wrote operations procedures, trained and supervised employees and was especially focused on identifying and correcting safety concerns. “Dave was one who wanted people to succeed,” said automation supervisor Dean Curtis, one of Mildenberger’s closest friends. “He loved those who reported to him and they loved him as well. Dave would provide every opportunity possible to help his people grow
Employees of Anadarko Petroleum are shown here at the dedication of its Hudson processing plant, now named after beloved former employee David Mildenberger, who died in March 2013 after serving the company for nearly three decades.
and was very patient with them to see that it happened. Dave was always willing to help anyone with anything.” It was Mildenberger’s commitment to others that compelled Anadarko to dedicate the Hudson compressor stations in his memory. “Dave exemplified dedication in everything he did,” Bates said. “This memorial will always bring a memory to those who knew Dave of that type of excellence.” The Mildenberger Complex moves about 15 percent of Anadarko’s total natural gas production in Weld County. That’s roughly 140 million cubic feet of gas per day, Bates said. Organizers chose that location to honor Mildenberger because it continues to grow. “Today you can see newly installed equipment that is state-of-the-art, capable of supplying tremendous amounts of natural gas to our country,” Bates said. “With a little bit of luck, we will see the third cryogenic liquid recovery plant constructed on this site in the near future. These plans made this the perfect location to honor the memory and deeds of David Mildenberger.” He noted that Mildenberger passed quickly after his diagnosis and even tried to work from home as much as his illness would allow. “He didn’t get to retire,” Bates said. “He didn’t get to reap the benefit of what most men see as a rewarding career. He was taken away from us.” The opportunity to honor Mildenberger was rewarding not only for his co-workers, but also his family and the next generation of workers, Bates said. “We were all just very pleased that our management would sense how important it was for us and actually carry it through for us. It’s just a better day when you see the memorial,” Bates said. It was his values and work ethic that set Mildenberger apart. “All the things that made him a decent citizen and an exceptional employee he exhibited on a daily business,” Bates said. New employees who enter the site and read the sign will have the opportunity to ask “who’s Dave?” “The impact of the early pioneers of the energy business here will be retold,” Bates said. “And let me say, that is as it should be.”
“Dave was very dedicated to the company and its employees and would help you in time of need and work with you to the bitter end.” DENNIS DESOTEL, senior field analyst, Anadarko
“He loved those who reported to him and they loved him as well. ...Dave was always willing to help anyone with anything.” DEAN CURTIS, automation supervisor, Anadarko
“Dave expemplified dedication in everything he did. This memorial will always bring a memory to those who knew Dave of that type of excellence.” TIM BATES, production superintendent, Anadarko
MARCH 2015 ENERGY PIPELINE 25
MISSING PIECES
Industry experts worry slowdown will affect midstream infrastructure BY ANNE CUMMING RICE • FOR ENERGY PIPELINE
October 2013 and completed an expansion of it last February. Another plant in Weld, called Lucerne 2, is scheduled to be warn that declining oil prices will make it difficult to build open in the second quarter of this year. The company also has much-needed pipelines and infrastructure to get oil and gas 3,000 miles of gathering pipelines across Weld County. to consumers. Once Lucerne 2 opens, DCP Midstream will have nine But in northern Colorado, the situation might actually be processing plants in Weld. Total capacity among them will the opposite, as production remains profitable and midstream be to process 800 development million cubic feet of continues, with plans natural gas per day, for another natural producing 79,000 gas processing plant barrels per day of to open in Weld natural gas liquids. County in a few There’s no question months. the infrastructure “We do feel like in Weld is stressed Weld is insulated from and challenging, but what is happening those numbers are in other places,” amazing considering said Brian Frederick, the history of the president of asset JACK GERARD, president and CEO, American Petroleum Institute Wattenberg Field, said operations for DCP Craig Rasmuson, COO of Midstream, which Platteville-based Synergy Resources. processes 12 percent of the nation’s natural gas. “We look at Companies like DCP Midstream have had their work cut out producer economics. Weld County consistently ranks in the top for them trying to keep up with the volume of natural gas being 5 of producers in the country. So as the rate of growth slows drilled in the last decade, Rasmuson said. down, producers will choose their best place.” “This basin was built in the ‘70s and ‘80s for vertical wells With 63 natural gas processing plants in 17 states, DCP with one stage of fracturing,” he said. “It took 20 to 30 years for Midstream opened its O’Connor plant in Weld County in
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IF OIL PRICES REMAIN LOW OR CONTINUE FALLING, PRODUCTION WILL LIKELY DECREASE IN PLACES LIKE NORTH DAKOTA, WHERE COMPANIES RELY MOSTLY ON RAIL LINES TO MOVE CRUDE, A MORE EXPENSIVE OPTION THAN PIPELINES
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Keystone XL pipeline if gas prices remain low. Plunging oil prices may blunt the need for infrastructure in some areas. If oil prices remain low or continue falling, production will likely decrease in places like North Dakota, where companies rely mostly on rail lines to move crude to a more expensive option than pipelines.
PLAYING CATCH-UP But it’s a different story in Weld County, where natural gas pipelines and processing plants are already in place. Companies also are starting to build oil pipelines that would lead to the SunCor oil refinery in Commerce City. “Because we already have some of the infrastructure in place, our cost per barrel is less expensive than in places like North Dakota,” Rasmuson said. “Production will slow in Weld County, but it will be consistent. We’ll also be one of the quickest to recover when the commodity prices increase.” Already, Rasmuson said his company has decreased its cost to complete a well to about $3 million, down from $4 million about a year ago. With gas at $50-$55 a barrel, that $3 million completion cost makes sense, Rasmuson said. Before oil prices started falling, Synergy had also decided to wait to complete several dozen of its wells until DCP Midstream’s Lucerne 2 processing plant opens in the spring, Rasmuson said. “We have all been victims of what we’ve created here, and we all have to figure out ways to deal with it,” he said. With engineering and getting necessary permits, the lead time for DCP Midstream to create needed infrastructure is about 18 months, much longer than it takes to drill and complete a well. “We have to work with all of our producers to figure out the best places to put our infrastructure,” said Frederick. “It takes a lot of planning.” The slowdown in production may actually give companies like DCP Midstream time to catch up with the need for what they provide. “We anticipate there will be a need in Weld County for continued expansion of infrastructure,” Frederick said. “Weld is a very important basin for us. It’s not a short-term thing. We are a company that will build the infrastructure, operate it and in a hundred years when production stops, we’ll be the ones to take it out.”
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TECH TALK
THE DRONES ARE COMING TO THE OILFIELD BY GARY BEERS • FOR ENERGY PIPELINE
“on the road again” may be Willie Nelson’s
opening song, but it is the story of a roustabout’s workday in a rural oilfield. In one week recently, he logged 70 hours and over 1,000 miles to spend less than 20 minutes at each of 50 well and tank battery sites to do visual inspections, measure free-board at eight pits, and download data from sensors at four wells. Adding to this routine, emergency trips were needed to check out four landowner complaints about open gates and hotshot several small pieces of equipment to fellow roustabouts working on repairs at well sites. And, to top off the week, the need to take infra-red photographs of flares at three well sites was postponed due to wet weather and landowner’s request to stay off his range roads to prevent road damage. Instead of a truck, the roustabout dreamed about doing the assignments with an ultralight aircraft - obviously, this was impractical due to cost. Another version of the roustabout’s dream may come true in the coming year as one outcome of the booming business of commercial drones that is now sweeping the country. Off-the-shelf drone helicopters for commercial businesses are outfitted with basic instruments for GPS navigation and color photography. Custom abilities can be added, such as methane and other gas sensors, cargo bay for small items (less than 10 pounds), armature for transferring cargo or movement of small items, and ability to download electronic data from fixed, monitoring equipment. While commercial use of drones in oilfields is an emerging business with start-up services centered on pipeline inspections in Alaska, there are numerous ventures in the agricultural sector that are developing drone capabilities and practices that can easily transfer
30 ENERGY PIPELINE MARCH 2015
to uses in the oil and gas sector. For example, drones fly a selected route and hover at designated locations to take photographs of soil and crop conditions from several elevations. In other industrial applications, onboard gas sensors provide the drone’s ability to measure and record atmospheric concentrations near smoke stacks or flares. An advancement on cargo handling capability is demonstrated by a drone that can fly a location having a spare battery and arrive at the location and use the armature to change the drone’s battery. I discussed the various assignments carried out by the above roustabout with a developer/manufacturer of commercial drones located near Denver. The outcome was a variety of commercial drones (especially robotic helicopters) can be outfitted to perform these activities with a significant savings in the roustabout’s travel time and costs. • The roustabout’s skills would be more effectively used in guiding the drone (minutes) than in the driving a truck (hours) to a site in a rural oilfield. • With the assistance of the drone, the roustabout’s less than 30 minutes of onsite work effort can be easily leveraged to photograph, from various angles and elevations, site and equipment conditions for a permanent record. Also, the availability of this drone capability in the remote settings of oilfields would provide local standby public services to aid in search/rescue and help locate/monitor wildfires. The Federal Aviation Authority has three levels of regulations for approving of unmanned aircraft operations in the national airspace:
For over 50 years, GARY BEERS, has worked in numerous fields of environmental science as a consultant, regulator and educator. This career included senior management position with major consulting, nonprofit and public organizations. He has founded several successful firms to capture emerging resource management markets. One of his latest ventures, EnviroScienceINFO, provides content for public media.
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• Public Operations (Governmental). Certificate of Authorization of Waiver (COA). Approval for public agencies and organizations to operate a particular unmanned aircraft for a particular purpose in a particular area. Common uses today include law enforcement, firefighting, border patrol, disaster relief, search and rescue, military training, and other governmental missions. • Civil Operations (Non-governmental). Special Airworthiness Certificate: Experimental Category. Approval for civil, non-governmental operations that have demonstrated their unmanned aircraft can operate safely within an assigned flight test area and cause no harm to the public. The local FAA Manufacturing Inspection District Office will issue the certificate with operating limitations. • Commercial Operations. Section 333 Exemption (under FFA Modernization and Reform Act of 2012). Until regulations are specifically developed for safely integrating commercial operations of small unmanned aircraft systems into routine National Airspace Systems, the FFA is leveraging the authority under Section 333. The needed Small Unmanned Aircraft Systems Rule (sUAS Rule) is expected to be released for public comment later this year. Approval for unmanned aircraft system if the specified operating conditions do not create a hazard to users of the national airspace or to the public - or pose a threat to national security. Approval may require COA and/or airworthiness certificate. Examples of exemptions granted under Section 333 since December 2014 are: • Motion picture and television filming within closed sets (7) • Aerial photography for feature films (1) • Precision aerial surveys and inspection (4) • Precision aerial surveys for real estate characterization (1) • Monitoring and ensure safety at construction sites (1) • Flare stack inspections of oil platforms located in Gulf of Mexico (1) • Photogrammetry and crop screening to perform precise agriculture (1) Colorado and other states in the western oilfields are considering legislation regulating the use of drones; 32 ENERGY PIPELINE MARCH 2015
however, these efforts are focused on privacy issues and public safety. Within the above regulatory framework, there are opportunities to obtain approval for the use of commercial drones in rural oilfields under certain conditions. Here are some activities are underway in North Dakota and Colorado to increase information and field data in support of the “boom” in commercial drone use.
NORTH DAKOTA • In 2013, FFA selected North Dakota to host one of the six unmanned aircraft test sites in U.S. research ways to safely fly drones in the national airspace. The state is contributing $4 million to start operations which are expected to provide at least 240 new high-skilled jobs. • University of North Dakota offers the first unmanned aircraft college degree in the nation and is home to the Unmanned Aircraft Center for Excellence.
COLORADO • In 2014, University of Colorado at Denver started offering a course, “Drone 101.” • In June, Denver will host the 2015 International Conference on Unmanned Aircraft Systems. The conference theme is “Integrating UAS into the national airspace.” When the FFA regulations and policies are clarified in the coming year, the industry for the commercial application of drones will explode and create hundreds of high-tech jobs. Certainly, there is strong opportunity in the Niobrara Field (Colorado and Wyoming) for a new venture that is the national center for development of environmental monitoring and “roustabout” drones for commercial uses in oilfield operations.
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MARCH 2015 ENERGY PIPELINE 37
ROAD
TRIP WHAT DOES A SLOWDOWN LOOK LIKE IN NORTHEASTERN WELD COUNTY? BY SHARON DUNN • SDUNN@ENERGYPIPELINE.COM
38 ENERGY PIPELINE MARCH 2015
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ALL IS STARTING TO GET QUIET ON THE EASTERN FRONT OF WELD COUNTY, but the oil patch is not yet dead amid slowdowns predicted because of crashing oil prices. Companies are tightening their belts and announcing massive reductions in capital spending across their assets in many plays, including the Wattenberg. Anadarko Petroleum, one of the top two drillers in Weld County, announced in early February it would cut its capital program substantially - or more in line with what other companies are announcing - but would not put out specific numbers until March. PDC announced it would reduce capital spending 14 percent this year, but still focus its energies on the Wattenberg; Carrizo Oil and Gas in late January announced a 35 percent reduction in spending; it will operate a lease maintenance program in the Wattenberg while it maintains a
B
C
three-rig operation in the Eagle Ford in Texas. The list will undoubtedly grow. So what does a slowdown look like in Weld County? We ventured northeast from Greeley to find out on a recent sunny day in the normally harsh northern Colorado winter. We wandered into an area considered by many to be one of Weld’s sweet spots, the Redtail prospect area, so far north even the missile silos seem close to civilization. Traveling through the Redtail area near the Pawnee Buttes, we found substantially less truck traffic to negotiate on the two-lane roads (that was a plus) that led to several drilling spots in the Pawnee National Grasslands area. We also found a heck of a set of chewed up roads, as we played a game of follow the leader as heavy tractortrailers dodged particularly nasty holes along the roads ahead of us (thank you!). But we also found work continuing on a variety of rigs amid a gorgeous backdrop of the Pawnee Buttes and wind farms.
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E
Oil field still has to contend with chewed up roads, no matter how often county crews and individual companies patch them up. Workers get a bit of sunshine and warmth as they work on the outskirts of a drilling pad in the Redtail area northeast of New Raymer. Twin drilling pads are digging up the soil in Redtail. Once described as bumper to bumper, a long road in northeastern Weld County now leads less traffic to the drilling rigs. Couched alongside Weld County Road 129, the Midway Grill, a mobile lunch unit, is not present here, but the sign says open soon. Weld County Health Deparment officials have been in contact with the owners of the unit, described as a semi-trailer that opens at the back end. The owners have not yet licensed the unit in Weld County.
MARCH 2015 ENERGY PIPELINE 39
Weld Production
Wel
40 ENERGY PIPELINE MARCH 2015
d C ounty
King
of
COLORADO OIL PRODUCTION BY SHARON DUNN • SDUNN@ENERGYPIPELINE.COM
CRUDE PRODUCTION IN COLORADO’S TOP COUNTY HAS GONE OFF THE CHARTS SINCE 2011, AND THREE YEARS LATER IT’S STILL NOT DISAPPOINTING. out a report suggesting that U.S. oilfield production could trail off while production numbers are always a few months behind, solid considerably starting in the second half of the year. counts through October show Weld County’s 2014 oil production up almost 10 percent from the previous year, and expanding to 83 percent of The new report, based on an IHS study of 39,000 wells, points to the state’s oil output, according to the Colorado Oil and Gas Conservation the possibility of month-to-month U.S. oil production growth coming Commission’s tracking system. to a halt in the latter half of 2015, assuming Some analysts predict the state’s largest that West Texas Intermediate (WTI) prices producer, and largest oil field employer, will remain below $60, according to a news continue to put up the big numbers through release from IHS. much of 2015 - even amid a slowdown Monthly average U.S. production by the precipitated by plummeting global prices. end of the year is projected to be about half a million barrels per day above the January 2015 Weld County through October, with average, but nearly all of that growth will come some minor production numbers yet to be in the first half of the year. By December, U.S. reported in November and December, show Weld County is the highest oiloil production growth will have been flat for a total output of 57.3 million barrels of oil. producing county in the state, several months, the report stated. Last year, total output had hit a record 52.6 comprising more than 80 percent million. That’s a 9 percent increase with final “In the Niobrara, the drilling activity may of all state output. Oil production numbers not in. reduce by 50 percent, but we don’t anticipate continues to hit records. that the production growth will start to flatten The numbers are encouraging as the world until mi-year or even after, maybe into the faces its first massive oil slowdown since 2009, Through October, the county produced third quarter,” Stark said. “That’s because one that has seen crude price bottoms well more than 57 million barrels of oil, about 80 percent of the production from the beyond six-year lows. 9 percent higher than all of 2013 Niobrara is coming from about 20 percent of Prices climbed back up to over $50 a barrel and 57 percent more than 2012. the wells - the wells that are in the ‘sweet spot,’” by early February, but the price decline has put Here’s the breakdown: and where break-even costs are $40 a barrel, pressure on the oil field, prompting companies Stark said. to lay down rigs, slow down its drilling and PRODUCTION “Don’t be dismayed if you see continued concentrate mostly on its moneymakers. YEAR IN BARRELS production growth through middle of the While drilling may slow due to the ultimately 2014* 57,279,982 year, even though drilling is slowing down,” supply-demand problem the world now faces, 2013 52,596,602 Stark said. production in Weld County likely will keep 2012 36,648,474 The sweet spots - one in the heart of the churning out the big numbers. Wattenberg Field, essentially in and around The oil fields are about patterns, and Source: Colorado Oil and Gas Greeley; the other in northern Weld County Weld’s pattern may just follow those of Conservation Commission. called the Redtail area - will continue to the Bakken in North Dakota and the Companies have 45 days to report produce, Stark said. Eagle Ford in Texas, said Pete Stark, an oil production to the agency, so 2014 and gas researcher and analyst with IHS Stark said the main reason is the decline numbers won’t be final for a few months. in Englewood. The agency recently put Production numbers for 2014 are solid curve of the wells makes it necessary for
RECORD PRODUCTION
through October, with some reporting through November and December. They are the latest figures available as of Feb. 6.
MARCH 2015 ENERGY PIPELINE 41
operators to keep drilling to find any profit in what they do. “So you need to keep a fairly robust drilling activity to even sustain the levels of production to offset the declines,” Stark said.
NOT SO SAGGING REVENUES
DRILLING PERMITS Colorado drilling permits have slowed from a peak of more than 8,000 in 2008, but the advent of horizontal drilling has changed the way wells are permitted. Horizontal drilling combined with hydraulic fracturing produces more than 10 times a typical well, making permits less about the numbers than the output. Still, permit numbers have kept pace from previous years:
but we’re looking ahead. We think we can pretty much weather it.”
UNPREDICTABILITY this may be one time in history that
we could root for a little turmoil in the Middle East. At any one time, large-scale amounts weld county government has been of supply can be taken off the market able to boost capital projects by millions of and bring global demand back to a dollars in the good oilfield years. Officials respectable level. Today, the world oil predict a 20 percent to 23 percent growth market is sitting on an almost 2 million in property tax revenue from the industry barrel a day glut. from 2014, while the county socks away cash “We had $100 oil six months ago, and the to prepare for the bust cycle that always YEAR PERMITS supply-demand issues were ongoing then, accompanies these booms. and it was $100 because you had $20-$30 of Don Warden, Weld County’s director of 2009 5,159 it built in just cause of the perceived risks in finance and administration, has seen these 2010 5,996 the Middle East,” Stark said. ups and downs come and go, most recently 2011 4,659 When the focus shifted to the glut of oil, in the decline of 2010, when the county 2012 3,775 the risk perception went away, he said. had to bear the load of a $30 million loss in 2013 4,025 “The overhang of that almost 2 million industry property tax revenue due to volatile 2014 4,190 barrels a day of supply vs. demand, isn’t pricing swings in 2008. Oil went from $100 going to go away in the first half of the year, to $34 a barrel. Oil companies are taxed on SOURCE: Colorado Oil and Gas and that’s why we feel the prices may get their production. Conservation Commission below $40 even.” In the last few years, while oil and gas Normally, the market will re-balance production has increased, Weld has managed itself in about two years. It slows down to put $40 million in the bank to keep Weld’s until demand drains supply, making the government services operating smoothly. pendulum swing back to raise demand. The good thing is Warden has time to But some “trigger” events can change everything. That could be prepare. Weld receives property taxes two years in arrears, so when as simple as taking 800,000 barrels a day off the market with unrest down times hit, like now, the county has time to batten the hatches, so to speak. The hit from 2015 production won’t be put on the books in Libya, or another terrorist attack in Iraq - nothing to hope for, but stark realities of today. until 2017. “That would relieve the oversupply immediately,” Stark said. One way the county has avoided the pitfalls of relying too much on But economic fortune-telling remains a risky business. the good times in oil and gas, is by allocating the tax revenues as one“There are others who think that we’ve already hit the bottom,” time monies that can be used for those rainy day projects. Oil and Stark said of prices, “but if you look at the supply-demand without gas tax revenues are not part of the every day budget, by which every those above-ground risk factors thrown in, it could go below $40. department gets to fund an extra person, or pay for daily expenses. “If those unpredictable risk issues raise their head, and all of a “Way back to 2010, I wrote a document called Investing in the sudden the market may have $20 back to the price of oil.” Future of Weld, which basically laid out we shouldn’t expand Weld government with oil and gas revenues, but recognize they’re volatile and use them for one-time items,” Warden said. “We’ve poured a lot of money into public works for one-time projects. If in fact the property tax amount drops, we could basically slow down public works transportation projects.” most company operators are responding to the lower prices with The county will not, however, have to slow down progress on its commensurate cuts in capital programs, but they’re not cutting out those project to widen and improve 20 miles of Weld County Road 49 from programs altogether. Interstate 76, north to Weld County Road 60.5. Weld’s two largest drillers, Anadarko Petroleum and Noble Energy, “We’re still planning on 2016 and 2017 construction of Weld are in position to keep producing their high numbers, but as Stark said, County Road 49 and we have a loft of that money set aside,” they’ll likely concentrate on the areas that are the most economic. Warden said. Most companies are hedged through 2015, meaning they’ve sold their production at set prices, in many cases almost double what prices are on All told, that part of the project will come in at roughly $100 the market. That’ll soften the blow. million, much of which is already set aside. But drilling will have to continue, and they have ample places to “We try to position ourselves knowing we’re going to have that drill, Stark said, which will keep production steady. Companies will stop volatility,” Warden said. “The degree of the drop is a little shocking,
THE COMPANY RESPONSE
42 ENERGY PIPELINE MARCH 2015
SOME ANALYSTS PREDICT THE STATE’S LARGEST PRODUCER, AND LARGEST OIL FIELD EMPLOYER, WILL CONTINUE TO PUT UP THE BIG NUMBERS THROUGH MUCH OF 2015 drilling where their break-even points aren’t as great. “There’s still lots of development infill drilling to be done in the sweet spot,” Stark said. “There will be a significant slowdown and cut in drilling in total number of wells drilled, but the wells being drilled will be targeted to those sweet spot where average production is vastly better.” Synergy Resources COO Craig Rasmuson has crunched numbers that tell his staff to slow down. In may cases, that may mean drilling many wells, but not completing them until the economics are there. “The plan is, unless we see $35 oil for period of time, we’ll continue to drill,” Rasmuson said. “We’ll just be very diligent in which wells we’re going to complete so we can get our return on capital. “You’re cemented and have the steel casing, you’re in the rock where you want to be, but nothing has been stimulated, so there’s no pressure on anything happening. “I wouldn’t say we’re going to sit on it for years, but certainly three, six, even nine months is not a problem.” The Colorado Oil and Gas Association, the main lobbying group for the industry, reports expectations of healthy productivity. “We don’t know where price will stabilize or what kind of impact this price environment will have on production. We do know that Weld County is a national leader in diverse energy and economic planning,” said COGA President Tisha Schuller in a statement. “There is nowhere else in the U.S. where county leaders have better balanced traditional and renewable energy, industrial and agricultural development, and infrastructure growth with saving for the future. While we expect some kind of slowdown, we will work closely with Weld County leaders and stakeholders to mitigate impacts and prepare for a shared, bright future.”
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MACRO CAPITAL stark said while ihs sees production tapering off in the latter
part of 2015, they also believe it will rise back up by the end of the year. While the larger companies will scale back, they won’t stop. The slowdown in drilling however, means a loss of work for the service companies. “There’s nothing to panic over, for sure, and there are the upsides,” Stark said. “Unfortunately, Weld County will see job losses primarily in the service areas.” On a macro level, however, low oil prices have put more money back into consumers’ pockets. “The fact that low oil prices are delivering $750 or more per car owner into their pockets, you get a macro offset in U.S. economy as a whole that is larger than the hit on jobs and revenues from the oil field,” Stark said.
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44 ENERGY PIPELINE MARCH 2015
AMERICA’S OIL HOARDING MENTALITY BY SHARON DUNN • SDUNN@ENERGYPIPELINE.COM
QA &
with
BUD WEINSTEIN MAGUIRE ENERGY INSTITUTE
MARCH 2015 ENERGY PIPELINE 45
THE KEY TO TURNING AROUND THE RECENT SLOWDOWN IN THE OIL AND GAS INDUSTRY MAY BE IN OIL EXPORTS, but it’s anyone’s guess when the Washington mindset remains stuck in the historic oil hoarding of the 1970s. Bud Weinstein, associate director of the Maguire Energy Institute at Southern Methodist University in Dallas, is advocating for exports to bring stability back into the global oil marketplace. The balance was offset in November when the 12 countries within Organization of the Petroleum Exporting Countries (OPEC) opted not to cut back production in recent months amid a worldwide oil glut. The move drove down prices to six-year lows shortly after OPEC announced it would keep its oil production at 30 million barrels of oil per day. That’s helped fuel a continued glut on the market at a time of reduced demand. “If one can be charitable, they’d say the Saudis are playing smart economics,” said Weinstein on a recent visit to Colorado. “They don’t want to lose market share. ... We’ve been throwing an extra 2 million barrels a day on the world market, but we don’t export.” This is a game that OPEC can only play for so long, Weinstein said, as many governments rely on crude prices to fund their balance sheets. The national oil companies provide 70 percent of the world supply and Western private companies provide 30 percent, Weinstein said.
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MIDDLE: Statisticians already are marking the beginnings of a slow down in jobs numbers.
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BOTTOM: The U.S. in 2013 topped even Russia in its natural gas production, helping solidify the country’s increasing production dominance. SOURCE: Bud Weinstein Power Point presentation, based on a discussion in Denver recently, titled: “From Scarcity to Abundance: “Falling Oil Prices and the Downstream Supply Chain.”.
ABOUT
Bud Weinstein
“We need to engage more fully in the global market, particularly in a period of depressed prices.”
Bernard L. “Bud” Weinstein is associate director of the Maguire Energy Institute and an adjunct professor of business economics in the Cox School of Business at Southern Methodist University in Dallas. From 1989 to 2009, he was director of the Center for Economic Development and Research at the University of North Texas, where he is now an emeritus professor of applied economics. Weinstein studied public administration at Dartmouth College and received his A.B. in 1963. After a year of study at the London School of Economics and Political Science, he began graduate work in economics at Columbia University, receiving an M.A. in 1966 and a Ph.D. in 1973.
BUD WEINSTEIN, associate director, Maguire Energy Institute
“At today’s prices, every member of OPEC is running a fiscal deficit, and their government is in the red,” Weinstein said. “Even the Saudis need $80-$85 a barrel to fiscally break even. The Saudis can do that for a while because they have $500 billion in cash reserves.” Many of OPEC’s member countries are begging for a reconsideration, and Venezuela officials are trying to work deals to sell to China and Russia, Weinstein said. Now is not the best time economically throughout the world. China’s growth has scaled back to 7 percent a year from 11 percent; the Japanese are importing more natural gas, but they can’t afford to shut down their nuclear plants. “The Europeans are trying to stimulate their economy by throwing money out the window,” Weinstein said. “They have more deep-seated economic constraints.” Of larger concern is a growing global demand problem there’s not much of it, while supply continues to grow. “That’s because mainly because while North America is in relatively good economic shape, Europe is on its third recession in 10 years, China growth is losing, Japan can’t get its mojo back, Brazil is falling part. Global economics aren’t in good shape.” Boom and busts area always a part of the oil business. The last one was in 2008-09, locally, and it came roaring back in 2011. The difference, however, is that one was based on the Great Recession, in which people stopped spending money. “But what’s also different is that we’ve increased oil production by 70-80 percent above where it was in 2008,” Weinstein said. “Whether you play on a global scale or not, you’ll be influenced by global pricing trends. “The U.S. is the world’s No. 1 oil and gas producing country,” Weinstein said. “We need to engage more fully in the global market, particularly in a period of depressed prices.”
QA &
ENERGY PIPELINE: How bad can this slowdown get? BUD WEINSTEIN: The federal reserve bank of Dallas did a little study released last month (January), and they estimated Texas will lose 25 percent of oil and gas jobs in 2015. That’s out in the field, upstream, oil and gas production workers. That’s one projection; it does strike me as reasonable that we could expect to see the same in Colorado. There’s an interactive map put out couple weeks ago, by the Bureau of Economic Analysis, that shows you the percent of workforce engaged in oil and gas. Weld County, according to the map, has only 7.5 percent, and some of those counties in the southeastern part of state, it was 22 percent. So 7.5 percent of a larger county (may seem like a lot) but you’ve got the university, and medical, other stuff going on in Weld County. In the southeast, nothing else going on, so the percentage will be higher.
with Bud Weinstein That’s the rub. We don’t know whether it’s panic time, but you’ll feel it. There will be less spending, less demand for housing. Is this a blip? Or are we at a permanently lower level? It could be. I don’t think we’re going back up to $100 (a barrel), but at $60-$80, everyone was happy. Nobody was complaining. Producers, consumers were happy. I used to say nobody gives a damn about energy policy until gas is over $4 a gallon. Now gas is below $2. A reporter in Dallas called me yesterday, and said, “What’s going on? Gas prices went up 10 cents!” EP: Will this slowdown shake out the not so reputable players from the Wattenberg Field? BW: It depends on how efficient they are, and how much debt burden they have to bear. ... There is going to be consolidation up and down. Small companies and big companies are going to consolidate. MARCH 2015 ENERGY PIPELINE 47
Eliminate Downtime & Increase Production! We’re already seeing Halliburton, No. 2 swallowing up No. 3 (Baker Hughes). There are rumors that someone is going to gobble up BP this year. It could be Shell or Exxon. It’s happened before.
EP: Our sources tell us the Niobrara play is one of the most economical in the United States, so the slowdown may not be so prolific here. How do you see it?
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EP: In the middle of the big rush, there was a commensurate rush to get rail and pipelines in to haul product to market. What would a slowdown do to that rush? And when the market comes back, then what?
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BW: Until the prices dropped, I was saying the major challenge facing the industry was delivery capability, the lack of infrastructure, pipelines in particular, roads, road deterioration, the logistics of getting stuff to the well and from to the end user. I would argue that now is the time, build the infrastructure, don’t stop building because prices are low. Take advantage. Now is the time to be completing it because prices will go up again. Production may drop this year; it will go up again. Then there’s the whole idea about pipeline versus rail. There’s an incredible amount of oil moving by rail these days. But port facilities need upgrades, inland waterways, barges, they’re all part of the picture of moving product Don’t stop developing around. the infrastructure. If we had a national energy policy that recognized the importance of energy in both economic and political terms and had some coherent approach toward developing our energy resources, in an environmentally responsible way, and making sure infrastructure is in place to move it around. Whether we’re exporting or importing, we need the infrastructure.
EP: When it comes to the Saudis’ part in the slowdown, is this a high stakes game of chicken for them? Even though they’ve vowed not to, is it likely they’ll eventually slow down production? After all, aren’t the low oil prices hurting them too? BW: It’s like the prisoners’ dilemma, who will move first? We have to move first, because our energy industry is privately owned. If you’re getting less revenue, you have to cut costs and do it immediately. The Saudis don’t have to do it immediately. They can’t run budget deficits ... they can run through $500 billion quickly. And of course the Saudis have other agendas. EP: What do you think is the answer to bringing the market back up, and is it possible? BW: The answer is, if somehow we could goose global demand and get the world economy growing at a faster clip, that would be the best tonic. Commodity prices in general have collapsed over the last year. We need a robust economy. We’ll adjust, we have to adjust. And this too shall pass. Energy won’t go away; it’s going to be the challenge of the next year or two. There will be a shakeout and some pain and suffering, but if you look at it from the national context, we’re in Colorado and Texas, and we have a view of the world that’s totally different than the view on East and West coasts. Cheap energy right now is a net plus for the U.S. It’s holding down not only GA costs, but power generation costs, helping our manufacturing sector, petrochemicals, there are a lot of pluses for the economy. There’s more disposable income. The typical household has extra $1,500 a year at $2 gas. Now, it’s net positive,
but we still need to recognize we’re the world’s biggest producer, and there are implications of falling prices for the entire economy. Not just in the oil patch. There are 32 states that produce commercial amounts of oil and gas. They’re feeling this in Pennsylvania. U.S. Steel closed a mill in Youngstown, Ohio, they were making (pipes) for Marcellus production. Alaska is really worried. Their whole economy is based on natural resources. There are issues related to that TransAlaska Pipeline. They can get to the point where there is so little product flowing through it really puts the integrity of the pipeline at risk, but you have to have stuff going through that line. The Alaskans are literally pulling their hair out. EP: How much will crude and liquefied natural gas exports play into bringing back the market? BW: I think long term, it will be very helpful. It’s not going to do anything in the near term, but if we can speed up the permitting process for LNG exports, there are tremendous opportunities and we’re dragging our feet as the Australians are racing the Algerians and Qatars. Canada is getting into the LNG game, and we’re getting into it, but the hoops you’ve got to jump through ... My favorite example is this facility got its first permit, an import terminal near Maryland. It was built as an import terminal, and it just got approval to convert to exports. There was a great opportunity to sell Marcellus gas to Europe. The next day, the crazies are out there, filing lawsuits, saying it’s unsafe, these big ships will explode, you’ll kill fish. If we export gas, that means there will be more fracking and fracking is bad ... But Maryland has its first Republican governor in ages, and he wants fracking in western Maryland. In the long term, we’ve got to get into the export business. If we remove exports
bans on crude, we’d see something happen very quickly. We’ve got the crude, you don’t need to compress it and chill it (like LNG). You just have to get it on board and put it abroad. EP: Any final words? BW: We need to keep in mind that like all commodities, the price of oil goes up and down. We’ve seen swings of this magnitude in the past; we saw this happening in ‘08-’09, and things turned around and they’ll turn around again. It’s just a matter of time and patience. But let’s not give up and fold the tent because we have a tremendous opportunity from the national perspective. Let’s use our energy prowess as a political level. Let’s sell oil and gas to Asia and Europe. What’s really capturing public debate now in Washington, is even in the face of lower prices and greater consumption, cheap oil and gas are undermining economics of coal, nuclear, wind and solar and biofuels. None make economic sense, but they’ve all developed constituencies. The environmental lobby, they’re pretty much all marching to the same drumbeat, all fossil fuels are bad. When you tell them, “Wouldn’t the world be better if we sold our natural gas to China, and they burned our natural gas instead of their dirty coal? Wouldn’t that be good for the planet?” It doesn’t matter; it still contributes to greenhouse gas. What should the Chinese do, because you guys don’t like nuclear either? Well the Chinese have to cut their energy diet and invest more in renewables. Clean, green energy. Greenhouse gas is lower today than it was 20 year ago. Even the EPA has said, if you cut greenhouse gas emissions to zero, it wouldn’t be a blip on the radar as long as China, India and Indonesia and other formerly fast growing economies burn coal. MARCH 2015 ENERGY PIPELINE 49
50 ENERGY PIPELINE MARCH 2015
BRIAN
LEWANDOWSKI
IS AN EXPERT IN THE “WHAT IF?” BUSINESS BY TRACY HUME • FOR ENERGY PIPELINE
HE AND HIS COLLEAGUES IN THE BUSINESS RESEARCH DIVISION OF THE LEEDS SCHOOL OF BUSINESS AT THE UNIVERSITY OF COLORADO BOULDER, CONDUCT ECONOMIC IMPACT STUDIES AND CUSTOMIZED RESEARCH TO FIND THE ANSWERS TO ALL KINDS OF “WHAT IF?” QUESTIONS. A number of CU-Leeds reports address questions directly related to the economic impact of production curtailments in the oil and gas industry. Recently addressed questions have included: “What would be the economic impact of a statewide fracking ban?”; “What would be the economic impact if Colorado passed regulations requiring 2,000-foot setbacks for oil and gas facilities?” and “What will the economic impact be if crude oil prices remain low?” In January, the Business Research Division released a study specifically focusing on the topic of setbacks. The study was commissioned by a consortium that included the Metro Denver Economic Development Corporation, Denver South Economic Development Partnership, and the Common Sense Policy Round Table. The study is the latest iteration of research that began in late 2013 to identify the potential economic impacts of Colorado’s evolving relationship with the oil and gas industry.
that time, the researchers estimated that a statewide fracking ban would result in a loss of 68,000 jobs and an $8 billion reduction in the state’s gross domestic product within the first five years. But by the time CU-Leeds released the report, the context of the conversation had already begun to change. “In 2014, the initiatives that had begun to take shape were not about a fracking ban. Instead, they really took two paths, with one path being about local control, and the other path being about setbacks,” said Lewandowski. The researchers refocused their efforts to address the potential impacts of local control initiatives and new setback rules. The local control issue is a difficult one to model. Because oil production is so unevenly distributed across Colorado’s cities and counties, community-wide fracking bans would have vastly different impacts depending upon where they occurred. For example, the economic impact of a moratorium in Rio Grande County, which had no oil production in 2013, would be vastly different than a moratorium in Weld County. In 2013, Weld County was first in oil production among Colorado’s 64 counties. As the latest iteration of the report states, “Under a local control scenario, the impact on production, due to the speculation on which communities would pass moratoriums on fracking, is ... unclear.” Because of this, the researchers did not quantify the potential economic impact of local control measures.
CHANGES IN SETBACK RULES the researchers did, however, quantify the potential economic impact
FRACKING BANS AND MORATORIUMS “in late 2013, we saw several communities pass moratoriums on
fracking,” said Lewandowski. “The thought at the time was that we might see a statewide effort to ban fracking and the policy group thought we should model the implications of a statewide fracking ban on Colorado’s economy.” That report, titled “Hydraulic Fracturing Ban: The Economic Impact of a Statewide Fracking Ban in Colorado,” was released in March 2014. At
of new rules requiring a 2,000-foot setback for oil and gas operations. In a revised report, titled “Colorado Oil and Gas Industry: Updated Economic Assessment of Colorado Oil and Gas Ballot Initiatives in 2014,” the researchers estimated job losses of between 18,000 jobs and 36,000 within the first five years of the new rules. They also estimated a GDP decrease of between $2.2 billion and $4.4 billion. The impacts were calculated using the Regional Economic Models Inc. Tax-PI model, which is built for Colorado and calibrated with Colorado revenues, expenditures, employment and population. “It’s a dynamic, econometric model,” said Lewandowski. “What that means is we are able to put in some sort of change or some sort of shock MARCH 2015 ENERGY PIPELINE 51
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to the economy and see how it impacts other components of the economy in a nonlinear way.” The researchers used publicly available data on oil and gas industry employment and wages; historical data on oil and gas production; and industry estimates regarding the production impact of increased setbacks. “The perfect way of creating this estimate would be if all of the existing wells in Colorado were geocoded, and there was production data and setback data associated with each of those geocoded wells,” said Lewandowski. “On top of that, if we had some idea about the prospective locations of future wells or future drilling, we could geocode those general locations to their neighboring, existing wells, to understand production and to understand what those setbacks would do.” In the absence of publicly-available geocoded well information, the researchers relied on industry estimates and inferences from public reports including Securities and Exchange Commission filings, Lewandowski said. The revised study was finished in early September 2014, but once again, the oil and gas conversation had changed rapidly. On Sept. 8, 2014, Gov. John Hickenlooper created an Oil and Gas Task Force to broker a cohesive, statewide approach to oil and gas industry regulations rather than a patchwork of unrelated, locally-developed initiatives. So although the setbacks and local control study was revised and officially completed in September, it was not released until this January. “The consortium was being mindful of what the governor was trying to broker at the time,” said Lewandowski. “We want to be informative, but we didn’t want to get in the way of the conversation that was happening with the governor and the two sides. Because the point of this consortium is really to provide information to the Colorado public and to be a source of economic information.” The Oil and Gas Task Force is charged with forwarding recommendations on state and local regulation of oil and gas operations to the governor no later than Feb. 27, 2015. At press time, the Task Force had begun its discussion of recommendations, but the final list of recommendations had not yet been developed. In the Governor’s letter to the Task Force, dated Jan. 30, 2015, he reminded members that per his initial Executive Order, he was encouraging the group to achieve support from two-thirds of the Task Force membership “on as many proposals as possible.” He also stated that he expects to receive reports on each item which does not obtain a two-thirds vote as well. The issue of changes to setback rules was still in limbo at press time.
PRICE VOLATILITY meanwhile, a new variable has been introduced into the
conversation about the economic impact of a decrease in oil and gas production. The drastic drop in crude oil prices and continuing crude oil market volatility that has occurred over the past six months has introduced yet another change to the researchers’ economic model. Although it might be tempting to use the outcome of the setbacks study, which looked at the economic impacts of 25 percent and 50 percent decreases in production, as a model for a cost-driven curtailment in production, that is not really a valid approach, Lewandowski said. “When we were modeling the impact of the setbacks rule, we were addressing a decrease in the quantity of production,” Lewandowski explained. “But with a price decline, you have two factors going on. If the value of production is ‘price times quantity’, then with a price decline we are not only talking about a decrease in value due to price,
“...we are potentially talking about a decrease in quantity caused by the decrease in price.” BRIAN LEWANDOWSKI, Business Research Division, CU Leeds School of Business
but we are potentially talking about a decrease in quantity caused by the decrease in price.” The other factor that makes the economic impact of the setback rule changes different from the commodity price changes is that the setback rule changes were presumed to be permanent, whereas the commodity price continues to be variable. “In the setback study we did, we were talking about a change in the law where operators would have permanent restrictions on drilling which were unrelated to price,” said Lewandowski. “But producers may have different expectations about the duration of this price decline. If they know they can survive for six months at this price level, and they expect prices to come back up a little bit by, say, July, that may be enough for them to keep going. So the price expectations cause them to behave differently than what we were looking at under a fracking ban scenario.” In mid-January, CU-Leeds put out a short summary report titled “Oil and Gas Prices - the Upside and the Downside.” In this report the researchers begin to quantify the potential impacts of a sustained drop in oil and gas prices. The report notes a sustained drop in gasoline prices has an income effect on consumers. The researchers analyzed gasoline consumption data and price data and estimated that “if prices stay 18.4 percent lower for 12 months, this will result in at least a $1.4 billion transfer from the energy industry to consumers in Colorado.” However, the report also notes that “the downside risk of these lower prices is that Colorado’s energy economy slows, dragging down some of the strong growth that the state has benefited from post-recession.” The energy industry employs nearly 34,000 upstream and midstream workers in Colorado, most of whom are earning above-average wages. Price declines can lead to a slowdown in drilling activity, “which will immediately impact drilling and support activities jobs and have multiplier effects on the supply chain of goods and services purchased by the industry” according to the report. The report states, “A 15 percent reduction in upstream and midstream employment results in a $0.5 billion decrease in wages.” But it’s not all doom and gloom. Lewandowski cautions that although it may be tempting to see the current price decline as a replay of 2009’s “price event,” the context is different. “While demand might be soft right now, the global economy is nowhere near where it was in 2009 and the U.S. economy is much stronger than it was in 2009. We’re showing stronger economic growth almost quarterly,” Lewandowski said. “The factors driving this price decline aren’t exactly crystal clear, but it’s not due to a global financial recession that we saw in 2009,” he said. “That’s why I think a comparison back to 2009 is good for illustrative purposes and insight, but I don’t think it’s an indication of exactly what we’ll see this go around.”
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CONSTRUCTION QUALMS Low prices raise alarm in North Dakota oil patch BY ASSOCIATED PRESS
Northern Railroad. Roughly 60 rigs are drilling in surrounding McKenzie County Dakota into the top tier of the global oil - 40 percent of the rigs statewide. New market and doubled or tripled the size neighborhoods and retail centers creep of once-sleepy towns that suddenly had ever deeper into former wheat fields. to accommodate a small army of “We’re making a new, 15,000-person petroleum workers. city in the middle of a But now that those prices pasture,” said have tumbled, the shifting Brent Sanford, mayor of oil market threatens to Watford, the county seat. put the industry and “The question is if we get local governments on a money put into the pot to collision course. Farming do it.” and ranching communities The county, which that committed to building a decade ago had a homes, roads and schools population of about 5,000, for the swelling population DEAN BANGSUND, economist, North Dakota State University has become a magnet for are worried about how “man camps,” where newly they will pay for those arriving workers and their improvements as oil-related families live in trailers, RVs and just about remains profitable in the heart of the tax revenue evaporates. any other structure that can stand up to state’s Bakken oil patch, due to the sheer “Everyone is asking the same question: North Dakota’s whipping winds. volume of crude flowing from so-called ‘Holy cats, where do we go from here?’” The pace of growth ove r the past decade hot-spots. said Dean Bangsund, an economist at has been “hyperventilating,” slackening And so the building continues in North Dakota State University who has only slightly as oil prices have fallen, Watford City, a century-old town that once tried to help oil-rich McKenzie County Sanford said. “You can’t catch a breath.” marked the end of the line for the Great gauge its needs, with an eye toward
high crude prices catapulted North
balancing growth against revenues. But none of his economic models were pessimistic enough to match how low oil prices dropped. For now, the oil extraction goes on. Despite the price plummet, drilling
“Everyone is asking the same question: ‘Holy cats, where do we go from here?’”
54 ENERGY PIPELINE MARCH 2015
MARCH 2015 ENERGY PIPELINE 55
THIS SITE IS NOT IN NORTH DAKOTA, BUT THE OIL AND GAS SLOWDOWN HAS THE TOWN OF WATFORD HOPING THAT SCENES LIKE THIS WILL NOT BE IN ITS FUTURE
With oil prices hovering near $100 a barrel for most of the past four years, ambitious plans were laid out to transform the city from a chaotic, sprawling crash pad for transient workers into a larger, more livable community. Sanford and other local leaders drafted a long wish list - more housing, more schools, better roads, a new water treatment plant and expanded law enforcement. Developers eager to cash in started construction of thousands of apartments and single-family homes. A new high school and civic center began to take shape. A new bypass was built to the south of town to ease traffic jams. Then oil prices began to drop, falling to roughly $50 a barrel now. Daniel Kuo, vice president of a Chinesebacked real estate company that’s building a 2,000-unit housing complex on the outskirts of Watford, keeps a close eye on oil prices. He’s met with McKenzie County economic-development agents to soothe any worries that the company might pull back. “You’re in too deep to let a price blip derail you,” Kuo concluded at the end of one meeting. He shared the optimism expressed by Sanford and many others in Watford that oil prices will stabilize and the boom will resume. Leaders in the North Dakota Legislature have pledged to keep public-works improvements as a priority. 56 ENERGY PIPELINE MARCH 2015
AMBITIOUS PLANS WERE LAID OUT TO TRANSFORM THE CITY FROM A CHAOTIC, SPRAWLING CRASH PAD FOR TRANSIENT WORKERS INTO A LARGER, MORE LIVEABLE COMMUNITY Whether that’s sustainable depends on how long oil prices stay down. Oil and gas revenue forecasts for the state already have dropped $4 billion, reducing earlier projections by roughly half. Watford and McKenzie County have joined other western North Dakota counties in seeking help from the state. Politicians and business leaders from the region flocked to the Capitol in Bismarck to press the Legislature for a larger stake of what’s left of the oil revenues. Towns like Watford are worried about getting saddled with all the downsides of the boom - dangerously crowded roads,
overtaxed utilities, jam-packed schools and unchecked growth - without the financial means to impose order. “At this point, it’s like downtown Seattle,” said Aaron Pelton, who owns Outlaws’ Bar and Grill along Watford’s main thoroughfare. “If you can’t come to a small community and have a quality of life, what do you have?” Like many oil towns, Watford has endured the boom-bust cycle before. Oil was first found in McKenzie County in 1952. Within a decade, hundreds of workers had moved on. Another boom kicked off in 1976, with up to 100 wells a year being drilled until prices started plummeting four years later. In the last decade, the industry refined the hydraulic fracturing, or fracking, technology that allows drillers to pull oil out of rocky shale. The fracking rush has seen more than 11,000 wells drilled, and analysts predict a total of 50,000 to 60,000 before all the oi l is gone. Industry observers expect the wells already in place to sustain last year’s production level of 1.1 million barrels a day at least through 2015. Still, the sudden drop in prices caught most observers off guard and shook confidence in the boom. “If I could tell everybody that we’d have $70 oil in 2016, we could breathe easier,” said Gene Veeder, director of the McKenzie County Job Development Authority.
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News Briefs PDC Energys reports year-end 2014 reserves and production As of Dec. 31, 2014, the total proved reserves for PDC Energy increased 11 percent to 250 million barrels of oil equivalent, compared to 226 million barrels of oil equivalent reported the year before. The value of the company’s proved reserves increased to $3.5 billion as of Dec. 31, compared with $2.7 billion the year before. The increase was primarily driven by reserve additions in th Wattenberg Field, according to a company news release. The company’s proved reserve additions were the result of well downspacing in the Wattenberg Field and an increase in per-well reserves in its inner core horizontal wells targeting the Niobrara formation, according to the release. Total gross proved undeveloped horizontal locations in Wattenberg increased to 770, with 700 in Niobrara and none in the Codell. “Though we are very well hedged in 2015 and 2016, we will continue to monitor commodity prices as well as focus intensely on cost reductions and improved operational efficiencies,” said Bart Brookman, president and CEO, in the release. “We will stay disciplined in maintaining our strong balance sheet and solid debt metrics.” PDC expects to incur a non-cash impairment between $150 million and $170 million in its 2014 fourth quarter with its Utica development plan.
WPX Energy stokes state, federal budgets WPX Energy paid $11.6 million in state severance taxes in Colorado and $66 million in royalties to the federal government for in-state wells on federal lands in 2014, according to a news release. After Colorado collects taxes from WPX and other energy producers, along with its royalties from the federal government, some money goes back to fund public improvements on the Western Slope. A grant program administered by the state’s Department of Local Affairs make the improvements possible. Last year, Colorado issued $78 million in grants to pay for improvements in more than 500 communities and school districts, the release stated. “This grant program is a valuable tool for Colorado’s smaller and rural communities,” said Gov. John Hickenlooper in a statement. “With these funds, communities are able to plan for and implement substantial capital improvements, essential public projects and other services.” Since July 2012, the program has awarded $150 million in grants, creating an estimated 1,300 jobs supporting grant-funded projects, a statement said.
PDC plans to drill 40 percent of its wells in 2015 with extended laterals, a statement said. The company anticipates its service cost may be reduced 10 to 25 percent in 2015 due to low commodity prices, such as reductions. However, the reductions are not yet reflected in the 2015 capital budget of $557 million, a statement said.
“What a great feeling to know that vital community improvements such as water tanks, community centers, and upgraded roads are made possible through Colorado’s rich mineral resources,” said Susan Alvillar, a member on WPX’s advisory committee.
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Web services company acquires app developer Greystone Web Services, LLC, a growing presence in Colorado’s web services industry, has acquired The Pixel Rebel, LTD, a Fort Collins-based mobile app developer. The Pixel Rebel has worked with clients such as University of Colorado Health, the mayor of Old Town, and the city of Fort Collins.
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Bill would equalize fuel tax A bill reintroduced by U.S. Sens. Michael Bennet, D-Colo., and Richard Burr, R-N.C., would equalize tax treatment for liquefied natural gas and diesel fuel under the federal highway excise tax.
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The bill would allow LNG to compete more fairly with diesel by taxing on energy output rather than per gallon, according to a news release. “LNG could be a better and more economical fuel choice for Colorado’s business owners, but the current tax system has built in disincentives that may prevent them from using it,” Bennet said in a statement. The bipartisan effort aims to reduce the thousands of dollars of additional cost for companies choosing to use LNG, a statement said. “This is a no-brainer. Our bill would eliminate a current tax disincentive for using LNG, a fuel that is not only environmentally cleaner would but also reduce our dependence on foreign oil,” Burr said in a statement. If a diesel truck travels 100,000 miles at 5 miles per gallon it consumes 20,000 gallons of diesel fuel. An identical LNG truck would require 34,000 gallons of LNG to travel the same distance. The current tax system would result in the LNG truck operator paying an additional $3,402 in taxes because of the 14,000 gallons more of fuel to travel the same distance, a statement said. LNG produces lower levels of toxic emissions like carbon dioxide, nitrogen oxide and sulfur dioxide than diesel fuel. Furthermore, LNG is cheaper at the pump than diesel. - Staff Reports
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News Briefs
Off-shore leasing plan draws industry ire The proposed offshore oil and natural gas leasing program released by the Department of the Interior on Jan. 27, along with other recent actions to restrict energy development, show a disappointing lack of commitment to ensuring America’s position as a world leader in energy, said API Director of Upstream Erik Milito in a statement.
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“The administration is compromising our ability to compete globally by restricting so much of the nation’s oil and natural gas resources,” said Milito in a statement. The administration has proposed to potentially include a single lease sale six years from now, Milito said.
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Secretary Jewell noted in a news conference that the lease sales were a minimum that could be narrowed or eliminated in the future. “This is our energy moment, and we need smart, forwardthinking policies to realize this opportunity,” Milito said. API represents all segments of America’s oil and natural gas industry. Its more than 625 members produce, process, and distribute most of the nation’s energy. The industry also supports 9.8 million U.S. jobs and 8 percent of the U.S. economy. - Staff Reports
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Synergy Resources launches $150 million public offering Synergy Resources Corporation announced Jan. 27 the launch of an underwritten public offering of $150 million of its common stock, subject to market and other conditions. The underwriters will have an option to purchase up to an additional $22.5 million of common stock from the company. All of the shares to be sold in this offering will be sold by Synergy. Synergy intends to use proceeds from the offering, along with cash on hand, to fund additional asset acquisitions in the Wattenberg Field, according to a news release. Seaport Global Securities LLC is acting as bookrunning manager/co-lead of the offering and Johnson Rice &amp; Company LLC is acting as co-lead manager. The underwritten public offering will be made only by means of a prospectus supplement and accompanying base prospectus, copies of which may be obtained from Seaport Global Securities LLC, 360 Madison Avenue, 21st Floor, New York, NY 10117. Call (646) 264-5601. The common stock will be issued and sold pursuant to an effective shelf registration statement on Form S-3 previously filed with the Securities and Exchange Commission. - Staff Reports
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MARCH 2015 ENERGY PIPELINE 63
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MARCH 2015 ENERGY PIPELINE 65
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66 ENERGY PIPELINE MARCH 2015
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MAKING HOLE A look back at the origins of oil and gas BY BRUCE WELLS • AMERICAN OIL & GAS HISTORICAL SOCIETY
Photo courtesy of Drake Well Museum.
“Making Hole” is a term for drilling coined long before oil or natural gas were anything more than flammable curiosities.
Although their design would not last, Brothers Amos and James Densmore in 1865 built the first successful railroad tank cars used in oilfields. Photo courtesy Drake Well Museum.
america exported oil for the first time in January 1862 when a two-masted brig arrived at London’s Victoria dock after a six-week voyage from Philadelphia. The “Elizabeth Watts” carried more than 1,000 wooden barrels of oil and kerosene from Pennsylvania oilfields. The start of the U.S. petroleum industry in 1859 launched many businesses for transporting the highly prized resource. Soon after Col. Edwin L. Drake drilled America’s first commercial oil well in 1859, entrepreneurs rushed to northwestern Pennsylvania and wooden derricks sprang up. It was the nation’s first oil boom. In January 1860, oil sold for $20 a barrel and brought jubilant investors huge profits, including
Drake’s investors at the Seneca Oil Company of New Haven, Conn. By May 1861, more than 130 producing wells were crammed into the area, yielding 1,288 barrels of oil a day. Wooden barrels were in high demand. New cooperages joined the oil boom and stripped the Pennsylvania hillside forests to sell barrels at up to $3.25 each while teamsters charged up to $4 each to haul them. But with an oversupply of oil came plummeting prices and instability that would bring ruin to many fledgling petroleum companies. About this time, the veteran cargo brig “Elizabeth Watts” was chartered by the successful Philadelphia import-export firm of Peter Wright and Sons.
BRUCE WELLS, is the founder of American Oil and Gas Historical Society, a 501c3 nonprofit organization dedicated to preserving the history of oil and gas. He is a former energy reporter and editor who lives in Washington, D.C.
MARCH 2015 ENERGY PIPELINE 67
ONE STOP STEEL SHOP!
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“She was a two-masted, square-rigged ship well suited for the Atlantic cargo trade of the day,” noted J. and C.C. Morton, the Maine shipbuilding firm that constructed the vessel in 1847. Since its founding in 1818, Peter Wright and Sons had grown and prospered, transporting “china, glass, and queensware,” among other commodities. The firm secured the “Elizabeth Watts” for the novel purpose of transporting crude oil from Philadelphia to London. To reach Philadelphia docks, the oil would have to travel overland across Pennsylvania. The nearest railroad to Oil Creek’s prolific fields was a grueling trek on muddy roads clogged with teamsters’ wagons. The preferred railhead, owing to primitive road conditions, was the Philadelphia and Erie Railroad station at Miles Mills (now Union City), 20 miles north of Titusville. Railroad flatcars were stacked with barrels and pulled by a steam locomotive east to Philadelphia. Along the route, saltwater residue would eat at the barrels’ glue and cause leakage. The risk of fire or explosion would be constant. Despite the hazards and difficulty, 901 barrels of Pennsylvania crude and 428 barrels of refined kerosene made the trip. Each 40-gallon barrel weighed 60 pounds empty and up to 400 pounds when full (the area’s oilmen agreed to adopt a standard 42-gallon oil barrel in 1866). At the Port of Philadelphia, it took dockside stevedores 10 days to load the oily cargo aboard the moored “Elizabeth Watts.” Sailors were not anxious to sign on with a ship that could explode and burn even before casting off and sailing down the Delaware River toward the open sea. One story reported Capt. Bryant had to “shanghai” his crew of seven. The fumes were noxious, lurking, and explosive. No ship had ever crossed the Atlantic bearing such cargo. Whether by persuasion or chicanery, Capt. Bryant secured his crew, and the “Elizabeth Watts” departed the Philadelphia docks on Nov. 19, 1861. Forty-five days later, on Jan. 9, 1862, the Elizabeth Watts sailed down the Thames River to arrive at London’s Victoria Dock. It took 12 days to unload the 1,329 barrels. Success breeds success, and only a year later, Philadelphia exported 239,000 barrels of oil - still without the technology of railroad tank cars or “tanker” ships designed for the purpose. As with many stories of America’s petroleum heritage, these early deficits in technology were overcome by men who risked their lives and fortunes in pursuit of oil. Read more petroleum history at the American Oil and Gas Historical Society website, www.aoghs.org.
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MARCH 2015 ENERGY PIPELINE 69
DATA CENTER
The oil and gas industry is a large part of Colorado’s economy. Below, find statistics on energy pricing, drilling production, well permits, spills and rigs.
2015 DRILLING PERMITS COUNTY
RIG COUNT BY STATE
NO. (% OF STATE TOTAL)
Weld.......................................................................................187 (59%) Garfield........................................................96 (30.4%) Rio Blanco...................................... 22 (7%)
As of Feb. 6 Jan. Avg. Dec. ‘14 Avg. Colorado 55 .......... 64 ........69 Louisiana 107 ........ 108......112 Oklahoma 176 ........ 198......209 North Dakota 132 ........ 155 Texas 654 ........ 773......872 Kansas 18 .......... 25 ........28 California 16 .......... 19 ........40 Utah 12 .......... 7 ..........23 Alaska 10 .......... 10 ........11 As of Feb. 6. Source: Baker Hughes Rig Count.
2014 GAS PRODUCTION COUNTY *YTD PRODUCTION (% OF STATE) Garfield ................. 529,237,608 (39%) La Plata................. 271,092,656 (20%) Weld .................. 289,962,374 (21.3%) Rio Blanco.............. 74,827,838 (5.5%) Las Animas................ 80,187,439 (6%) Mesa ...................... 32,454,943 (2.4%) State ............................ 1,359,795,316
Source: Colorado Oil and Gas Conservation Commission as of Feb. 9; figures do not include complete production numbers. Companies have 45 days to report production; 2015 production numbers are still coming in.
COLORADO ACTIVE WELL COUNT 70 ENERGY PIPELINE MARCH 2015
La Plata...............3 (7%) Adams...............2 Cheyenne...........2
2014 OIL
Lincoln..............2
PRODUCTION
Moffat.......1
COUNTY *YTD
Mesa.........1 State....................................................316 Source: Colorado Oil and Gas Conservation Commission as of Feb. 2.
US RIG COUNT
The U.S. rig count peaked at 4,530 in 1981 and bottomed at 488 in 1999. *U.S ......... 1,456 Canada...... 381 **As of Feb. 6, 2015 Source: Associated Press
COLORADO DRILLING RIG COUNT Weld ...................................... 48 Garfield .................................... 9 Source: Colorado Oil and Gas Conservation Commission as of Jan. 23.
U.S. OIL AND GAS JOBS December 2014
PRODUCTION (% OF STATE)
Weld ..............59,348,642 (84%) Rio Blanco .....4,038,117 (5.7%) Garfield ..........1,708,094 (2.4%) Cheyenne.....1,252,726 (1.76%) Lincoln ...........1,291,459 (1.8%) Moffat..............342,573 (0.48%) State......................... 70,971,380
Source: Colorado Oil and Gas Conservation Commission as of Feb. 9; figures do not include complete production numbers. Companies have 45 days to report production; 2015 production numbers are still coming in.
January 2015
201,400 199,500 (-1,900) Source: U.S. Bureau of Labor and Statistics, jobs related to oil and gas extraction, excluding mining.
Weld..........................................................................22,088 Garfield .....................................................................10,994 Yuma...........................................................................3,901 LaPlata .......................................................................3,330
Las Animas ................................................................ 3,008 Rio Blanco ................................................................. 2,915 36 others ....................................................................6,988 State .........................................................................53,174
Source: Colorado Oil and Gas Conservation Commission as of Feb. 2.
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RENTING
THE SMART WAY TO GET THINGS DONE Interstate Rental and Sales is your source for contractor’s equipment in the oil field industry. We also specialize in the repair of construction & heavy equipment. 24 hour sales & service.
Call INTERSTATE RENTAL & SALES, INC. at 303-485-5600 today for all your commercial & residential equipment needs.
72
8127 W. Interstate 25 Frontage Road • Frederick, CO 80516 Rental/Sales (303)485-5600 • Email Address: irs@interstaterental.net Jenson/Sales (970)689-1956 • Alan Fisher/Shop&Service (303)956-0768 ENERGYGary PIPELINE MARCH 2015