FEBRUARY 2015 ENERGY PIPELINE 1
On-site power requirements are critical. Wagner Power Systems has the solutions to your urgent and planed rental needs. Wagner Rental Power responds with a fleet of self-contained electrical power generators and air compressors, many contained within weather-proof, sound attenuated enclosures. This fleet includes portable trailer-mounted units that are easy to move on and off-site. Wagner Power Systems also offers specialized oil field equipment Wagner Rents offers electric power generators up to 100 kW, air compressors up to 375 CFM, light towers, Godwin pumps, hand tools and more.
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ANADARKO PETROLEUM CORPORATION
ANADARKO IS... Among the world’s largest independent oil and natural gas exploration and production companies – providing for today, innovating for tomorrow.
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3
Features
38
42
WATCHING THE PRICE OF OIL
SAFETY IN NUMBERS
16
Companies dig in for long haul, tighten belts in volatile price environment.
Denver company works to make oil field travel safer with real-time monitoring.
By Sharon Dunn
By David Persons
BILL BARRETT EXPLOSION
26
Internal investigation fixes flaws that led to the accident.
20
Drillers are expected to break into “new” old territory in the Greenhorn.
By Tracy Hume
32
By Linda Kane
24
NOW SUITING UP
New clothing options for oilfield, industrial workers in Greeley area. By Sharon Dunn
DRILL CUTTINGS
Recycling drill cuttings to be used as road base.
By Linda Kane
HIDDEN TREASURES
OIL 401K’S
America’s retirement depends on oil, gas. By Allison Dyer Bluemel
67
MAKING HOLE
A look back at petroleum’s past. By Bruce Wells
CORRECTION In the January edition of Energy Pipeline, a highlighted quote on Page 27 was incorrectly attributed to Adam Bedard of ARB Midstream. Vance Scott, a partner with A.T. Kearney’s America’s Energy Practice, actually said: “Lower oil prices will drive economic growth in non-OPEC nations.”
4 ENERGY PIPELINE FEBRUARY 2015
ON THE COVER Photo illustration by Darin Bliss
Departments 8
Support Company Profile
10
Field Worker Profile
12
Executive Profile
52
News Briefs
70
Data Center
Green Earth Environmental
Meet Joe Dopler, Northern Electric, Inc.
Meet Richard Slack, Oildex
FEBRUARY 2015 ENERGY PIPELINE 5
We have the
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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
CONTRIBUTING WRITERS Allison Dyer Bluemel Linda Kane Tracy Hume David Persons 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
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.
ENERGY PIPELINE MAGAZINE 501 8th Ave. P.O. Box 1690 Greeley, CO 80632
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For all editorial, advertising, subscription and circulation inquiries, call (970) 352-0211.
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Greeley CO | 2414 4th Ave, Unit A 970.356.1150 | borderstates.com
Send editorial-related comments and story ideas to: editor@energypipeline.com For advertising inquiries, contact: bjacobson@energypipeline.com January 2015, Volume 2, Issue 6. Published by Greeley Publishing Co., publisher of The Greeley Tribune, Windsor Now, the Fence Post, and Tri-State Livestock News.
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SUPPORT COMPANY PROFILE
Green Earth Environmental HOW LONG HAS YOUR BUSINESS BEEN OPERATING IN WELD COUNTY?
CORPORATE HEADQUARTERS 1760 Broad St., Unit F Milliken, CO 80543 970.587.9853
NUMBER OF EMPLOYEES 50 (including two owners)
WEBSITE www.greenearthcolo.com
SERVICES OFFERED Exploration and production reclamation, erosion control, landscape construction and maintenance, oil field services and soil remediation.
8 ENERGY PIPELINE FEBRUARY 2015
Six years. Started February 2009.
WHY SHOULD CUSTOMERS DO BUSINESS WITH YO UR COMPANY? Green Earth Environmental is a locally owned business that is deeply rooted in Weld County. GEEI is the premiere environmental, reclamation and erosion control specialist in the Rocky Mountain Region. GEEI has over 100 years of combined experience in the industry and we have worked to streamline our process to ensure cost-effective project completion. GEEI offers a variety of services in the Rocky Mountain region, including exploration and production waste remediation, oil field services, reclamation,
erosion control, landscape construction and landscape maintenance. Hydroloc Soil Amendment is a patentpending, proprietary soil amendment product created to provide a beneficial and environmentally safe option for drill cuttings. It is created using a defined an monitored process implemented at the production site. The cuttings undergo a treatment process utilizing a proprietary stable compost mix that includes enhanced levels of specifically designed biological additive (bacteria and fungi) and natural ingredients. The treatment process results in dramatic decreases in hydrocarbons and other limiting constituents, such as heavy metals, organic and inorganic compounds.
GEEI’s focus on land reclamation services includes grass, riparian, wetland, broadcast and drill seeding as well as soil amendments. In the Rocky Mountain region, we focus on land reclamation for oil and gas sites, mining, federal and state highway projects, Department of Energy developments, home builders and municipalities, private sector clients, open space areas as well as wetland mitigation efforts. Given the region’s weather patterns, erosion control can pose a serious problem. GEEI implements refined procedures to aid in the control of wind and water erosion in oil and gas, agriculture, land development and construction. The professionals at GEEI offer quality
landscape construction and maintenance services in the Rocky Mountain Region. Working with large land developers as well as commercial, private contractors and oil and gas clients. We start projects with a detailed design and work with contractors throughout the build. We also work closely with a select group of landscape and irrigation designers who have the skill set to provide water efficient irrigation systems and highly adaptable plant varieties. GEEI also offers many environmental services to oil field companies including exploration and production waste remediation, custom seeding, reclaiming drill pads and pipelines, installation of storm water bmps, light civil earth work, dry mix rig delivery and drill cutting remediation.
HOW LONG DO YOU ANTICIPATE BEING IN BUSINESS IN NORTHEAST COLORADO? Green Earth Environmental is deeply rooted in Weld and in northeast Colorado. WE have a long term commitment to our employees and their communities. With the projected growth of the oil and gas industry in the area, it is anticipated that the services we provide can be utilized continually
in a manner that is ecofriendly and environmentally responsible.
IS YOUR COMPANY IN A GROWTH MODE? Yes, GEEI’s workforce has more than doubled in the last 18 months. Most of GEEI’s staff are residents of Weld and Larimer counties, which has a positive economic impact to these communities. Since we provide a supportive role for other oil and gas companies, the increase in the utilization of our services will create the need for additional employees.
WHAT KIND OF SKILLS, EXPERIENCE OR EDUCATION DO YOU LOOK FOR IN EMPLOYEES? Green Earth Environmental looks for the following skills in potential employees: College degrees in soil science, range ecology, water resource engineering and professional wetland science. We also look for individuals with a clean driving record, a CDL driver with fiveplus years of experience, equipment operators with two-plus years of experience, technical skills to include data entry and database management, landscaping experience to include irrigation system construction.
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FIELD WORKER PROFILE
Joe Dopler NORTHERN ELECTRIC INC. BY STAFF REPORTS
HOMETOWN Moline, Ill.
WHERE DO YOU LIVE? Westminster
HOW LONG HAVE YOU BEEN WORKING IN NORTHEASTERN COLORADO? 15 years
HOW DID YOU GET INTO THE INDUSTRY? I started an electrical apprenticeship right out of high school. I attended IECRM apprentice school at night while learning on the job during the day.
WHAT IS YOUR JOB TITLE AND DUTIES? Executive vice president for Northern Electric Inc. I oversee our operations from the field and client side. I work with our project management and field
10 ENERGY PIPELINE FEBRUARY 2015
operations team to assure projects are done safely, on time and within budget.
Meeting new employees, especially apprentices who are just getting started in their career. It is rewarding to see new people getting into the trade and the level of excitement they have.
schedules and backlog of work. As a subcontractor we are often under pressure to maintain challenging schedules that were often created by others with minimal input from the team. As we all know, construction schedules are constantly shrinking and work activities almost always overlap creating safety issues, stacking of trades and creating less production.
WHAT IS THE BEST PART OF YOUR JOB?
WHAT DO YOU DO IN YOUR SPARE TIME?
WHAT IS THE MOST INTERESTING THING ABOUT YOUR JOB?
Working with our estimating team and getting the call that we have been selected to build a project.
WHAT IS THE HARDEST PART ABOUT YOUR JOB? The hardest part of my job is coordinating
I enjoy spending time with my family and friends, winter sports and outdoor activities.
WHAT ARE YOUR FUTURE AMBITIONS IN THE INDUSTRY? To continue to improve our operations team and
maintain the high level of quality that NEI has set as our standard.
WHAT DOES THE WATTENBERG FIELD AND THE DJ BASIN MEAN TO YOU? I give the majority of the credit for wage increases throughout the Denver and northern Colorado region to the DJ Basin and Wattenberg Field. Before the oil and gas work really took off in northeastern Colorado, electrician’s wages had been very stagnant. It appears that wages are starting to climb now for all construction workers and will hopefully at least keep up with inflation in the coming years. The DJ Basin also means that America can finally become energy independent and stop relying on foreign
countries for critical resources!
HOW DO YOU FEEL ABOUT THE CURRENT ENVIRONMENTAL DEBATE GOING ON WITH “FRACKING” IN COLORADO? I understand the environmentalist concerns and I think we all should be concerned when dealing with any chemicals that are pumped into the ground. However, with the research and safety precautions oil companies take while fracking I believe it is safe. I would be more concerned if fracking was new and unproven. Fact is, fracking has been around for over 60 years and the process continues to be safer with new technologies and techniques.
Na Native a ve ativ e Grasses, Forbs, Shrub Shrubs bs b s Site te - s specific peciffic c rre recommendations ecommendatio ons Reclamation Consulting ng
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EXECUTIVE PROFILE
OILDEX President and CEO
Richard D. Slack BY DAVID PERSONS • FOR ENERGY PIPELINE
many oil and gas industry executives will tell you that a single person inspired them to get into science or engineering. And, that usually led to a career in the oil fields. That wasn’t exactly the case for Richard Slack, president and CEO of Oildex, a cloud-based accounting software company designed specifically for the oil and gas industry. Slack, 58, says his interest in science can be traced back to - hold on - watching television as a child. “I was intrigued by science and science fiction,” Slack admitted recently with a cough-induced laugh. He says he is just getting over a bad cold. “I loved astronomy and thought about being an astronaut. So, I watched shows like Lost in Space and Star Trek. I loved them,” he said. “I thought then that the future was very interesting. “I remember watching the Walt Disney Show with Tomorrow Land and those flying cars. Of course, they never happened.” By the time Slack entered college at the University of California-Santa Cruz, he had forgotten about airborne vehicles and was just concentrating on science in general.
12 ENERGY PIPELINE FEBRUARY 2015
“I tried the life sciences, astronomy and even astrophysics,” he said. “But, I like the physical sciences the most. I then began to think about a career and this was during when the oil industry was booming. “So, I went into geology.” When Slack finally got out of college and into the oil industry in the early 1980s, computers were becoming integrated into every industry, even oil and gas. “We (oil companies) had tremendous amounts of data and processing required,” Slack said. “I got into this very early on. We used big, massive mainframes. PCs didn’t exist then. “We had green screens. Boy, those were the good, ol’ days. But, I was fascinated by that stuff so I took classes in programming (over seven years).” Later on, Slack moved into the software development side, which led to numerous jobs with some of the top oil and gasrelated software companies and eventually to his position with Oildex. Slack recently chatted with Energy Pipeline about his career and how a geologist got into developing various kinds of software for the oil and gas industry.
QA &
with Richard Slack
Slack recently chatted with Energy Pipeline about his career and how a geologist got into developing various kinds of software for the oil and gas industry. ENERGY PIPELINE: Can you talk a little bit about the companies you have worked for, what you did, and how you eventually arrived at Oildex? RICHARD SLACK: I got an opportunity move to the software development side with a Houston company, called CogniSeis Development. I started as sort of a software tester but I also found I had talents in sales and demo-ing. I then got into project software development and that led to more business (opportunities).
ABOUT
Richard D. Slack AGE 58
SPOUSE Catherine Slack
CHILDREN Madeline (20) Jennifer (18)
CITY YOU GREW UP IN
105 3rd Ave., Longmont, CO 80501 STORAGE CONTAINERS & TRAILERS FOR SALE
CONTAINER SIZES FROM 8’ TO 40’ TRAILER SIZES FROM 28’ TO 53’ SOMETHING ABOUT YOU THAT FRIENDS AND CO-WORKERS DON’T KNOW I was a ski bum in Switzerland for about five months. I met my wife, an Australian, there. We later were married in Australia and lived there for awhile.
CURRENT JOB TITLE
London, England; Escondido, California
President and CEO of Oildex
HIGH SCHOOL YOU ATTENDED
YEARS WITH OILDEX
San Pasqual High School (Escondido, California)
COLLEGE ATTENDED/ DEGREES B.A. degree in geology from the University of CaliforniaSanta Cruz and an M.S. degree in geophysics from the University of Houston.
CITY YOU LIVE IN NOW Evergreen
WHAT DO YOU DO IN YOUR SPARE TIME? I love to ski in the winter and hike in the summer.
LAST GOOD BOOK YOU READ Currently reading a book on Middle East history and role of Islam.
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PROFESSIONAL BACKGROUND He is responsible for the strategic direction, operations and growth of the company. He has over 30 years of experience in the oil and gas industry, with the majority dedicated to developing, marketing, and selling software products and services. Prior to joining Oildex, Mr. Slack held a variety of senior level strategic operations roles at leading software technology companies in the oil and gas industry. Under his guidance, two of the companies that he most recently led were recognized as some of the fastest growing companies in the North America by Inc. magazine and Deloitte Consulting.
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QA &
I left after 10 years to work for GeoGrafix which was a subsidiary of Landmark Graphics, which was a subsidiary of Halliburton. In the early 2000s, I became president and CEO of Bolo Systems, a small company in Denver. I put a great group of people together and really grew that company. I then sold that company to WellPoint Systems in the late 2000s. We were having a major recession then and I helped to stabilize that company. I then sold it to P2. I left (WellPoint) after the sale. However, I was then approached by the founder of Oildex (Peter Flanagan, CEO and president of Transzap). He asked me to come on board to take the company to the next level. EP: You certainly seem to have accomplished that. According to your website (www.oildex.com), Oildex now serves 7,900 companies and has 130,000 registered users. Do you serve many companies in the DJ Basin? RS: I don’t know off the top of my head. But, we do serve most of the oil and gas companies in the U.S. I would not be surprised if most of
with Richard Slack continued
the companies in the D.J. Basin use Oildex solutions.
no longer takes days to process this. You can do it in minutes or hours.
EP: Many executives we have talked to can generally single out a person that had a great influence on their career - a mentor. Did you have one and, if so, how did that person influence you and your career?
EP: Your website also says that Oildex software dramatically improves workflow and productivity. How does it do that?
RS: I can’t say any one name comes to mind. When I’ve been working, there were a lot of people I could learn from and I learned as much as possible. The graphics companies I worked for had some very smart people.
EP: Do you see your company continuing to grow or are you reaching a saturation point?
EP: On your website (www.oildex. com), it states that Oildex software helps oil and natural gas companies simplify, streamline and speed-up the processing of revenue, cost and production information. How does it do that?
RS: What makes it so intriguing is that oil and gas is a self-renewing industry. There are always new wells, new companies. The little fish eats the big fish. It’s a self-renewal market and we’re positioned with an important service. Our value is to improve efficiencies. We see this as a growing market.
RS: The oil and gas industry is awash in paper. It’s convoluted and complex. Paper is like sludge in the machine. There are so many invoices and data. It’s very complex and timeconsuming. Oildex takes the paper and makes it electronic. It does in instantaneously and is error-free. It
EP: Over the past six months, we’ve seen the price of oil plummet. Is that going to have a negative effect on your company or is it going to create some new opportunities? If it’s opportunities, can you talk a little about that?
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RS: Simply by eliminating paper, speeding it up, and minimizing production time.
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RS: Boy, that’s the $64,000 question. I don’t have a crystal ball. First thing, the smaller companies are feeling pain because of the cost of oil. But, we are in a good place. People still need our services because we help to manage costs. We’ll do well with the market even in tough times. EP: Up to this point in your career, what has been the highlight for you and why? RS: A highlight? Well, there have been a lot of highlights so it’s kind of hard to single out just one. I would say a highlight is working internationally. I also work in a big industry for dollars spent. I would also say the people I get to work with. I just have had a wonderful career. EP: Oildex was recently chosen as a finalist for the New Technology Development of the Year award by Oil & Gas Awards. How surprised were you of this recent development when you heard about it? RS: I’m absolutely pleased. I’m not surprised to hear that. I’m just surprised because I didn’t know that (yet). But, I’m not surprised. This is a very innovative thing.
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Northern Electric, iNC. - E-House Facility - 10100 119th Street, Longmont, CO 80504 FEBRUARY 2015 ENERGY PIPELINE 15 Northern Electric, Inc. - Corporate Headquarters 1275 West 124th Avenue, Westminster, CO 80234 877-265-0794 www.northernelec.com
EVALUATING BILL BARRETT EXPLOSION BY LINDA KANE • FOR ENERGY PIPELINE after facing a significant fine from
the Colorado Oil and Gas Conservation Commission for failures leading to an explosion and fire last March, Bill Barrett Corp. conducted an internal investigation and found major flaws in its practices. The company also was required to conduct a volatility study to help characterize whether oil in certain locations throughout the Wattenberg Field was more flammable than others. Bill Barrett officials say they recognized their responsibility in the fire, paid a $17,000 fine and implemented steps immediately to reduce its risk of a repeat situation. “We committed to a project with COGCC to investigate flammability, to better characterize the oil that’s produced, and we’ll be sitting down with fire departments so they’re better able to respond,” said Duane Zavadil, vice president of government regulatory affairs and environmental health and safety for Bill Barrett. “It raises the bar on the level of knowledge.” Bill Barrett sampled oil throughout Weld County, in different stages of production. What they found, ultimately, is the volatility and flammability of the oil doesn’t vary much. Oil flammability has been a concern in the last year, with many concerns that Bakken crude, for example, was so flammable that it had to be transported
differently, even so far as requiring railroads to notify communities’ emergency responders when the crude would be shipping through town. “The goal was to try to characterize the oil with an eye toward emergency response,” Zavadil said. “There didn’t seem to be any real trend we could offer up. That’s useful in that the character of the oil seems to be relatively consistent over time as it’s produced and in its flammability and volatility across the basin.
At the time of the fire, the company was using temporary production tanks - which are on wheels, difficult to ground and only allow for top filling of well production fluids. According to an incident analysis report conducted after the fire by Bill Barrett, an employees of Rooney Petroleum Service, one of BBC’s contractors, drove onto the site in his personal vehicle and parked next to a well head near the mobile separator. Oil was flowing through the separator and into open-top frac tanks. The vehicle is believed to have ignited flammable gas and hydrocarbon vapor from the frac tanks which set the liquid on fire in four tanks. “The practice of flowing to open-top tanks was in use for at least two weeks prior to the incident,” according to a root cause analysis prepared by BBC. “In this time, many people, both BBC employees and contractors, observed the practice and no one identified it as a hazard - or if they did, they did not say anything.” Several contractors said they thought it was “normal” practice to use open top tanks. “It is clear that the RPS (Rooney Petroleum Service) employee who parked his truck next to the oil tank had no understanding of the hazard posed by the oil in the tank and the associated vapor,” the analysis report said. The report said RPS hadn’t established an exclusion zone around the oil tanks, nor were they able to produce any
“We committed to a project with COGCC to investigate flammability... we’ll be sitting down with fire departments so they’re better able to respond.”
16 ENERGY PIPELINE FEBRUARY 2015
DUANE ZAVADIL, Bill Barrett Corp.
“That’s useful information in that we don’t need to be doing something different.” The company presented results of its study to COGCC in December. Results will be shared with industry peers and Weld County emergency responders within the next 30 days, Zavadil said. The volatility study was only one requirement of the COGCC after Bill Barrett’s fire on March 3, 2014, in which two employees received minor injuries and were treated at the scene.
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documentation the vapor hazards were discussed in any safety meetings. “The contractor and BBC personnel involved with the pre-incident operations at the Merritt pad (where the fire occurred) lacked the skill and/or experience to recognize the hazards posed by the storage of oil in open topped tanks,” the analysis said. RPS indicated they didn’t know it was BBC’s policy to establish an exclusion zone around flowback tanks. “This is indicative of poor contractor oversight and a lack of proper communications of contractor expectations,” the analysis said. During the investigation, the incident analysis team learned that BBC had not executed RPS’s contract and hence RPS did not appear on BBC’s contractor list. As a result, they were not invited to BBC’s contractor safety meetings. The investigation also showed none of the flowback tanks were grounded. Two trucks loading oil and water at the time also were not grounded. “This is also indicative of communications of contractors expectations and contractor oversight,” the analysis report
18 ENERGY PIPELINE FEBRUARY 2015
said. In addition, pre-job safety analysis and daily or shift safety meetings were not being properly conducted and/or documented. Immediately, Bill Barrett Corp. implemented a vehicular exclusion zone at least 75 feet from flowback tanks. It also stated in a report that all tanks would be bonded and grounded and a ground rod would be provided for trucks. Also contributing to the blaze was a push for production by senior management, according to the analysis. The area superintendent and production foreman had asked to slow down the completions crew by a few days so flow lines could be installed which would have eliminated the need to store oil at the site. The request was denied by senior management. “They were told no on the basis that BBC needed as much production as soon as possible. This decision directly led to the need to store oil on the Merritt pad and hence directly contributed to the incident,” the analysis said. That push by management was linked to the fact the well had already been fracked, BBC’s Zavadil said.
“We were in a situation where you can’t shut in these wells. You don’t frac a well and then let it sit,” Zavadil said. “There was clearly a timing issue that folks felt compelled to use the temporary equipment.” Timing issues have not been a problem since, he said. “Fires happen in the oil and gas patch. We’re dealing with a flammable product - both oil and gas are flammable,” Zavadil said. “We’re very serious about reducing the incident of any fire. You do everything you can to avoid them and we’re seeking continuous improvement. They do happen and we hope to learn from every one and avoid future occurrences.” After last year’s fire, Bill Barrett stopped using temporary tanks immediately and implemented a new service in hopes of improving communications with contractors. The company hired a thirdparty health and safety inspector to “roam” sites and look for compliance issues or other “hiccups,” Zavadil said. The Colorado Oil and Gas Conservation Commission is “generally satisfied with how this matter has been
addressed,” according to Todd Hartman, communications director for the Colorado Department of Natural Resources which oversees the COGCC. Bill Barrett also is confident it has addressed all issues that led to its fire. “We are hopeful that the circumstances that led to that fire, that we’ve addressed them and eliminated the opportunity of future occurrence of a similar event,” Zavadil said. First responders already have tools in place to combat oil field emergencies, and the volatility study by BBC will reinforce those practices. Fire department officials rarely get called to the fields, however. In the last 10 years, the Greeley Fire Department has responded to only two oil and gas field fires within its jurisdiction, said Pete Morgan, deputy fire marshal. It has made assists in only four fires in the last 10 years, including the incident with Bill Barrett. The Greeley Fire Department recently completed a study in which data showed oil and gas-related fires make up only .006 percent of calls.
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FEBRUARY 2015 ENERGY PIPELINE 19 Brighton Location Only
HIDDEN TREASURES IN THE GREENHORN? BY LINDA KANE • FOR ENERGY PIPELINE
while the niobrara and Codell formations have been operators’ bread and butter for 40-plus years in the Wattenberg Field, drillers are expected to break into “new” old territory in the coming months. In the last few years, the Niobrara and Codell have been explored most within the Wattenberg, but thanks to advances in technology and horizontal fracturing, that’s expected to change. “The Niobrara and Codell - that’s where people are finding lots of oil and gas, but a few of them are going to test this new horizon which is the Greenhorn. The future is quite bright for new things and good things happening in the Wattenberg Field,” according to Steve Sonnenberg, professor and Charles Boettcher Distinguished Chair in petroleum geology at the Colorado School of Mines in Golden.
THE GREENHORN IS A FORMATION THAT IS ROUGHLY 7,300 FEET BELOW THE SURFACE, 500 FEET DEEPER THAN THE THREE BENCHES OF THE NIOBRARA “The history of an oil and gas field is generally, you discover it and then the highest production comes a couple years later. The history of the Wattenberg is interesting because it keeps seeing new things that happen. Right now, 40 years after its discovery, we’re at peak production. And we probably haven’t seen what it’s actually capable of producing.” Synergy Resources Corp., based out of Platteville, has already tapped into the Niobrara and Codell formations and plans to drill its first well in the Greenhorn this spring. The Greenhorn is a formation is roughly 7,300 feet below the surface, 500 deeper than the three benches of the Niobrara and about 200 feet below the Codell. “The Niobrara is the play that everybody uses in the marketing of the DJ (Denver-Julesburg) basin,” said Craig Rasmuson, chief operating officer for Synergy. His company considers the Codell to be its bread-winner, however, but he is excited about the possibilities in the Greenhorn. 20 ENERGY PIPELINE FEBRUARY 2015
“The Greenhorn is more of a challenge and people have just not spent the capital and the time to explore it at this time. We are presently in the process of doing that,” he said. Since May 2013, Synergy has drilled 68 horizontal wells. Of those, 39 are in the Niobrara formation and 29 in the Codell. In March or April, Synergy will drill its first well in the Greenhorn, Rasmuson said. “We think we can make a commercial well in the Greenhorn,” he added. “It’s really our first exploration and until we get in there and stimulate that rock, we don’t know what it’s going to give us.”
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the
GREENHORN FORMATION The Greenhorn Formation consists of thin limestones and dark-gray to black organic-rich shales and is from 200 feet to 250 feet thick, laying about 500 feet below the wildly successful NIobrara.
Isopach Greenhorn and location of “old” Greenhorn wells.
four or five,” he said. “It’s very unique for a basin to have the amount of Vertical wells were first drilled in the Niobrara and the Greenhorn in oil and gas contained within this area.” the 1980s, Sonnenberg said. He said the wells were marginally economic. “The reason it is more appealing to drill horizontal wells with multi-stage Of course that’s good for Weld County, which houses much of the hydraulic fracture stimulation is that the recoveries per well are much basin. The Wattenberg Field is one of the most productive in the higher and production rates are much higher.” United States, according to Synergy. It’s also unique because it has both The new horizontal Niobrara and Codell wells are hugely economic. oil and gas. Rasmuson said other, bigger operators have recently drilled in the “That’s the surprise in all of this,” Sonnenberg said. “Getting wells that Greenhorn, but are “tight-lipped” about sharing results. “We knew that are over 1,000 barrels of oil a day. You used to feel good if you produced the Greenhorn would be a target and we just feel that’s our next target 100 barrels a day.” In Middle Eastern countries, it’s common to see high for evolving. We have our fingers crossed that results will be similar to numbers, but it hasn’t been as common domestically. “Some of the the Codell.” Niobrara wells are producing 1,000 barrels a day.” Overall, domestic production is a better option for the United States. Rasmuson said the Codell and Niobrara produce roughly 60 “It reduces the amount of oil that we have to import from countries percent oil and 40 percent gas, and he expects similar results from around the world and not the Greenhorn. all of them are friendly Horizontal drilling, countries. It’s good for our which has virtually replaced domestic economy - we are vertical drilling during the keeping all those dollars in last decade, allows for these the United States. It’s just different formations to be an economic machine.” explored and produced at much higher rates Of course, not everyone than ever before. Multiis in favor of exploring CRAIG RASMUSON, chief operating officer for Synergy Resources Corp. stage hydraulic fracture new formations, and
“The Greenhorn is more of a challenge and people have just not spent the capital and the time to explore it...”
stimulation produces as much as 10 times more oil and gas than vertical drilling, Sonnenberg said. Horizontal drilling was born in the early 2000s. It changed the game for domestic production. “I’d say from 2005 and on is when we’ve really seen the dramatic change in production in the U.S.,” Sonnenberg said. In 2005, domestic oil production was about 5 million barrels per day, he said. By the end of 2013, oil production was estimated at 8 million barrels. “We don’t really know if the Greenhorn will play out or not,” Sonnenberg said. “Several (producers) are doing one or two tests and the results are sort of tight - meaning they just don’t release any information to anybody.” Sonnenberg said the discovery and production of the Wattenberg Field is one of the most important discoveries in the last 40 years. “It’s like a cat with nine lives and we’re probably only in life number 22 ENERGY PIPELINE FEBRUARY 2015
environmentalists have posed opposition to fracking. But, Sonnenberg reiterated the industry is highly regulated, extremely scientific and strives for environmental friendliness. “Overall, a lot of the gas produced is the fuel of the future so to speak. It has the lowest carbon footprint,” Sonnenberg said. “These companies do things in an environmentally and safe fashion. The companies themselves, they want to work with Greeley and local towns. They want to work with Weld County. They want to make this a positive for everyone.” Exploring new formations is part of that process. “The Greenhorn is an oil and gas play of the future,” Sonnenberg said. “It’s another horizon that’s going to take off in the future.” And there’s more to be explored. According to Sonnenberg, “There are still other units with potential in the area.”
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FEBRUARY 2015 ENERGY PIPELINE 23
Photo by Sharon Dunn • sdunn@energypipeline.com
LEFT: Renee Schneider, owner of Schneider’s FR Clothing in Eaton, shows off her wares at her small shop which opened a couple of years ago. MIDDLE: Will Whiteside, who runs Whiteside’s Boots and Clothing in Brighton, recently opened a Greeley outlet. RIGHT: A salesperson at Frackin’ Hot FR Clothing helps a customer who attended a recent open house the store in east Greeley. Nearby oilfield traffic has helped push demand for FR clothing to a premium, prompting many companies to set up shop.
NOW SUITING UP
New clothing options for oilfield, industrial workers in Greeley area BY SHARON DUNN • SDUNN@ENERGYPIPELINE.COM
boot supplier Whiteside’s Boots, Western and Work Wear has recently opened in Greeley at 2017 2nd Ave., off of U.S. 85 Bypass. Greeley area before, they sure can today. Whiteside’s has been in business in northern Colorado for 25 The availability of flame resistant clothing - an industry standard, years and has been selling industrial clothing in Brighton for the worksite requirement and must-have for anyone who even enters the last 17. Frackin’ Hot FR is new to the clothing industry, started by oil field - is at an all time high in the Greeley area with the recent Trish Sandau, who has boom in the industry. owned and operated Clothing outlets have Northern Colorado been popping up left and Traffic Control, selling right, most recently with traffic control supplies Becker Safety and Supply and equipment for 21 at 128 30th St., in south years. Greeley, moving this year “I do think there’s from a smaller space in enough business out Evans; and the 3-year old TRISH SANDAU, Frackin’ Hot FR owner there for the stores that Schneider’s FR Clothing, are currently up and 126 Oak Ave., in Eaton. going,” Sandau said. “I’ve heard there are others trying to open up. Now, two new outlets are being added to the mix. I’d imagine they’re struggling to find suppliers, because they’ll only Frackin’ Hot FR and Safety Apparel has been open several weeks take so many people in an area. now at 1708 1st Ave., in Greeley; and longtime work clothing and if oil industry workers couldn’t find the right clothing in the
“I do think there’s enough business out there for the stores that are currently up and going.”
24 ENERGY PIPELINE FEBRUARY 2015
THE OIL AND GAS INDUSTRY HAS ROUGHLY 17,400 WORKERS IN WELD COUNTY TODAY, A 74 PERCENT INCREASE FROM THE NUMBER OF WORKERS IN 2010 “I hope they don’t over-saturate the market, but there are a lot of oil and gas guys out there,” Sandau said. Indeed, the oil and gas industry has roughly 17,400 workers in Weld County today, a 74 percent increase from the number of workers in 2010, when the fracking boom started, according to state Department of Employment and Labor numbers. Sandau’s husband, Bruce Sandau, works in the oil fields with his own business, Green Earth Environmental, and she said she opted to open the store based on what she had been hearing from those in the field about the lack of availability and options in FR clothing, which tends to be much more expensive than the everyday buttondown shirts and jeans. “We decided to carry affordable brands because that was the biggest complaint, that they were paying for the name on the clothing,” Sandau said. “Some just can’t afford it. They’re trying to raise a family, and they don’t want to spend $85 on a shirt. ... The biggest complaints I’ve heard about have been price. But also, nobody was large enough to have a selection. You go in and have a choice between eight shirts. We have over 40 different styles and colors, in affordable brands that are durable.” Whiteside’s started in Loveland selling western wear for farmers and ranchers. It moved into FR clothing and industrial boots in the ‘90s when it opened in Brighton, and it has been the chief supplier for the oil fields for years in the Wattenberg Field. The Greeley store is the former site of Mitchell’s Flooring and Carpeting, and offers 9,000 square feet of showroom space, said Will Whiteside, whose father owns the family’s popular Brighton store. “The Greeley store will really focus on the industrial customers, steel-toed boots and industrial clothing,” to start with, Whiteside said. Western wear may come later. Whiteside said the Greeley store is a natural extension of their longstanding business, which has been drawing Greeley and other northern Colorado clients for years to the Brighton area. “We’re going to wait and see how much effect that does have on the Brighton store, but we draw from pretty far south here, like Commerce City,” Whiteside said. “We’ve built a pretty strong reputation, and we still have a couple big oil and gas companies and Vestas. We’ll monitor the hit when we lose the Greeley traffic.” Whiteside said he hopes the new Greeley store will draw from as far away as Cheyenne and Sterling. Whiteside said there was no beating the visibility of the store, just off of the U.S. 85 Bypass. “When we chose it, we were standing out in front, and we saw oil and gas trucks driving by left and right, thought this is our customer. This is where we want to be,” Whiteside said. Whiteside, too, has noticed the increasing competition. “We’ve seen quite a few mom-and-pop shops open up there,” he said. “We realize we’re not first in the game, but it’s a good business here in Brighton and we want to capitalize on it there as well.”
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25
Raw cuttings from shaker
MAKING BLACK GOLD FIT FOR THE ROAD
Raw cuttings from shaker Raw cuttings from shaker
BY TRACY HUME • FOR ENERGY PIPELINE
Stabilized Drill Cuttings Drill Cuttings Stabilized (Ready for transport from (Ready for transport from Stabilized Drill Cuttings well site to Recycling center) well sitefrom to Recycling cente (Ready for transport well site to Recycling center)
rodney dangerfield’s famous catch phrase, “I get no respect!” might be said for drill cuttings. Most people who work in the industry look at the muddy, black mixture of soil, rock fragments and drilling mud that make up drill cuttings and see a liability. They see a useless byproduct that incurs expensive disposal and treatment costs for exploration and production companies. Exploration and production waste recycling expert Gary Beers, of Industrial Water Permitting and Recycling Consultants, wants to change that. When Beers looks at drill cuttings, he sees a resource. Raw cuttings from Beers believes those drill cuttings can be efficiently processed and shaker recycled as road base, providing a cost-effective source of the material Raw cuttings from operators need to build well pads and access roads in the field. shaker A pilot project slated to take place in Weld County early this year is designed to prove Beers’ point: Instead of being a problem, recycled drill cuttings can provide solutions for the industry.
Class 6 Road Base (Prepared from mixture of stabilized drill cuttings and asphalt aggregate)
INSTEAD OF BEING A PROBLEM RECYCYLED DRILL CUTTINGS CAN PROVIDE SOLUTIONS FOR THE INDUSTRY
Class 6 Roa (Prepared fr mixture of s drill cuttings asphalt aggr
Stabilized Drill Cuttings (Ready for transport from
Most of the drilling done in Weld County is donewell using watersite to Recycling center) based muds (drilling fluids). Drill cuttings generated by processes using water-based muds are the cuttings that hold recycling potential. A minor amount of drilling in Weld County is done using oil-based muds, which use mineral oil or diesel and other chemical additives. This distinction is important, says Beers, because “per Stabilized DrillbeCuttings regulations, oil-based drill cuttings cannot recycled, therefore 100 percent of them are taken to landfills.” (Ready for transport from Beers estimates thatwell aboutsite 30 percent of the drill cuttings to Recycling center) generated using water-based muds also end up in landfills, such as Buffalo Ridge in Keenesburg. However, this solution is expensive 26 ENERGY PIPELINE FEBRUARY 2015
The raw drill cuttings have a high liquid content; engineered soil is added to the raw drill cuttings to stabilize them for transport to the recycling center; the final product includes drill cuttings, engineered soil, and asphalt meets ID rubble 141218and 5 raw to rbCDOT pics specifications for Class 6 road base. SOURCE: INDUSTRIAL WATER PERMITTING AND RECYCLING CONSULTANTS, LLC.
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Oil/Gas Well Drilling
Pads
Construction in Oil Fields
Roads
engineered soil
Mixture: engineered soil and drill cuttings
Public Road Construction
Asphaltic Rubble ID 141218 1
Mixture
Processing
Road base
Recycling Facility
A proposedDiagram drill-cuttings-to-road-base recycling will be piloted in Weld County 2015. TheUse project use treated drill cuttings as a of Recycling Drillproject Cuttings to Road Base forin early Beneficial inwill Construction component in a commercial road base product that will meet CDOT specifications. SOURCE: INDUSTRIAL WATER PERMITTING AND RECYCLING CONSULTANTS, LLC.
for companies, not only because of the per-ton cost to dispose of Land applications are regulated by the Colorado Oil and Gas the cuttings, but also because of the costs involved in trucking the Conservation Commission. In this case, companies seek landowners cuttings to the disposal sites, which are often located far from the willing to have drill cuttings applied to the surface of the land. drilling site where the cuttings are being generated. Drill cuttings are worked into the soil, and the contact with the Adding to the challenge is the fact that because of the high air in addition to the bacteria in the soil break down the benzene, liquid content in the drill cuttings, the cuttings have to be hydrocarbons and other chemical components of the cuttings. stabilized before being hauled to the landfill. “The water content Although less expensive than the landfill solution, land spreading presents problems also comes with costs and when the cuttings are limitations. Companies transported by truck,” must pay landowners explained Beers. “The to take on the cuttings shale pieces settle for spreading. In during transport and addition, the volume and create a dense layer, frequency of applications covered by a layer of is limited by regulations, separated water on top. necessitating an ongoing GARY BEERS, Industrial Water Permitting and Recycling Consultants It creates an unstable search for new locations. load. So drill cuttings Beers and his partners have to be stabilized with a drying additive before transport from at H2O Recycling, the lead organization in the drill-cuttings-tothe well site.” road-base project, have designed a recycling program to replace Due to the costs and challenges associated with disposal in these disposal and treatment processes. They considered each step a landfill, many companies choose “land spreading” or “land in the current disposal process and re-imagined it as a part of a application” for their cuttings instead. Beers estimates that about manufacturing process leading to the development of a commercial 70 percent of the drill cuttings generated in Weld County are product that meets beneficial use requirements. disposed of this way. For example, the first step in the landfill disposal process would be
“All the people I’ve talked to have said, ‘Why hasn’t this happened before?’”
28 ENERGY PIPELINE FEBRUARY 2015
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that the exploration and production company would contract with a trucking company to haul a drying agent for the drill cuttings out to the drilling site. The truck might “deadhead” at the drilling site, i.e. deliver the drying agent and then make the return trip without a load. In the recycling process designed by H2O Recycling, the “drying agent” hauled out to the drill site would actually be asphaltic rubble engineered to Colorado Department of Transportation specifications. That is, the component used to stabilize the cuttings for truck transportation would actually be one of the proprietary “ingredients” in the recipe for the road base. And rather than deadheading, the truck could pick up the drill cutting/engineered soil mixture, and deliver it back to a centrally-located recycling facility for further processing. After final processing at the recycling facility, the end product will meet CDOT’s technical specifications for road base (Class 5, 6 and/ or 7). At the end of the process, explained Beers, “all road base will be available for sale and delivery to the local market.” “The core feature of any sustainable recycling business is the market,” said Beers. The viability of the local end-use market is literally where the “rubber meets the road” for the drill-cuttings-toroad-base recycling project. Because the project involves a commercial facility recycling a product to a specific beneficial use, the applicable regulatory agency is the Hazardous Materials and Solid Waste Management Division of the Colorado Department of Public Health and Environment rather than Colorado Oil and Gas Conservation Commission. CDPHE is “very sensitive about being sure there is a guaranteed market for a recycled product,” said Beers. “The Health Department’s been burned several times by this. They want to make sure that we are not just creating a huge stockpile of something that has no value in the marketplace. That has happened with tires in the past, and with roof shingles, too.” For the drill-cuttings-to-road-base recycling project to be viable, “75 percent of the drill cuttings we take in have to be taken back by the industry as road base,” said Beers. The pilot project being set up in Weld County is designed to cement industry confidence in the recycled road base by demonstrating its effectiveness under actual field conditions. “We’ve given the companies samples of the product; they know the specifications; but they want to see it in use under their conditions and their specifications,” said Beers. H2O Recycling, LLC, the lead organization in the recycling project, received approval to proceed with the project from CDPHE last August. The Denver-based company operates a recycling facility at Denver’s former Stapleton International Airport. For the pilot project, drill cuttings will be hauled to the Stapleton facility for
“75 percent of the drill cuttings we take in have to be taken back by the industry as road base.” GARY BEERS, Industrial Water Permitting and Recycling Consultants
processing; but once the pilot project has been completed, H2O will develop smaller hub-and-spoke locations in Weld County, closer to the oil fields. H2O Recycling has subcontracted with Colorado-based Recycled Materials Company Inc. to operate the equipment that processes the drill cuttings into road base. At press time, negotiations were still underway with the exploration and production partner for the pilot project, so Beers was unable to name the company involved. He did say that “we are negotiating with one of the major oil producers in Weld County” for the pilot project, and that “another six or seven of the operators up in Weld County have expressed a strong interest in participating once the pilot project is completed.” The project is designed to realize cost-efficiencies for operators in a number of ways. Besides reducing treatment and disposal costs, the recycling project also reduces hauling costs. “Look at what they are doing now,” said Beers. “At the wellhead, they have a truck bringing in soil to mix with the drill cuttings. When that truck leaves the site, it leaves the site empty. Then they have another truck come and pick up the mixed drill cuttings and soil. That truck goes to the land spreading site, unloads their stuff and comes back empty. So half the trips they are paying for are pointless. We’ve set up a system whereby basically all the trucks are full.” Beers said that H2O Recycling already has a stockpile of 350,000 tons of asphaltic rubble ready to be mixed with drill cuttings. Beers estimated that a typical Wattenberg well would generate 400 to 900 cubic yards of cuttings; when mixed with the additional proprietary components, each well has the potential to generate nearly 8,000 cubic yards of road base material. “After the oil companies purchase their required 75 percent to construct pads and roads, the surplus road base can be purchased by other markets,” said Beers. “However, use of the recycled road base product may be restricted by the conditions in the approved beneficial use plan and by local governing agencies.” Although the use of drill cuttings in a commercial road base product is somewhat innovative for Colorado, it is already common practice in Texas. Beers pointed out that the Texas Department of Transportation is already using a product derived from drill cuttings in a shoulder-widening program throughout the state. Beers is confident the drill-cuttings-to-road-base concept also will find success in Colorado. “It just makes a lot of sense to a lot of people,” he said. “The road people like it because the material’s being put to use as a good construction material. The oil people like it because of the cost efficiencies. COGCC and CDPHE like it because it reduces waste and reduces the environmental footprint of that waste. “All the people I’ve talked to have said, ‘Why hasn’t this happened before?’” Beers said. “They are ready to give it a try.”
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AMERICA’S RETIREMENT DEPENDS ON OIL, GAS BY ALLISON DYER BLUEMEL • FOR ENERGY PIPELINE
opportunities for growth, pay competitive analyzing the company’s individual risk and the well-being of the oil and gas industry dividends and provide retirement plans price-per-earnings ratio. may affect the average American beyond its with good income, Hemmings said. The price-per-earnings ratio, or P/E, is ability to lower or raise the price of gas as Due to the size of the sector, Hemmings calculated by dividing a company’s current non-insider individuals hold 65.5 percent said the number of companies and stock price by its earnings per share over the of the industry’s stock, according to a 2014 frequent stock fluctuation, specific return past 12 months and reflects the risk of the study conducted by Robert J. Shapiro and sizes are difficult to calculate. company’s stock. The higher the number, Nam D. Pham with Sonecon. the greater the risk to the investor. “Investors have the option to select However, if investors focus on a single“The P/E ratio can be a major indicator what funds are invested in. The average sector such as oil and gas there can be more of financial health. It is American has quite a considered by anyone bit of exposure to the looking at oil and gas industry,” said Bruce companies, or any Hemmings, senior vice companies,” he said. president of wealth management at The The P/E ratio varies Hemmings Group depending on what sector is at Morgan Stanley being analyzed and “really in Loveland. comes down to what sector Sonecon operates as (the company) is involved an economic consulting in,” Hemmings said. KYLE ISAKOWER, American Petroleum Institute vice president company that provides The study drew on 2014 security and riskdata from the Securities management services to organizations and Exchange Commission of 201 “publiclyvolatility over time without diversification such as the American Petroleum Institute, traded oil and natural gas companies traded through other stock types in their portfolio, according to a news release from the API. on one of three major U.S. stock exchanges: he said. “The principal takeaway of this study is the New York Stock Exchange, NASDAQ “Anytime you have a sector investment, this: When oil and natural gas companies and American Stock Exchange,” according the portfolio tends to be more volatile,” do well, so do millions of their owners to the study. Hemmings said. all across America,” said Kyle Isakower, As the stock-risk is unique to each Shapiro and Pham broke the industry API vice president, in a news release. “It company, Hemmings said investors need into three categories for study: integrated concludes that a large proportion of the to do thorough analyses by looking at the oil and natural gas companies handling benefits of oil and gas company stock Standard and Poor’s 500, a list of the 500 production, refining and transportation; ownership goes to middle class Americans.” largest companies thought to be most non-integrated oil and gas companies Oil and gas stocks can offer great representative of the U.S. economy, and engaged in the refining, storage and
“When oil and natural gas companies do well, so do millions of their owners all across America.”
32 ENERGY PIPELINE FEBRUARY 2015
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transportation of refined products; and oil and natural gas services handling and producing industry services such as drilling rigs, equipment and well completion. The companies studied included 12 U.S.-based integrated oil and gas companies, 129 U.S.-based non-integrated oil and natural gas companies, and 60 U.S.-based oil and natural gas services companies. Due to differing transparency standards for publicly traded, foreign companies, only U.S.-based companies were included in the study. SEC data revealed that individual investors who are not company executives or directors hold 65.5 percent of the industry’s stock with most of their shares found in pension plans and retirement accounts.
has decreased from 31.2 percent in 2011 to 29.1 percent in 2014. Additionally, the overall percent of stock owned by individuals decreased from 2011 to 2014 from 70 percent to 65.5 percent. There has not been a significant change in the percent of shares held by industry executives, according to the study. Despite slight percentage changes since 2011, Hemmings said he does not expect to see a shift in the trend of individuals owning the majority of the sector’s stock. The study estimates that private pension plans hold $327 billion in oil and gas shares, public plans hold $234 billion in shares and IRAs hold and estimated $348 billion in shares. These amounts account for 16.9 percent, 12 percent and 17.9 percent of
has grown,” Hemmings said. “Energy itself, whether it’s green or oil and gas, seems to go up. Growing economies, such as China, India and Brazil, show the demand for energy continuing to appreciate over the long term, despite the currently slow growth of the global economy.” According to the study, economists argue that broad ownership of shares allows companies to have greater access to financing, which enables them to develop larger operations which, in turn, promote investment and growth. Broad ownership also results in stockholders demanding more information from a company, which can motivate managers to reevaluate business strategies, the study stated.
SEC DATA REVEALED THAT INDIVIDUAL INVESTORS WHO ARE NOT COMPANY EXECUTIVES OR DIRECTORS HOLD 65.5 PERCENT OF THE INDUSTRY’S STOCK WITH MOST OF THEIR SHARES FOUND IN PENSION PLANS AND RETIREMENT ACCOUNTS Of that 65.5 percent, public and private pension plans accounted for 28.9 percent and 401(k)s and IRAs held 17.9 percent. Additionally, individual investors managed 18.7 percent of the shares outside pension plans and retirement accounts. The additional industry shares were reportedly held by asset management companies, which accounted for 24.7 percent, and institutional investors such as banks, insurance companies and foundations, which held 6.9 percent. Industry executives held the remaining 2.9 percent of shares, according to the study. “It’s not surprising,” Hemmings said. “Oil and gas has had broad investor appeal historically and continues to have good long-term growth and good returns on investments.” However, according to the study, the percentage of individual investors who manage their own accounts and IRAs 34 ENERGY PIPELINE FEBRUARY 2015
the industry’s total ownership, respectively. “These data ... show that middle-class households dominate the ownership of U.S. publicly-held oil and natural gas companies,” according to the study. The total market value of publiclytraded oil and natural gas companies is valued at $1.94 trillion, up 41.6 percent from the 2011 estimate of $1.37 trillion. “The U.S. oil and natural gas industry is a major part of our nation’s economy,” Isakower said. “It supports 9.8 million jobs and pays more taxes than any other industry and at higher effective rates.” Strong performance of oil and gas stocks coupled with an increases in publicly traded companies accounts for the increase in value, according to the study. “Energy is a growth industry, historically, and demand is high. As the world has grown the demand for energy
Hemmings said that investors have begun to look to more social responsible investment opportunities which can also pressure public oil and gas companies to make more community- and environmentally-minded decisions. “When you think about it you also have to think about oil and gas making improvements with how they’re operated,” Hemmings said. “They’ve attempted to be good community members and good, constructive members of the business community. It’s in their best interest to do so.” Due to the prominence of the oil and gas industry in Colorado, Hemmings said that it would not be unusual to see Colorado investors focus on the oil and gas industry when it came time to invest. “Where there is heavy oil and gas activity investors are more educated,” he said. “Good education is the key to good investing.”
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38 ENERGY PIPELINE FEBRUARY 2015
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FEBRUARY 2015 ENERGY PIPELINE 39
ALMOST WEEKLY, THERE’S A NEW FIVE-YEAR RECORD LOW ON OIL PRICES, WHILE OIL AND GAS EXPLORATION COMPANIES EXPERIENCE RECORD HIGHS IN PRODUCTION IN THE FIELD. While it’s great news at the gas pump, it can spell doom for the oil and gas industry, which has been going full speed ahead in Weld County for the last three years. Those in the industry are getting ready for a slowdown. “We’ve been at maximum speed going forward and now we’re going to halt,” said Ed Holloway, co-CEO of Synergy Resources, an oil and gas production company out of Platteville. Oil plunged below $50 a barrel in early January after the International Energy Agency said global oil demand will grow less than previously forecast for this year. But the industry won’t strop drilling, especially in the prolific Wattenberg Field where drilling is essentially cheaper than areas like the Bakken in North Dakota. But a drilling slowdown is already becoming a factor. “I don’t see it putting the breaks on development, but instead of 100 miles an hour, we’re moving at maybe 60 miles an hour now,” said Adam Bedard, a longtime energy analyst in Denver, who has planned to build a rail transloading facility in Evans in the coming years. “Oil still comes out of the ground, it’s just a different shape and speed.” Locally, plunging prices could mean companies drill less, use fewer people and lay off some of their ranks. Weld County could see the last of its historic 3.6 percent unemployment rate as the help wanted signs are put back on the shelves, some say. “I think we’re in for about 18 months” of recovery, Holloway said. The event is commonly called a “correction.” 40 ENERGY PIPELINE FEBRUARY 2015
And it’s one many in the industry have been anticipating. The last time the markets tumbled like that was in 2009, when oil shot up to $140 a barrel, then sunk to around $30-plus a barrel five months later, Bedard said. “This isn’t starting as high, but it could go low as low,” Bedard said. “But it came back fairly robustly. We’ve seen this cycle before. It’s hard to predict the outright pricing, but fundamentals don’t change. If you have good rock, it’s still good rock.” Holloway said he’s been through five like cycles in the Weld County oil patch. The boom and bust is just a part of life. “I know exactly what to do, and the real key for us, we really want to come out of this cycle a stronger company, and that’s what is going to happen,” Holloway said.
THE HEDGING FACTOR Oil companies employ their financial people for a reason, and many have been waiting for this correction in a field that for much of 2014 was selling oil above $90 a barrel. Earlier in 2014, Synergy officials felt they could still stay profitable at $65 a barrel. “In August, we saw the oil market weakening,” Holloway said. “We didn’t know how weak, we knew the cost of development could not stay where it’s at, so we’ve been on a good 75- to 90day business plan” to reduce costs. “We’re modeling now at $40 a barrel,” he said, noting that they’ve brought down drilling costs, and expect savings in fracking, drilling and pipe costs. The company also plans fewer fracs per lateral well. Companies also hedge - or sell their oil on a fixed price to avoid the disruptions of price fluctuations. Synergy has hedged at $85 per barrel through 2015. “We didn’t like that too much at the time, but now it looks like it’s definitely a good thing,” Holloway said. Ryan Zorn, senior vice president of finance and treasurer of Bonanza Creek Energy out of Denver agreed: “We’ve got about 10,000 barrels a day hedged next year, so we have some insulation. That’s one reason we have a hedging program.”
TOP: A pair of oil/gas wells rise into the air on 71st Avenue in west Greeley. BOTTOM: A oil/gas well rises into the air with the Rocky Mountains in the background at a site near Windsor. Photos by Jim Rydbom/jrydbom@greeleytribune.com
SHIFTING FOCUS Already, companies are pulling money out of their non-growth assets, and moving it to their higher growth plays. PDC Energy, for example, reported in its 2015 outlook recently that it would idle its Utica play in Ohio, putting more money into the Wattenberg, while prices continue to be low. For now, the company plans to spend $38 million in the Utica, down from $190 million invested in 2014. EOG Resources recently reported it will dump two of its Canadian assets to focus its efforts on the plays that garner the most money. For many companies, the Wattenberg is a play that has staying power because well costs are continually going down through drilling efficiencies and sheer innovation. Bonanza Creek announced it would reduce its 2015 capital program by 36 percent to 38 percent from last year, but still invest $380 million in the Wattenberg. “The Wattenberg Field is one of the premier oil resource plays in the United States benefiting from a low cost structure and strong production efficiencies,” according to Bonanza Creek’s operational outlook. According to the Energy Information Administration, oil needs to stay about $42 a barrel for players in the Wattenberg to realize a 10 percent return on their investments; and about $44 a barrel to realize a 15 percent return. In northeast Weld County, to retain a 10 percent return, drillers there need to see $44 a barrel; and about $52 a barrel for a 15 percent return, according to the EIA. The numbers aren’t so pretty in other plays, where prices need to stay in the $50-$70 perbarrel range to release like returns, the EIA reported. Companies with diverse asset plays will be able to scale back, as PDC is planning to do with the Utica, to focus on the higher-dollar areas. PDC still plans to invest more than $500 million in its Wattenberg capital program this year. “By focusing our 2015 capital investment on the company’s highest rate-of-return projects in the inner and middle core areas
OIL NEEDS TO STAY ABOUT $42 A BARREL FOR PLAYERS IN THE WATTENBERG TO REALIZE A 10 PERCENT RETURN ON THEIR INVESTMENTS of the Wattenberg Field, we expect to deliver strong cash flow per share growth using our existing liquidity,” said Bart Brookman, president and COO in a news release. Drilling pipe and mud costs also are coming down; also, fewer fracs per well helps reduce drilling costs.
RIG COUNT TRAP Baker Hughes recently reported that rig counts dropped measurably in response to the plummeting oil prices. But dropping rig counts don’t always indicate a commensurate drop in production, especially in this shale environment, Bedard said. The U.S rig count in the first week of January fell by 61 to 1,750, according to Baker Hughes. Baker Hughes also measured Colorado’s rig count as of Jan. 9 to be at 65. In January 2014, Colorado’s rig count averaged 62. In 2013, Colorado averaged 63 rigs. The national rig numbers will likely continue to drop, even as much as 50 percent, said Bedard. “Even with a 25 percent drop in rig count, in 2015, we see growth of 150,00 barrels a day out of the (DJ Basin) play,” Bedard said. “It’s not doubling, but certainly growing significantly, even in a (sliding) rig count.” Horizontal drilling rigs also are becoming incredibly more efficient, Bedard said. That’s shown up in Weld already, which at one point last year was bringing in one new rig every month; it’s slowed significantly in the last few months, more like one rig every other month.
“I look at drilling efficiencies,” Bedard said. “That’s one thing we’re seeing. Each new rig is getting better. The 12-month average in Weld is one horizontal rig drilled 2.39 wells per month. That’s the average in past 12 months. Last month, it was 2.44. When you look at Anadarko, they’re at 2.7,” Bedard said. “That’s part of what masks the effect of dropping rig counts. You want to look at how many rigs are out there, and how many wells drilling. And the number of wells being drilled is going up in the DJ.” Back in 2009, when the bottom fell out of the natural gas market, and prices sunk to $4 an mcf from $12 an mcf, rig counts also dropped. “Rig count for natural gas dropped by 60 percent, and production still climbed,” Bedard said. “So rig count is a common leading indicator that people use, but unfortunately doesn’t capture the whole story and can be misleading.” In Weld County, there were 2,468 drilling permits approved in 2013. In 2014, a total of 2,303 permits were issued, according to the COGCC. As of January, Weld had 21,994 active wells; up from 18,000 just a couple of years ago. Production continues to climb. In 2013, Weld county production alone topped the entire state amount the year before. Though 2014 production numbers won’t be final for a couple of months, Weld’s production likely will be at least 82 percent of the state’s total. All long-term indications are that production will continue to grow, just not as fast as it was, Bedard said.
BELT TIGHTENING A plus to such a volatile pricing environment is it brings prices for goods and services back down to earth. “There was a lot of fat in shale oil drilling; everyone’s got to do a little belt tightening now,” said Bedard. “The first place they look is in the service companies.” Exploration and production companies already are reporting better negotiations with service companies, such as drillers. Craig Rasmuson, COO of Synergy, said his company already is moving into better pricing. FEBRUARY 2015 ENERGY PIPELINE 41
They’re working to get their well costs down to $3 million a well. More efficient drilling rigs have certainly helped move the needle in that direction, but companies are getting creative. Synergy is eliminating “turnkey” drilling, which is a deal companies sign with drillers that includes all the costs of drilling, which is a set price, by which drillers take on all extraneous costs of the drilling operation themselves in a set period of time - and the risk. If the drilling lasted longer than expected, or if there are extraneous problems, the cost doesn’t go up. It’s a structure that usually means drillers make an extra $200,000, Rasmuson said. Drilling efficiencies, however, have taken out some of the risk of companies assuming management of drilling operations. By taking on all functions of a drilling operation, and paying just a day rate for their rigs, Synergy gets a better pricing structure. “Service companies are reacting a lot quicker,” Rasmuson said. “We’re seeing some discounts across the board. Some are healthier than others. They have lot of money in capital, and training ... they’re willing to make a little less margin, even if they make no money, people are going to be willing to do that to keep people working.” Synergy also is working deals to pay vendors over the long run rather than immediately - a practice the company used in the downturn of the 1990s. Typically, companies are invoiced and must pay for drilling services in 30 days, but they won’t see money on production for three to six months. “We’re just saying work with us, let us pay longer terms, give us three to six months to pay you for that $1.2 million completion,” Rasmuson said. “Their ears are wide open and they’re all proposing things back to us. They’re willing to do it because it keeps their crews working and the workforce employed. It keeps the revenue coming in.” Rasmuson added Synergy wants to pace itself in this environment. “If we’re going to spend $1.2 million to complete a well at $47 oil, it’s going to take us two times what it used to take us at $90 (a barrel) to recoup our investment,” he said. “We don’t like that window.” 42 ENERGY PIPELINE FEBRUARY 2015
Crude prices peaked in July at around $100 per barrel, but began dropping thereafter — severely beginning in October. This chart shows that new horizontal wells continued to grow in Colorado and North Dakota during that slide. SOURCE: RIGDATA.
“We do believe prices will come back, it doesn’t have to be $90 a barrel; the $65-$80 range is perfect.” CRAIG RASMUSON, COO of Synergy Resources Corp. Synergy plans to take a little longer to bring wells online to completion as a result. “We are going to strategically plan to complete these wells that we put drilling capital into when commodity prices and other strategic issues present themselves as being viable,” he said. “We do believe prices will come back, it doesn’t have to be $90 a barrel; the $65-$80 range is perfect,” Rasmuson said. “When you’re above $90, that’s when drilling companies put 20 percent more on the drilling costs, everyone wants a bit more money,” Rasmuson said. “The $75 range keeps everyone honest.” With slowdowns, companies’ reactions will be key. “Layoffs are already happening,” Holloway said. In all his time, however, Holloway said he’s never laid off anyone during a downtime, and he doesn’t plan to this time. Zorn said Bonanza Creek, too, is pretty happy with the team it has in place. “The big question on everyone’s mind is the duration of these price levels, so as we get further into 2015, we’ll see. But now we expect to maintain, maybe not as quick growth as we have in the last year, but keeping our
employment base is important to us,” Zorn said. “We feel like we’ve hired the right people to sustain business.” Halliburton officials reported recently there were no planned layoffs in Weld County, as of early January.
WHAT’S AROUND THE CORNER Bedard sees a volatile 2015 at best, looking out to even 2019 to see the market turn around. Production will grow but prices will bump along the bottom for a littler longer. “Looking forward, producers are sort of insulated” because of hedging, Bedard said. “But production continues to grow, prices may bottom out in March or April of this year, and I’d say the $35-$40 range. There will be a gradual growth out of the year. “If you look beyond 2015, maybe up to 2018, global demand for oil continues to grow, and meanwhile, production has been disincentivized in the short term. Where now demand outstrips supply ... we’re probably looking at a situation where the market is imbalanced or demand will exceed supply and prices come back up, so most shale plays will come back in the money.”
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SAFETY IN NUMBERS Denver company works to make oil field travel safer with real-time monitoring BY DAVID PERSONS • FOR ENERGY PIPELINE
44 ENERGY PIPELINE FEBRUARY 2015
THIS DEVICE IS SAVING LIVES The Cartasite ROVR device for truck tracking has led to a decrease in vehicle accidents in the oil and gas fields.
IT’S NO SECRET THAT THE OIL AND GAS INDUSTRY CAN BE A DANGEROUS BUSINESS. Serious accidents do occur, mostly at or near drilling sites. But, that’s also true for truck drivers who haul material, resources and equipment to and from the oil fields. According to a 2011 white paper presented jointly by Encana and Cartasite at the Society of Petroleum Engineers Annual Technical Conference and Exhibition in Denver, 40 percent of all injuries and fatalities in the oil and gas industry can be attributed to vehicular crashes. That’s because most of those field sites are in remote areas, situated off poorly maintained asphalt and dirt roads. With drivers in a hurry to do their job, and often fatigued, the conditions are ripe for accidents. That was certainly the case on Weld County’s 677 miles of hard-surfaced roads and 2,344 gravel roads until the last four to five years. That’s not the case today. The motor vehicle incident numbers - especially in the DJ Basin (in and around Weld County) - have been coming down thanks in large part not to better roads, but to the implementation of safe driving devices and services created and implemented by Cartasite. Cartasite, a Denver-based company, specializes in fleet management safety through real time GPS asset tracking and monitoring systems. These devices help to
enhance operating efficiency, worker safety and protect the environment. David Armitage, the CEO and founder of Cartasite, says his system of real-time monitoring of remote assets (vehicles and resources) is “starting to make a dent” in the safety of oil and gas employees worldwide. Armitage said his devices are now being used in 34 countries. He also pointed out that Cartasite products are being widely used in the DJ Basin by companies like Encana, Anadarko Petroleum Corp., Noble Energy and many others. That’s significant because Encana, Anadarko, and Noble make up 79 percent of all the oil and natural gas produced in Weld County and represent 72 percent of the wells, according to information provided by Drillinginfo, a company that specializes in the collection of well drilling information. How effective has Cartasite been? According to Encana officials, the implementation of the Cartasite ROVR device for truck tracking has led to a phenomenal decrease in vehicle accidents. “We deployed this system in April 2010 to all of our 800 vehicles,” said Col. Mark V. Trostel, the retired chief of the Colorado State Patrol who is now the National Driving Safety Adviser of Encana. “Since then, we have had a 55 percent reduction in roadway motor vehicle accidents,” he said. “We have 1,100 vehicles in the U.S. and Canada and it’s preventing thousands of motor vehicle incidents each year.” Trostel said the Cartasite tracking sytem Encana uses produces a scorecard for each driver and rates them on their driving performances. High scores indicate safer driving which also means a reduction in fuel costs. Since each driver can control his or her score by not FEBRUARY 2015 ENERGY PIPELINE 45
David Armitage, the CEO and founder of Cartasite, a Denver company that installs real-time monitoring of oilfield and other commercial fleet traffic to reduce traffic problems.
speeding, accelerating too fast, following too closely, or by braking too hard, there is a natural competition. Trostel said the scorecard is now part of Encana’s annual evaluation process. Good scores can lead to salary bonuses or to special gifts. Trostel said the system is “absolutely” a game-changer for oil and gas companies when concerned about employee safety. Officials at Anadarko have had a similar experience. “All of our vehicles in the DJ (Basin) are equipped with Cartasite tracking,” said Korby Bracken, the environmental health and safety director for the Anadarko Petroleum. “It is used to help us in a couple of notable aspects.” One example is dispatching operations personnel to locations. “We utilize an Integrated Operations Center to monitor the basin,” Bracken said. “Should we have a well that needs immediate attention, we can dispatch the closest operator, identified by Cartasite, to that location to minimize response time. Another example is speeding. “We set up fences around the basin that have speed limits attached,” he added. “These speed limits can be the posted limit or one set by the management team to increase driving awareness. We have done this outside of the DJ where animal strikes are elevated. A third example is during bad weather or natural disaster. “We utilized it during last year’s flood to locate our operators and provide them routes to get home once roads started closing,” Bracken said. “Also, we were able to locate individuals to make sure they were safe and out of the floodplain. “I don’t have any data specifically - we just know it works and we appreciate the service.” 46 ENERGY PIPELINE FEBRUARY 2015
HOW CARTASITE STARTED Armitage, a successful exploration geoscientist, started one of the world’s first commercial GIS companies, GeoGraphix. The firm developed sophisticated subsurface modeling, analytic and visualization software. GeoGraphix later became a subsidiary of Halliburton in the mid-1990s. That’s when Armitage launched his next venture, Qubit, delivering some of the world’s first wireless Internet tablets. Armitage’s thirst for building great companies then led to the launch of Cartasite in 2004, with the dream of bringing Realtime Operational Intelligence to the energy and natural resource industries. It was slow going at first for Cartasite. The company’s products didn’t exactly excite anyone and were largely unproven. That changed in 2007 when Armitage made a presentation to an oil company’s board of directors in Midland, Texas. When it was over, a chief safety officer pulled Armitage aside and said his company had a problem. “He said they were experiencing a crash a day,” Armitage said. “Most were little fender benders. But, he said, they had a recent rollover that killed an employee who everyone liked.” That got Armitage thinking about safe driving. Soon after, he had dinner with former Denver mayor (now governor) John Hickenlooper. During that dinner, Armitage pitched to Hickenlooper what a difference his products could make in the growing oil and gas industry in Colorado which is dependent on a large volume of trucks.
Safety Score
Driver Performance Scorecard for the week starting
Driver: Group: ROVR:
B+
11/30/2014
Paul Armitage David's Friends & Family 352648063610489
Total Travel Distance: Total Travel Time: Vehicle:
124 miles 4.2 hours Paul Armitage
87.4 Engine Utilization
Trending
Week 8
Me Top 10% Average Bottom 10%
Week 7
Week 6
Week 5
Week 4
Speeding (# of events/hr)
69.0 2
4
6
8
10
Week 2 This Week
0.51 4.19
Hard Braking (# of events/hr)
D 0
Week 3
Safety Score Speeding Hard Braking Rapid Acceleration
12
DriveTime (hr)
Me Top 10% Average Bottom 10%
A 93.6 0
1
2
3
4
5
Your score of 10.50 speeding events/hour driven is higher than average. ROVR reports the number of times your vehicle exceeds the posted, geofence or group speed limits. Slow down!
Your score of 0.95 hard braking events per hour driven is higher than average. Hard braking is typically associated with following too closely or distracted driving. Pay attention!
Rapid Acceleration (# of events/hr)
Night Time Driving
Me Top 10% Average Bottom 10%
A+ 100.0
0 0.2 0.4 0.6 0.8 1 1.2 Your score of 0.00 rapid accelerations per hour driven is near or better than average. Rapid acceleration, or "jack rabbit" starts, waste fuel and correlate to aggressive driving.
Though not part of your safety score, driving at night greatly increases your risk of being in a motor vehicle incident. Other drivers, poor visibility, and wildife are all risk factors after dark. Reducing your nightime driving will reduce your odds of being involved in a motor vehicle incident.
Idling Time (hr)
When your vehicle is idling, your fuel efficiency is exactly 0 mpg. While there are times when idling is necessary, excessive idling wastes fuel and causes unnecessary engine wear.
Idling Cost $1.34
Idling Idling (hrs)
100 90 80 70 60
0.6 0.5 0.4 0.3 0.2 0.1 0
$1.34
$0.19 Week 4
Week 3
$0.07 Week 2 This Week
The costs in this scorecard are based on estimates developed from research by the Department of Energy, AAA, and various other sources, and may not represent your actual costs.
Notes: Plug In Events: 5 Plug In Events assist in determininig when a ROVR may have been disabled. ROVR and the ROVR Scorecard are Trademarks of Cartasite, LLC. Copyright 2013. Portions of this product are covered by US Pat. No. 8,604,920. Other Patents Pending.
Cartasite has reduced vehicle with its real-time mobile tracking, which develops a driver performance scorecard. Some companies have used the best scores as examples in their companies, by which top-performing employees have been given bonuses for good driving. The result has been a huge reduction in accidents, fatalities and fuel use in commmercial fleets.
CARTASITE PRODUCTS
IMPACT TO OIL & GAS COMPANIES
worldVIEW Dashboard. This is a realtime geospatial device that allows the user to know where every truck is, how it’s being driven, and where it’s been.
GlobalTAB. A satellitebased asset tracking and management tool for mobile assets. Integrates with worldview dashboard.
ROVR. The GPS truck tracking system.
smartFIELD. A web application for up-to-date production reports in seconds.
vaporLOCK. A tank hatch monitoring system that sits on tanks and monitors them. SPOT. A satellite-based communications tool that avoids all dead spots for remote work sites. Source: www.cartasite.com
fieldTICKET. A mobile field ticket application. Works on Android, Apple and Blackberry. For more information, go online to www.cartasite.com.
ENCANA
Average safety scores for the fleet improved from 86 to over 95 in the past four years. Over 55 percent decline in motor vehicle incident rates in two-year period.
CONOCOPHILIPS
More than 80 percent reduction in idling in first year. More than 60 percent decline in over-speed events.
ANADARKO
18 crashes the year before ROVR. Only one the first year with ROVR onboard. Source: www.cartasite.com FEBRUARY 2015 ENERGY PIPELINE 47
“We deployed this system in April 2010 to all of our 800 vehicles. Since then, we have had a 55 percent reduction in roadway motor vehicle accidents.” COL. MARK V. TROSTEL, National Driving Safety Adviser of Encana
Armitage said he just needed someone to step up and let him test his products on that firm’s trucks. “I told him we needed some help because we can’t improve what we can’t measure,” Armitage said. “He then told me that there are 2,300 vehicles in the city and county of Denver fleet and that I could play with them for a year. “I said I absolutely would. I told him that if I could get people to drive more conservatively, we could save a lot more fuel. “He’s such an entrepreneur. He gave me complete access to his fleet.” However, there was no money promised leaving Armitage in search of an investor to help him dress out the city of Denver fleet. That financial help came quickly from Jeff Wojahn, the former president of Encana (2006-13). “When I told him about it, he said he would love to sponsor this thing and be the only sponsor,” Armitage said. Armitage said he went about installing Cartasite monitoring devices in 2008. It took about six months to complete the installations. Then he went about gathering data from all kinds of things, such as turns, speed, braking, etc. “We had to know what normal looked like before we could begin developing scorecards,” Armitage said. “We gathered about 700 gigabytes of data and started analyzing it. We soon saw a pattern emerge and then developed our scorecards.” Those scorecards began to create a competition among drivers to see who could get the best score. The result of that was that the city of Denver realized an 18 percent savings in fuel. 48 ENERGY PIPELINE FEBRUARY 2015
A little later in 2008, Denver’s chief safety officer pulled Armitage aside one day and told him that the motor vehicle incident rate had dropped by 30 percent and “everyone is talking about it.” Encana quickly stepped up to get the Cartasite products installed in its fleet and many other oil and gas companies followed closely behind. “Every major operator in northeast Colorado is using this technology,” Armitage said. “In fact, we are the only area in the U.S. that has shown a decline in motor vehicle incidents. It just happens to be our backdoor.” According to an Associated Press story published in May, an analysis of traffic deaths and U.S. Census data in six drilling states shows that in some places, fatalities have more than quadrupled since 2004 - a period when most American roads have become much safer even as the population has grown. The analysis singled out significant accident and fatality increases in the oil producing states of North Dakota, West Virginia, Pennsylvania and Texas. The analysis also singled out Weld County, but in a positive way. It said the county lodged a record number of drilling permits in 2013 but saw traffic fatalities fall to 30 from 39, to its lowest level in 10 years. Armitage, in response to the AP analysis, said “I would like to think that we played a big part in that. I don’t know what else to attribute it to.” Armitage added that Cartasite’s applications shouldn’t be limited to just the oil and gas industry. He said it could work well anywhere there is a fleet of vehicles. In fact, he’s in the process of working on a request for proposal with a school district in Texas for its buses.
FEBRUARY 2015 ENERGY PIPELINE 49
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News Briefs Synergy plans slower pace for 2015 Officials at Platteville-based Synergy Resources Corp. plan to pace drilling efforts this year amid wildly falling oil prices. In its first fiscal-year earnings report for the year, company officials discussed continued triple digit increases in revenues and earnings, but also tempered the good news with a touch of caution in a volatile pricing environment. Crude prices hit a peak of more than $100 a barrel last summer but began falling dramatically in October. In five months, prices dropped 50 percent. “It’s happened so quickly, everyone is still getting their hands around it,” said Synergy COO Craig Rasmuson in an interview. Company officials say they have been working to reduce costs in the past several months, knowing the downturn could get worse. “At this point in time you have to be so careful, because you can flush a lot of capital down the toilet, and you just have to really watch where you can position yourselves and get the right economic return for the costs,” said co-CEO Ed Holloway, in a conference call with analysts. Throughout the quarter, the company completed eight horizontal wells, all of which began production on Nov. 30, adding to the company’s total of 39 producing horizontal wells. Synergy’s earnings report for its first quarter of its fiscal year ended Nov. 30, and officials stated they met all their planned drilling goals, but would complete many of their wells at a slower pace in the next few months. Well completions, such as hydraulically fracturing the wells, make up two-thirds of a well’s cost. Synergy officials plan to complete many wells when prices start to rise, pacing the work instead of rushing it. continued on pg. 54 52 ENERGY PIPELINE FEBRUARY 2015
Denver based SM Energy to sell southern U.S. assets SM Energy Co. will sell its assets in the Arkoma Basin of Oklahoma and in the Arklatex area of East Texas and Northern Louisiana, according to a news release. These assets produced approximately 3.4 million barrels of oil per day equivalent, net during 2014 (98 percent gas). Closing of the sale should be in mid-2015, the release stated. The company also plans to close its mid-continent regional office in Tulsa, Okla., later this year and to relocate many of its personnel to its other offices, the release stated “We had a strong 2014 driven by outstanding well results across the company,” said Tony Best, SM Energy CEO, in the release. “This was particularly true in our core Eagle Ford and Bakken/ Three Forks development areas where, as previously disclosed, we have economic drilling inventory equating to over 20 years of current company production and 10 years of gross locations at our current pace. As part of our effort to create differential shareholder value, we are launching a process to sell the remainder of our mid-continent and Arklatex assets and shift our resources to further focus on the development of these core assets. Our balance sheet is strong, we have ample liquidity, and we are confident that after costs adjust to the current commodity pricing environment we will continue to generate strong, industry leading returns on capital employed.” - Staff Reports
FEBRUARY 2015 ENERGY PIPELINE 53
News Briefs continued from pg. 52
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“We want to pace ourselves,” Rasmuson said. “We don’t want to throw all that cash out there. If we’re going to spend $1.2 million to complete a well and at $47 oil, it’s going to take us two times more than it used to take us at $90 to recoup our investment. We don’t like that window.” That will mean a lower average daily production rate going forward, after a company record average of 8,278 barrels of oil equivalent (oil, natural gas and natural gas liquids) per day. The company has been shaving costs where they can, even down to scrutinizing the smallest of invoices, officials said. They stopped outsourcing all parts of their drilling operations to drilling companies, a move they say has saved $200,000 per well. That is helping the company get closer to their goal of a cost of $3 million per well - just four years ago, a horizontal well couldn’t be drilled for under $5 million in the Wattenberg Field, which is Weld County’s rich oil and gas field.
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Rasmuson said increases in drilling technology has allowed them to drop back down to one rig, which further saves the company. The environment has helped bring services prices back into a range of normal, with companies negotiation costs. As an example, Synergy is rehashing a 1990s technique of extending its payments for drilling costs over a period of months rather than monthly, Rasmuson said. “If oil were to get back to $60-solid, you’d see us at a second rig quickly,” Rasmuson said. But lower prices aren’t all that the company is facing. Officials reported that continued constraints on midstream infrastructures such as high line pressure, and reduced processing capacity at natural gas plants, have combined with colder weather to hamper production.
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“We’re experiencing severe line pressure in our northern Wattenberg acreage,” Rasmuson told investors in the company’s earnings call. “There’s been extremely cold weather, but most of the impact is result of capacity constraints. Increased processing capacity is scheduled to be operational by mid-2015, the exact time will factor into when we complete some of the wells we’ve already drilled.” - Sharon Dunn
CBO confirms economics benefits of crude exports WASHINGTON - A new report from the Congressional Budget Office confirms that removing export barriers for U.S. crude oil could help boost domestic production, grow the economy, increase federal revenues, and put downward pressure on gasoline prices, a news release reported. “The CBO report makes it clear that lifting America’s outdated export restrictions will help to grow the economy and save consumers money,” said API Director of Upstream and Industry Operations Erik Milito, in the release. “This is the same conclusion supported by study after study, including those from the Government Accountability Office and the Energy Information Administration. It’s time for policymakers to embrace free trade, so that we can maximize the benefits of America’s energy revolution. “America’s growth as an energy superpower has been a game changer, creating a more competitive global market, where one group cannot easily control prices. By giving producers access to a free market for America’s crude, we can grow that momentum, create more jobs, and support our allies overseas.” The CBO report, which examines the economic benefits of America’s shale energy revolution, concludes that exports would have “positive economic and budgetary effects” and “U.S. consumers of gasoline, diesel fuel, and other oil products would probably benefit ... because those prices depend primarily on the world price of crude oil, which would decline slightly once lower-priced U.S. crudes were available in the international market,” the release stated. The CBO cited a potential decline in gasoline prices ranging from 5 cents to 10 cents per gallon.
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News Briefs
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Fracking helps sustain Colorado’s organic farms Coloradans for Responsible Energy Development has released a new television commercial featuring Michelle Smith, an organic based farmer from Elbert, who relies on income from oil and natural gas development to help sustain her family farming operations, according to a news release. “Mineral rights make all the difference to our small organic based farm. Like many Colorado farm-totable businesses, if we can’t offset operating costs with our minerals, then we’re out of business,” she said in the campaign. “Organic operations are expensive. People like us rely on those payments for their family’s health care or their kids’ education. An attack on fracking is essentially an attack on landowners like us. Those who would ban fracking ignore our rights, and that just gets my goat.” In Colorado, underground minerals may belong to the surface owner or a third party, and developing those minerals is considered a private property right. According to an Oklahoma University state-by-state study, more than 600,000 have Colorado mineral rights. The National Association of Royalty Owners (NARO) released a report in June 2014 that found a ban on fracking in one Colorado county alone would cost taxpayers over $1 billion in compensation to mineral owners and those who receive royalties from energy development on their property. - Staff Reports
EOG dumps Canadian assets HOUSTON - EOG Resources Inc. plans to dump its assets in Manitoba and certain assets in Alberta in two separate transactions that closed on Nov. 28 and Dec. 1, 2014, for about $410 million.
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As a result of these transactions, approximately $150 million of restricted cash related to future abandonment liabilities was released. The proceeds and cash will be utilized for general corporate purposes, according to a news release. Current forecast production from the divested assets is approximately 7,050 barrels of crude oil per day, 580 barrels of natural gas liquids per day and 43.5 million cubic feet of natural gas per day. Net proved reserves divested are estimated to be 7.7 million barrels of oil, 0.8 million barrels of NGLs and 78.7 billion cubic feet of natural gas. EOG divested 1.3 million gross acres (1.1 million net), 97 percent of which were in Alberta. Of the approximate 5,800 producing wells sold, 5,255 were natural gas. EOG has retained approximately 382,200 gross acres (282,100 net) in Alberta, British Columbia and Saskatchewan. EOG will maintain an operations office in Alberta, the release stated. “This decision is consistent with EOG’s focus on its outstanding U.S. crude oil opportunities. We plan to reinvest some of the proceeds in these high return assets, while retaining our position in the Horn River Basin and other exploration areas,” said EOG Chairman and CEO William R. “Bill” Thomas in a release. EOG Resources, Inc. is one of the largest independent (non-integrated) crude oil and natural gas companies in the United States with proved reserves in the United States, Canada, Trinidad, the United Kingdom and China. EOG Resources, Inc. is listed on the New York Stock Exchange and is traded under the ticker symbol “EOG.” - Staff Reports
FEBRUARY 2015 ENERGY PIPELINE 57
News Briefs www.drhorton.com/colorado
CRED.org expands fracking factfinding
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CRED has revamped and expanded its website, CRED.org, to further aid Coloradans searching for the facts on fracking and state regulations. The announcement comes as the Oil and Gas Task Force commissioned by Gov. John Hickenlooper continues to meet concerning land-use conflicts. The revamp includes a new design layout and new information graphics make it easier to learn about fracking, how it benefits Colorado, and the regulations behind it, according to a news release. The site includes additional facts and expands upon issue areas most important to Coloradans - water, land, air, health and safety and the economy, the release stated.
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More than 600,000 people have ties to mineral rights in Colorado, and a 2013 study from the University of Colorado at Boulder Leeds School of Business found the oil and natural gas industry generated more than $29.6 billion for the Colorado economy, 110,000 high-paying jobs and $1.6 billion in tax revenue, the release stated. Oil and natural gas development is a financial cornerstone for state and local governments, schools, parks,
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roads, first responders, and other critical services Coloradans all enjoy. “Even though more than 2 million wells have been fracked since 1947 and more than 95 percent of today’s oil and natural gas wells are fracked at some point during their lifespan, many still admit to not knowing or understanding what it involves. We’re here to change that,” said Jon Haubert, CRED’s communications director, in the release. “As long as Coloradans have questions, CRED will continue providing access to the science and technology in an easy-to-understand format so all Coloradans can learn for themselves the oil and natural gas industry’s importance to our state, economy and energy independence,” said Haubert. CRED also will continue to direct Coloradans to its mobile app, as well as a second website, StudyFracking.com, which allows users to type in their own questions and receive answers from published academic, scientific and government research, the release stated. - Staff Reports
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News Briefs
PDC Energy announces 2015 capital budget PDC Energy has reduced its capital budget this year by 14 percent, according to a news release. The budget is set at approximately $557 million, including $526 million of development capital and $31 million for lease maintenance, exploration and other expenditures. The 2015 capital budget is focused on organic growth opportunities in PDC’s inner and middle core areas of the Wattenberg Field, the release stated. The company estimates net production volumes for 2015 will be between 13.8 million and 14.5 million barrels of oil equivalent and expects production growth throughout the year. The company projects it will drill approximately 90 percent of its wells in the inner and middle core areas, up from about 67 percent in those areas in 2014. PDC estimates its 2014 production exit rate to be approximately 32,500 BOE per day and its fullyear 2014 production volumes to be within its guidance range of 9.3 to 9.5 MMboe. The Company’s 2015 production exit rate is anticipated to be approximately 46,500 BOEa per day. The 2015 budget is based on an estimated full-year 2015 NYMEX price on Nov. 30, 2014 of $67 per barrel and $3.80 per Mcf. In the Wattenberg, PD plans $415 million for its operated drilling program and $101 million for non-operated projects. The company’s 2015 operated program is to continue utilizing its current five horizontal drilling rigs throughout the year; there are no plans to add a sixth horizontal drilling rig. The Wattenberg budget includes turning-inline approximately 110 gross operated Niobrara and Codell horizontal wells of which 40 percent 60 ENERGY PIPELINE FEBRUARY 2015
are expected to be extended-length laterals of approximately 6,500 feet to 7,000 feet. About 60 percent of those wells are expected to be targeting the Niobrara with the remainder targeting the Codell. The company’s non-operated program is projected to include approximately 100 horizontal wells turnedin-line at an average working interest of about 20 percent. In 2015, PDC expects to save more money through drilling extended laterals and tighter frac spacing. The company plans to enhance its completion design decreasing the spacing between frac stages from 250 feet to 200 feet. With the modified completion design of more frac stages, the company’s gross drilling and completion costs per well for a standard length lateral is $4.3 million and $5.5 million for an extended length lateral, according to the release. PDC expects improved reserves from tighter frac spacing and extended laterals of approximately 10 percent and 30 percent to 50 percent, respectively, compared to its current type curves. Because the pricing environment, PDC has opted to idle its drilling rig in the Utica Shale in Ohio, while it puts its capital budgets in its moneymaker, the Wattenberg. In fact, the company plans to only spent $38 million in the Utica, vs. $190 million last year. PDC expects to resume its Utica Shale drilling program when commodity prices rebound. “We are encouraged with the technical advancements and improved capital efficiencies we’ve gained in the Wattenberg Field,” said Bart Brookman, president and COO in the release. “We are well positioned to add value in the current low commodity price environment with our industry-leading hedge program, strong balance sheet, limited 2015 outspend of cash flow, and top-tier core Wattenberg drilling opportunities. We will continue to monitor crude oil and natural gas pricing and have the operational flexibility to adjust capital spending in Wattenberg or Utica should commodity prices change materially.” - Staff Reports FEBRUARY 2015 ENERGY PIPELINE 61
News Briefs
Eliminate Downtime & Increase Production!
Encana focuses 2015 capital program on 4 growth assests
CALGARY, Alberta - Encana will spend between $2.7 billion and $2.9 billion on four of its highest growth plays: the Montney and The Duvernay in Canada, and in the Eagle Ford and the Permian plays in Texas.
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“Following the launch of our new strategy, we took aggressive action and transformed our portfolio, significantly reduced our cost base and built a culture that drives efficiencies throughout our business,” said Doug Suttles, Encana President and CEO, in a news release. “We enter 2015 focused on our long-term strategy, increasing liquids production, capturing new efficiencies throughout the business and protecting our balance sheet. We’re well-positioned as the steps we’ve taken have given us the resilient portfolio, organizational agility and operational expertise needed to thrive throughout the commodity price cycle. Built into our 2015 plan is the flexibility to respond to the challenges and act on potential opportunities presented in this volatile price environment.”
Encana expects to generate approximately 75 percent of its 2015 cash flow from oil and liquids production, the release stated. The company estimates total liquids production will grow approximately 70 percent
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compared to 2014 to between 140,000 and 160,000 barrels per day (bbls/d) and anticipates overall production of between 405,000 and 440,000 barrels of oil equivalent per day (boe/d). Encana expects total cash flow between $2.5 billion and $2.7 billion, reflecting the impact of higher margin production and continued cost efficiencies, partially offset by anticipated lower commodity prices, the release stated.
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“In 2015, we plan to continue to execute our strategy and capitalize on the portfolio we have built by investing in our highest margin plays and highest impact projects to keep us on track to reach our longterm strategic goals,” added Suttles. The company’s 2015 capital program is based on assumptions of $70 WTI oil prices and NYMEX natural gas prices of $4 per million British thermal units (MMBtu). In addition, the company expects to generate net proceeds of around $800 million in the first quarter of 2015 through the completion of the previously announced divestiture of the majority of its Clearwater assets and other anticipated transactions. The company plans to infuse from $350 million to $450 million collectively on the DJ Basin, San Juan and Tuscaloosa Marine Shale areas. Together their combined total liquids production are expected to be between 25,000 and 28,000 bbls/d. - Staff Reports
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MAKING HOLE A look back at the origins of oil and gas BY BRUCE WELLS • AMERICAN OIL & GAS HISTORICAL SOCIETY
“Making Hole” is a term for drilling coined long before oil or natural gas were anything more than flammable curiosities. “BUFFALO BILL” CODY: WYOMING WILDCATTER
“Bill, the Oil King” stands by one of his cable-tool wells drilled near Cody, Wyoming, at the beginning of the 20th century. Photo courtesy of Buffalo Bill Center of the West, Cody, Wyoming, USA
William F. “Buffalo Bill” Cody’s legacy extends beyond his popular Wild West show. A Wyoming town and museum named for him preserves his Big Horn Basin heritage. Lesser known is his brief exploration into the oil business. Cody was a tireless promoter of the frontier town he helped found in 1896 that bears his name. As a partner in the Shoshone Land and Irrigation Company, he enticed a Chicago railroad to build an extension from Toluca, Mont., to Cody to ensure prosperity of north-central Wyoming. Always a businessman, he had earlier formed the W.F. Cody Hotel Company when the railroad reached Sheridan, about 150 miles east of Cody, in 1892. He opened the Irma Hotel (named after his daughter) in Cody in 1902. Perhaps inspired by the January 1901 oil gusher on Spindletop Hill, Texas, which was launching hundreds of new oil companies, Cody and associate George Beck began searching for oil near Cody. The fledgling oilmen began by using the same “placer claim” Wyoming applied to gold and silver. State law required that at least $100 had to be spent annually on development of each 160-acre claim. Although Cody had earlier disappointments in mining, the experience did not hamper his promotion of the venture and search for investors, including Wyoming congressman Rep. Frank Mondell, among others. He and his partners formed the Cody Oil Company in October 1902. Cody Oil drilled its first well at an oil springs just two miles from the town “Buffalo Bill” helped found. By August 1903, the well had reached 500
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.
FEBRUARY 2015 ENERGY PIPELINE 67
TOP: The Irma Hotel in Cody, shown here circa 1920, opened in 1902 and remains open today. It was named for the daughter of William F. “Buffalo Bill” Cody. Photo courtesy of Lynn Johnson Houze, WyoHistory.org. BOTTOM: A stock certificate for 2,500 shares valued at $1 per share issued to W. F. Cody by Shoshone Oil Company, Cody, Wyoming, on February 4, 1910. Shoshone Oil Company today survives only as a collectible stock certificate. Image courtesy of Buffalo Bill Center of the West, Cody, Wyoming, USA
feet and was progressing well enough to prompt spudding another. But water encroachment ruined both well boreholes - and dampened Cody’s enthusiasm. It would be six years before Cody and his associates returned to the oil business by forming the Shoshone Oil Company. Mondell, undeterred by the failure of the Cody Oil Company, invested in the new exploration venture. At $1 per share, Cody bought 2,500 shares and his partner Beck bought 46,666 shares of Shoshone Oil. In 1909, they filed 115 oil placer claims south of Cody. They energetically promoted their “Bonanza Oil District” to potential investors. According to historian Robert E. Bonner, Cody promoted his enterprises endlessly with anyone who would listen.
“He saw great possibilities in every direction, and he had an unquestioned faith in his personal ability to achieve whatever he set out to do,” Bonner notes in his 2007 book, William F. Cody’s Wyoming Empire. “He was always willing to back up his words with his money.” During a visit to New York City, the determined Wyoming oilman carried pocket flasks of oil to show his friends in the East and to interest investors. “With what degree of seriousness we cannot know,” adds Bonner, noting some of Cody’s eastern friends called him, “Bill, the Oil King.” Unfortunately for the Shoshone Oil Company, all major oil strikes were north and east of town; nothing of significance was found on the company’s placer claims. Drilling funds ran out and the business failed. If Shoshone Oil had drilled farther south and a little east of Cody, it may have found the northernmost extension of the prolific Oregon Basin. Today, Shoshone Oil Company survives only as collectible stock certificates. Just two years before his death, Cody briefly attempted a third visit to the oil patch with the Buffalo Bill Oil & Gas Company. The world-famous Wild West showman died on Jan. 10, 1917. The Buffalo Bill Historical Center (today the Buffalo Bill Center of the West) opened in 1927 in Cody.
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FEBRUARY 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.
2014 DRILLING PERMITS
2014 GAS PRODUCTION
COUNTY *YTD PRODUCTION (% OF STATE) Garfield .............. 500,188,814 (41.4%) La Plata.............. 255,456,437 (21.1%) Weld .................. 216,362,902 (17.9%) Rio Blanco.............. 70,431,118 (5.8%) Las Animas............. 66,122,362 (5.5%) Mesa ...................... 29,593,822 (2.4%) State ............................ 1,209,264,037
Source: Colorado Oil and Gas Conservation Commission as of Jan. 10; figures do not include complete production numbers. Companies have 45 days to report production.
(thousand barrels per day) Region ...............Jan. 2015 .........Feb. 2015 Bakken.................1,282 .............1,306 Eagle Ford ............1,691 .............1,716 Haynesville ................58 .................. 58 Marcellus ..................55 .................. 56 Niobrara ..................387 ................395 Permian ...............1,888 .............1,929 Utica.........................52 .................. 56 Total.....................5,413 .............5,516 Source: U.S. Energy Information Administration, Jan. 12.
70 ENERGY PIPELINE FEBRUARY 2015
Weld........................................................................................2,303 (55%) Garfield...............................................................................1,066 (25.4%) Lincoln.....................................................................129 (3.3%) Rio Blanco...........................................................121 (3%) La Plata..........................................................87 (2.0%) Yuma..................................................53 Moffat...................................................54 Adams............................................51 Arapahoe.................................34
2014 OIL
PRODUCTION
Montezuma....................25
COUNTY *YTD
Cheyenne........................26 Gunnison.................20 Jackson................17 Morgan.............6 Larimer..........4 State ........................................................4,190
(million cubic feet per day) Region ...............Jan. 2015 .........Feb. 2015 Bakken.................1,510 .............1,537 Eagle Ford ............7,430 .............7,527 Haynesville ...........6,903 .............6,972 Marcellus ...........16,319 ...........16,550 Niobrara ...............4,695 .............4,736 Permian ...............6,188 .............6,262 Utica....................1,782 .............1,856 Total...................44,827 ...........45,440 Source: U.S. Energy Information Administration, Jan. 12.
COLORADO ACTIVE WELL COUNT
NO. (% OF STATE TOTAL)
Mesa.......................................................74
NATIONAL OIL PRODUCTION*
NATIONAL GAS PRODUCTION*
COUNTY
Source: Colorado Oil and Gas Conservation Commission as of Jan. 5.
US RIG COUNT
The U.S. rig count peaked at 4,530 in 1981 and bottomed at 488 in 1999. *2015....... 2014 1,750 ....... 1,754 *Through Jan. 9, 2015 Source: Associated Press
PRODUCTION (% OF STATE)
Weld ...........44,833,800 (82.2%) Rio Blanco ........3,345,507 (6%) Garfield ............,520,554 (2.6%) Cheyenne............72,662 (2.0%) Lincoln ...........1,051,352 (1.9%) Moffat..............301,086 (0.57%) State......................... 54,871,078
Source: Colorado Oil and Gas Conservation Commission as of Jan. 10; figures do not include complete production numbers. Companies have 45 days to report production.
COLORADO DRILLING RIG COUNT
Colorado ................................. 63 Weld ...................................... 42 Garfield .................................. 11 Source: Colorado Oil and Gas Conservation Commission as of Dec. 17.
Weld..........................................................................21,994 Garfield .....................................................................10,889 Yuma...........................................................................3,902 LaPlata .......................................................................3,328
Las Animas .................................................................3,008 Rio Blanco ..................................................................2,907 36 others ................................................................... 6,988 State ........................................................................52,026
Source: Colorado Oil and Gas Conservation Commission as of Jan. 5.
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