OCTOBER 2014 ENERGY PIPELINE 1
OIL & GAS PRODUCTION POWER
Wagner Power Systems is built to provide you with the engines and related equipment you need to generate power for oil and gas exploration, recovery and transmission and with engines that power applications in several industrial market sectors, including construction, mining, agriculture, forestry/waste, material handling, light/ construction/general industrial, irrigation and other pumps. It’s our people who make the difference by standing beside you and our products. We know specific power requirements, fuel consumption, fuel tolerance, and overall operating cost are vital to your production. That’s why we are there from system design to operational support.
Find us on the web
Give us a Call
WagnerPower.com
1-877-654-1237
2 ENERGY PIPELINE OCTOBER 2014
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.
www.facebook.com/anadarkopetroleumcorporation
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NYSE : APC
OCTOBER 2014 ENERGY PIPELINE 3
www.anadarko.com
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Features
38
44
DRILLING RIGS
FLOOD ANNIVERSARY
Technology continues to grow more green.
16
ON DEMAND DRUG TESTING
30
Eatmon’s Mobile Drug Testing produces instant results.
20 24
OIL MIDSTREAM Crude oil production putting pressure on takeaway infrastructure.
MIDYEAR PRODUCTION
28
Lead by serving others. 4 ENERGY PIPELINE OCTOBER 2014
DIESEL FRACKING
Use of diesel fuel in fracking stopped in 2012 in Colorado.
59 63
Industry officials see another record-breaking year in crude.
“GREATEST GENERATION”
Oil and gas companies remember the recovery process after millions of dollars in flood damage.
67
CLEAN ENERGY
Valley RE-1 School District cuts way toward cost savings.
WELD’S GDP GROWTH
Departments 8
Support Company Profile
10
Field Worker Profile
12
Executive Profile
50
News Briefs
56
Short Term Energy Outlook
Second best in the nation.
MAKING HOLE A look back at the origins of oil and gas.
Integrated Petroleum Technologies
Meet Clint Rhodes, Bill Barrett Corp.
Meet Jesse White, Apollo Operating
OCTOBER 2014 ENERGY PIPELINE 5
PUBLISHER Bart Smith EDITOR Randy Bangert CREATIVE MANAGER Alan Karnitz BUSINESS MANAGER Mike Campbell MANAGING EDITOR Sharon Dunn
WE HAVE THE
HOFFMAN
CONTRIBUTING WRITERS Allison Dyer Bluemel David Persons Tracy Hume
ADVERTISING DIRECTORS Bryce Jacobson Gary Loftus Sabrina Poppe ACCOUNT MANAGERS Paul Dovenbarger Cristin Peratt Mary Roberts Kristy Zado CREATIVE TEAM SUPERVISOR Afton Groepper ART DIRECTION & DESIGN Darin Bliss
PRODUCTS YOU NEED
From ZONEX Enclosures and accessories for small junction boxes and large, custom, freestanding control panels to Purge and Pressurization Systems to lower your cost of ownership in hazardous locations, we have the Hoffman products you need, when you need them. Contact Border States today for your ATEX- and IECEx-certified Hoffman products. Greeley CO | 2414 4th Ave, Unit A 970.356.1150 | borderstates.com
ENERGY PIPELINE MAGAZINE 501 8th Ave. P.O. Box 1690 Greeley, CO 80632 1501 5th Ave., Suite 101 Belle Fourche, SD 57717 For all editorial, advertising, subscription and circulation inquiries, call (970) 352-0211. Send editorial-related comments and story ideas to: editor@energypipeline.com For advertising inquiries, contact: bjacobson@energypipeline.com September 2014, Volume 2, Issue 1. Published by Greeley Publishing Co., publisher of The Greeley Tribune, Windsor Now, the Fence Post, and Tri-State Livestock News.
6 ENERGY PIPELINE OCTOBER 2014 30-250 (2014-09)
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OCTOBER 2014 ENERGY PIPELINE 7
SUPPORT COMPANY PROFILE
Integrated Petroleum Technologies
CORPORATE HEADQUARTERS 1707 Cole Blvd. Suite 200 Golden, CO 80401 720.420.5700
NUMBER OF EMPLOYEES
We currently employ over 150 professionals company wide, with the majority right here in northeast Colorado
WEBSITE www.iptenergyservices.com
SERVICES OFFERED Well permitting & regulatory compliance Drilling & completions engineering & supervision Well site & frac supervision Stimulation monitoring & well site QA/QC for frac operations Reservoir & petroleum engineering 8 ENERGY PIPELINE OCTOBER 2014
HOW LONG HAS YOUR BUSINESS BEEN OPERATING IN WELD COUNTY? IPT acquired Peterson Energy Management in 2012. Peterson actually started up in Loveland in 1989, and IPT was founded in 1991 in the Denver area. Both entities quickly established themselves as integral parts of the local consulting scene.
WHY SHOULD CUSTOMERS DO BUSINESS WITH YOUR COMPANY? IPT represents the most comprehensive independent group of consultants working in the industry today. Our expertise runs from comprehensive knowledge of the complex regulatory environment in Weld County all
the way through drilling operations, completions engineering, hydraulic fracturing optimization and reservoir engineering. We are a local company with global experience, and our focus is always on helping our customers get the most value for the dollars they spend. Being an independent consulting company we are not driven by any influence to perform the job other than the best way possible.
HOW LONG DO YOU ANTICIPATE BEING IN BUSINESS IN NORTHEAST COLORADO? Northeast Colorado is our home, and we expect to be in business here for as long as there is a viable energy sector operating here. Our
expertise goes beyond oil and gas, and thus we anticipate being at the forefront of any emerging business trends that require knowledge of subsurface engineering, well construction and regulatory compliance.
IS YOUR COMPANY IN A GROWTH MODE? IPT is growing and expanding capacity in all of our business segments. As the energy sector grows in northeastern Colorado, we grow with it to maintain our leadership role within this marketplace. IPT has expanded from roughly 60 employees two years ago to over 150 employees today. This includes the hiring of personnel from around the country and some
Eliminate Downtime & Increase Production!
relocating to the Denver area.
WHAT KIND OF SKILLS, EXPERIENCE OR EDUCATION DO YOU LOOK FOR IN EMPLOYEES? IPT has built its reputation and business by delivering superior value to our clients across the breadth of our service areas. IPT prides itself on delivering the right people with the right expertise to assist our clients in creating maximum return for their investors. People are the key in building and maintaining this legacy. We are an
engineering consulting firm and the core of the company are engineers, from diverse backgrounds and experiences, focused on helping our clients make the best wells possible. We augment our engineering core with experienced personnel well versed in all aspects of well site supervision, fracturing operations and completions. All IPT employees are put through rigorous additional training before they go onto our clients’ well sites to ensure the highest level of professionalism, safety awareness and overall process knowledge.
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INTEGRATED PETROLEUM TECHNOLOGIES For job opportunities, visit IPT’s website & click the “Join Our Team” tab
Greeley Tent & Awning 2209 9th St. Greeley, CO. 80631 970-352-0253 www.getshade.com OCTOBER 2014 ENERGY PIPELINE
9
FIELD WORKER PROFILE
Clint Rhodes
BILL BARRETT CORP. BY STAFF REPORTS
HOMETOWN Aztec, N.M.
WHERE DO YOU LIVE? Eaton
HOW LONG HAVE YOU BEEN WORKING IN NORTHEASTERN COLORADO? Two years.
HOW DID YOU GET INTO THE INDUSTRY?
I grew up watching my granddad, my dad and all the men in my family work long, grueling oilfield hours in Aztec, N.M. I decided to follow in their footsteps and started out on the rigs with my uncle Keith as the driller, and then I decided to go to college. I received an associate’s degree in electronics and became an automation technician. Automation slowed down back home and I went back to
10 ENERGY PIPELINE OCTOBER 2014
roughnecking then my rig stacked out. I moved to northern Colorado in hopes of finding a substantial, consistent and secure career for my future and settled down in Eaton in 2012. I have worked my way up through the rough, tough, and high demand ways of the oilfield work to become a pumper just like the men in my family have done.
WHAT IS YOUR JOB TITLE AND DUTIES?
Lease operator, pumper. While many think that the duties of a pumper are quite simple there are many complexities and demands that go with it. Our days consist of regulating flow of oil and gas, gauging and thieving tanks, treating oil to marketable conditions and getting oil sales out, making sure well locations are
producing, routine maintenance and ensuring proper operation of, threephase separators, generators, pump jacks, and compressors, monitor and imputing the production of each location into eVIN, monitoring injection volumes, rates and pressures and making adjustments to maximize production and in the winter time breaking and preventing freezes to keep down time and operating costs to a minimum, all while remaining professional and upholding a high standard of safety.
WHAT IS THE MOST INTERESTING THING ABOUT YOUR JOB?
I enjoy the work that I do in the oil and gas industry and now due to constant changing of production equipment
I find interest in the continual learning to be done. With the oil and gas industry fast erupting, I find the changes to be quite remarkable.
WHAT IS THE BEST PART OF YOUR JOB? The best part of working for Bill Barrett Corp. is the team comradery, the feeling of being family. We all know that we can rely on each other and we are all working for the same purpose. I enjoy knowing that I am doing my part to supply natural resources to be used by our country.
WHAT IS THE HARDEST PART ABOUT YOUR JOB?
I would have to say that the hardest part of my job in the warmer months is stressing about getting the oil loads out in a timely matter
so that the locations do not ESD. Then winter time hits and the weather turns, nights get cold and things begin to freeze, being away from my family for hours on end at night fighting freezes to keep the location running and producing during the night is the hardest part of the job.
WHAT DO YOU DO IN YOUR SPARE TIME?
When I am not working I spend a lot of my time working out in the gym with my wife, even after long grueling days of working in the hot sun or cold blowing snow. On my days off, we both love to jump on the Harley and ride for countless hours.
WHAT ARE YOUR FUTURE AMBITIONS IN THE INDUSTRY? When I look to the future, I desire to
ass ic Recommendations r mati
In t
a person means to continue to help the provide for their family’s industry grow, prosper, needs, adds jobs to the and see the United M oo r struggling economy that States be self-sufficient we are in, add economic and not have to rely on stability for not only our foreign oil and gas. We have an abundant supply state but our country and sse ed brings more money into here; we just have to the state to be used for have the community see funding for the general not only the downfalls well-being of the people but also the benefits of who live here. our industry.
Professional Solutions
WHAT DOES THE WATTENBERG FIELD AND THE DJ BASIN MEAN TO YOU?
To me the Wattenberg Field and the DJ Basin supplies natural resources that are used in multiple items that we use on a daily basis that we take for granted ranging from irrigation piping, flip-flops, cell phones, computers, erasers, pacifiers, baby bottles, footballs, fishing lines, flashlights, crayons, pillows, credit cards, masking tape and flags. It’s not only used for everyday items, it also provides
HOW DO YOU FEEL ABOUT THE CURRENT ENVIRONMENTAL DEBATE GOING ON WITH “FRACKING” IN COLORADO?
I feel that the people who are against “fracking” are not educated about our industry, they do not see the benefits and would rather ban fracking and stop economic growth for our own county, state, and country forcing us to receive oil and gas from foreign countries, making them wealthier, while we are struggling economically.
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OCTOBER 2014 ENERGY PIPELINE 11
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EXECUTIVE PROFILE
APOLLO OPERATING
Jesse White BY DAVID PERSONS • FOR ENERGY PIPELINE
Jesse White is living proof that you don’t have to be one of the oil and gas company giants to be successful in the resource-rich Denver Julesburg Basin. His company, Apollo Operating, LLC, is little more than a one-man operation that is using a variety of contractors to race through the basin’s Wattenberg Field buying leases, selling leases, developing wells, selling wells, and even exploring. It’s all part of the 38-year-old operations manager’s grand plan “to reach the next level” in his career. It’s a plan that seems to be working quite well. Since forming Apollo Operating in 2006, White has sold assets to Great Western Oil and Gas (2007), Bayswater Exploration Production (2010), Chesapeake Energy (2010), and Synergy Resources Corporation (2013). With each sale, White has taken a larger step to reach “that next level.” “It’s been a wild ride but I can’t complain,” White said. So how did a self-proclaimed long-haired skateboarder from southern Louisiana get to be one of the most successful oil and gas entrepreneurial landmen in northern Colorado? Must have been born into an oil and gas family, right? 12 ENERGY PIPELINE OCTOBER 2014
Wrong. “Nothing whatsoever,” White says with a laugh. “It was completely an accident. I actually wanted to be a pilot when I was in high school.” However, his family couldn’t afford to send him away to a flight school and the college close by didn’t offer aeronautics. “I started out in general studies and I didn’t make the greatest of grades,” White recalls of those early years at the University of Louisiana-Lafayette. After a couple years, he had to make a decision about his major. He remembers going through a curriculum book and seeing a degree offered for geology, something he enjoyed. However, he didn’t really want to be a geologist or a teacher. Studying the curriculum book a little closer, he saw a business degree in petroleum land management with an emphasis on geology. “I decided to go with it,” White said. But, there was a slight problem with that decision. The degree was great. It was just that White didn’t feel he really fit the profile of a petroleum land man. “Here I was, a little skate kid with long hair,” White said, laughing again. “I knew I didn’t fit the profile. I’ve seen those guys in Houston. They all wear blue blazers, blue shirts and tan slacks. I’m just a blue jeans guy.”
But, he bit the bullet and decided to change his image. “I knew I had to look the part so I took out the earrings and cut the hair,” he said. “I decided to play by the rules of the game as you have to if you want to win the game.” That was 1999. The next year, he decided that if he was going to be successful, he have to move where the action is. And, the action was in Colorado, specifically in the Wattenberg Field of the Denver Julesburg Basin and in the surrounding Rocky Mountain region. In the spring of 2000, White relocated to Denver and began pursuing business opportunities in the Rocky Mountain region. He initially began as a contract land man in Denver. However, in 2001 he became a partner in Delta Energy, LLC (a land brokerage firm) and Apollo Energy, LLC (an exploration prospect firm). Between, 2001 and 2006, White and his partners at Apollo Energy developed several successful prospects in Colorado’s Piceance Basin and in the Denver-Julesburg Basin. In 2006, White formed his own company, Apollo Operating, LLC, and became an operator of oil and gas wells, identifying and drilling its own prospects, and then selling them to larger companies.
ABOUT
Jesse White AGE 38
SPOUSE
Not married
CITY OF BIRTH Lafayette, La.
CITY YOU GREW UP IN
Several cities in southern Louisiana; lived three years in Berlin, Germany.
COLLEGE ATTENDED/DEGREES
BA in professional land and resource management from University of LouisianaLafayette in 1999.
CITY YOU LIVE IN NOW Denver
WHAT DO YOU DO IN YOUR SPARE TIME?
Traveling, snowboarding, outdoor motor sports, water sports and running. He is a sports enthusiast. His favorite sports teams are the New Orleans Saints, LSU Tigers, the Colorado Rockies, and the Denver Nuggets.
LAST GOOD BOOK YOU READ
“A Thousand Barrels a Second” by Peter Tertzakian
SOMETHING ABOUT YOU THAT FRIENDS AND COWORKERS DON’T KNOW
I enjoy doing my own yard work. I take pride in looking after my yard.
CURRENT JOB TITLE
Operations manager/manager for Apollo Operating, LLC
YEARS IN ENERGY INDUSTRY 17 years
PROFESSIONAL BACKGROUND
His first oil and gas-related job was acquiring seismic permits in St. Martin Parish, La., in 1997 while still in college. White graduated from UL-Lafayette in the summer of 1999 with a BA in PLRM and briefly lived in New Orleans, continuing his career as an oil and gas professional. In the spring of 2000, White relocated to Denver to pursue business opportunities. Initially, he began working as a contract landman. However, in 2001 he became a partner in Delta Energy, LLC (a land brokerage firm) and Apollo Energy, LLC (exploration prospect firm). Between 2001 and 2006, White and his partners at Apollo Energy, LLC, developed various successful exploration prospects in Colorado’s Piceance Basin and the Denver Julesburg Basin. In 2006, White formed Apollo Operating, LLC and became an operator of oil and gas wells. Apollo Operating, LLC, is an A to Z oil and gas operator that identifies and drills its own prospects.
OCTOBER 2014 ENERGY PIPELINE 13
QA
EP: In 2001, you became a partner in a land brokerage firm (Delta Energy, LLC) and an exploration prospect firm (Apollo Energy, LLC). That sounds like two pretty interesting jobs. Can you talk about each and what role you had?
&
Energy Pipeline recently had the opportunity to talk at length with White about his career and his company, Apollo Operating, LLC.
JW: At Delta Energy, I was essentially a land man performing brokerage work for other companies in my junior partner role. I was a minority partner. It was an everyday job that helped to put food on the table. It was contract work. Apollo Energy was a sub-company. I worked in areas not doing brokerage work. It was sort of after-hours work doing work for our own account. We bought oil and gas leases for our own account in areas we did not perform brokerage work at Delta to be resold to third parties. We had some success in Apollo Energy and we all made some money. EP: Did the experience you gained at Delta Energy and Apollo Energy help prepare you when forming Apollo Operating in 2006? How so? JW: It absolutely did. It got to the point where I could see there was more upside to this and I wanted to take it to the next level. My partners (at Apollo Energy) didn’t, so I started my own company, Apollo Operating.
It was one step in a natural progression for me to get to where I am today. It’s been build and sell, build and sell. At the same time, I have been trying to insulate myself as best as possible while going down this path from the inherent risks of being a small oil and gas operator. EP: How is Apollo Operating different from other oil and gas exploration and production operations in the Denver-Julesburg Basin? JW: We have a small, nimble company. We take every individual situation seriously for what it’s worth and for what makes sense in that specific situation to both Apollo and our customer or landowner ... a win-win mentality, in other words. We’re able to focus and give more attention to the customers - the landowners. We’re also different because they (customers) can pick up the phone and call us. You can’t call the CEO at Noble or Anadarko ... their companies are so big. Their advantage, however, is they’re bigger. The main difference is that you can get personal attention. I just don’t sit in the office, either. I go out into the field. I oversee the operation the whole way.
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EP: Apollo’s specific area of focus, according to your website, is the Denver-Julesburg Basin with active developmental operations in the basin’s Wattenberg Field. What makes this field so attractive for your operations?
JW: It has helped our reputation without a doubt. We now have a track record and that is helping us to bring in partners, too. EP: How long do you think Apollo Operating will be a player in the DJ Basin? Why is that?
JW: It’s a well-known resource. It’s just the nature of the geology in the Wattenberg Field that if you drill, you will likely get some oil. There will be some dry holes but the probability of that is low. It’s just a well-known resource with a high degree of probability of success that you will get some type of hydrocarbon.
JW: As long as it makes sense. It’s so hard to be a smaller company operating in Colorado. The Wattenberg Field also has a bullseye on it from a political and regulatory standpoint. It’s really hard for a company like mine where (local and state) regulations might price me out of the area.
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EP: How has the size of your operations in the DJ Basin grown from 2006 to now?
So, as long as it makes economic sense, I will continue to do it.
JW: It’s been a weird thing. My motto has been to build, sell, build, sell. That’s what we’ve done. We made sales - sold assets - to Great Western in 2007, Bayswater in 2010, Chesapeake in 2010, and to Synergy in 2013. We sold producing wells to Synergy and also a wastewater disposal well.
EP: Your website also says that Apollo Operating has an exploration program under way in northern Lincoln and southern Washington counties, exploring for conventional oil traps. Can you talk a little about those efforts and what you hope to find?
EP: Have all these recent sales helped increase your awareness to larger companies?
JW: I have decided to take it to the next level (risk wise) in exploration out east in Washington and Lincoln counties; this project is exploration
whereas Wattenberg would be considered as “development.” It’s true exploration. If we find something, that could take us to the next level. It does up the risk factor (spending more money than bringing in initially with a higher degree of economic loss than in a development situation). But, if we find (oil), it could bring in a ton (of wealth) for us. It may be a little unorthodox in today’s oil and gas industry but it’s how we’re trying to grow. EP: Many oil and gas executives that we talk to believe that the U.S. is moving very quickly to become energy independent and no longer relying on foreign oil. Do you share that opinion or do you see it slightly different? JW: I believe that’s the case. But, we are making it a slippery slope with all the new regulations. If it’s something that’s plausible then it should be done. But, I feel political pressures are transforming into many things that don’t make sense but make people feel good. Oil and gas companies are good stewards of the environment. However, if all the new regulations hinder the industry, then maybe it (oil independence) won’t happen. But, it certainly could.
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Energy Pipeline is a monthly magazine dedicated to covering the rapidly expanding oil and gas industry in Northern Colorado and surrounding states. Energy Pipeline focuses on the business aspects of this industry, as well as the many people who make it all work. Stay up to date on the latest news on growth and expansion as companies continue to work to make the most of the rich oilfields in this region. Learn about the new trends and discoveries. Read about the key players in this industry and what they have to say about future prospects.
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OCTOBER 2014 ENERGY PIPELINE 15
ON DEMAND DRUG TESTING
PRESS FOR TEST
EATMON’S MOBILE DRUG TESTING PRODUCES INSTANT RESULTS BY BRIDGETT WEAVER • BWEAVER@GREELEYTRIBUNE.COM
While working in an oil field office, Greeley native Sue Eatmon saw a need for quick, accessible drug testing and decided she should be the one to fill the need. “I sat there and noticed when our safety guy had to wait until 5 o’clock for a crew to get off work to take them for testing and I thought, ‘Man, what if I could do that for them?’” Eatmon said. With that thought in mind, Eatmon opened her business, Eatmon’s Mobile Drug Testing, 5003 W. 22nd St. Road, in May of this year. Eatmon and her daughter, Brittney Nielsen, also of Greeley, provide several testing services to Weld County, at the drop of a dime. She and Nielsen travel in what Eatmon calls “alien green” Kia Souls to the site they’re hired to test. Eatmon said employers call her sometimes just an hour before they need tests done. “They say, ‘Sue, can you come over in an hour and drug test 18 people?’” and Eatmon says yes, collects the necessary supplies and hops in her car.
The most important thing for people to remember is with her business, it’s anytime, anywhere, she said. She is open 24 hours a day, seven days a week. “I’ve met truck drivers at a truck stop because they need it for their physical,” she
back right away; Eatmon sends the other tests out to a lab. For the lab tests, she will receive results and notify the employers. Eatmon said a lot of her business has come from the oil and gas industry. “Because of the oil boom (in Greeley) we have a lot of companies coming in from out of state,” she said. Because these companies don’t have a specific hospital or medical provider to have testing done, they call a company like this, Eatmon said. Another large advantage is the time saved when Eatmon is hired. “I can (test) four guys in 20 minutes if they want instant UAs,” she said. Most companies will shut down a whole work site for drug testing, often losing several hours of labor on that job. But Eatmon said, “A lot of times I get them before they start their shifts, get them done and they go,” to work. On short notice, Eatmon said she can test 18 to 20 people by herself, but she can test more with a phone call the ahead of time.
“When I first started out it was only a couple here or there. Now it’s up to about 20 a month. But I always have room for more.”
16 ENERGY PIPELINE OCTOBER 2014
- SUE EATMON, Eatmon’s Mobile Drug Testing
said of the testing. The mobile drug testing company can do instant urinalysis (UA), DNA, Department of Transportation, pre-employment, postaccidents, hair follicle and random drug testing. The UA tests are the only tests that come
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OCTOBER 2014 ENERGY PIPELINE 17
Sue Eatmon poses with her daughter and employee, Brittney Nielson, in front of one of Eatmon’s Mobile Drug Testing’s defining cars. Both women have an “alien” green Kia Soul marked with the business’s sign. The Souls act as a mobile office, equipment closet, constant advertising and, of course, transportation for Eatmon’s Mobile Drug Testing.
Photo by: Bridgett Weaver • bweaver@greeleytribune.com
Eatmon is also certified to do training for drug testing. “I can train people to do this testing at their own companies,” she said. Like any new business owner, she said she hopes Eatmon Mobile Drug Testing will continue its swift growth. “I want people to recognize that I’m here,” she said. “I do a lot of work when I’m at a stop light because of my sign,” she said in reference to the logo on her car. “When I first started out it was only a couple here or there,” she said. “Now it’s up to about 20 a month. But I always have room for more.” Eatmon hopes to soon add another tester and car. She hopes by the middle of 2015 she will have five fleet cars. “The goal is to have a fleet of cars and an office,” she said.
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Grand Junction Durango Milliken Denver Headquarters 2340 I-70 Frontage Rd. 39 Kay Cee Ln. 2600 Center Dr. 5000 Vasquez Blvd. 18 ENERGY PIPELINE 2014 Grand Junction, COOCTOBER 81505 Durango, CO 81301 Milliken, CO 80543 Denver, CO 80216
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OCTOBER 2014 ENERGY PIPELINE 19
CRUDE OIL PRODUCTION PUTTING PRESSURE ON TAKEAWAY INFRASTRUCTURE BY TRACY HUME • FOR ENERGY PIPELINE
The DJ Basin’s recent oil production boom has just one hitch: a shortage of takeaway capacity. The unprecedented increase in crude oil production is straining the capacity of the DJ Basin’s midstream infrastructure and threatens to outpace the capacity of the transport methods - primarily pipelines and railways available for carrying the crude to refineries for processing or on to distant markets. According to Bentek Energy, an energy market analytics company headquartered in Denver, crude oil production in the DJ Basin averaged 150,000 barrels per day (b/d) in 2013. Bentek is forecasting that number will increase by 300,000 b/d to 450,000 b/d by 2019. According to Ryan Smith, senior energy analyst at Bentek, “DJ Basin crude oil production is expected to remain mostly pipeline-constrained through the next five years.” The shortage of takeaway capacity means that producers (shippers) sometimes squabble over access to that capacity. One such dispute happened this summer, as White Cliffs Pipeline prepared to double its pipeline capacity out of the DJ. White Cliffs Pipeline is the only pipeline that moves crude oil directly out of the DJ Basin and on to Cushing, Okla., a major hub for connecting crude oil supply with Gulf Coast refineries. The White Cliffs Pipeline includes two, 12-inch, common carrier pipelines that originate in Platteville and continue for 526 20 ENERGY PIPELINE OCTOBER 2014
miles to in Cushing. In 2008, when White Cliffs’ first pipeline was constructed, it had an initial design capacity of approximately 30,000 barrels of crude oil per day, according to Kiley Roberson, media relations and communications analyst for SemGroup Corporation, whose limited partnership, Rose Rock Midstream, operates White Cliffs Pipeline.
White Cliffs Pipeline is the only pipeline that moves crude oil directly out of the DJ Basin and on to Cushing, Okla., a major hub for connecting oil supply with Gulf Coast refineries. As crude oil production in the DJ slowly increased, White Cliffs incrementally increased the capacity of its pipeline to 55,000 b/d by adding pump stations. By 2012, oil production had increased enough that White Cliffs was considering twinning the pipeline, that is, building a second pipeline alongside the original one. White Cliffs held a binding open season to
determine shipper interest in an expansion of pipeline capacity. A binding open season provides an opportunity for shippers to support pipeline expansion by making binding volume commitments to ship on the expanded pipeline. At that time, White Cliffs obtained sufficient volume commitments to allow it to move forward with the pipeline expansion, although it did not receive commitments for all of the anticipated available capacity. Fast forward a year and a half to this spring: the second pipeline was nearly complete. On May 9, 2014, White Cliffs filed a “Petition for Declaratory Order” with the Federal Energy Regulatory Commission so that service on the new pipeline could begin Aug. 1. Not so fast, said Noble Energy Inc. and Kerr McGee Oil and Gas Onshore. Although Noble and Kerr McGee agreed with the need for the pipeline expansion, they disagreed with the way the expanded capacity was allocated. After White Cliffs’ open season ended in October 2012, White Cliffs made agreements with additional shippers, including Bonanza Creek Energy Inc., for the unused expansion capacity. In a filing with FERC, Kerr McGee argued that by making additional agreements after the open season had ended, “White Cliffs failed to comply with its own open season procedure
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SOURCE // Bentek Energy
and commission policy.” Kerr McGee further argued that “market conditions have changed since the 2012 open season” and “White Cliffs cannot rely on the 2012 bids to determine whether shippers are interested in surplus expansion capacity.” Indeed, market conditions had changed significantly in the two years between the close of the original open season in 2012, and the date the expansion pipeline was to go into service in 2014. Data provided by the Colorado Oil and Gas Conservation Commission show that in 2012, applications for permits to drill horizontally numbered 1,190. By the 2013, the number of applications for permits to drill horizontally nearly doubled to 2,261. “It’s about production growth,” said Smith. “Five years ago, production was flat to declining in Colorado. But with all the additions of horizontal drilling and other technological advancements, in drilling the Niobrara formation, that has really changed the production dynamic. They have recently really cracked the code in horizontal drilling around here, and that has resulted in the boom in oil production.” FERC agreed with Noble and Kerr McGee’s arguments. On July 15, 2014, FERC ruled that White Cliffs should conduct a new open season to allocate the expansion capacity, and that any agreements White Cliffs made for expansion capacity after the original open season ended were void.
22 ENERGY PIPELINE OCTOBER 2014
The FERC ruling was a topic of conversation in Bonanza Creek’s second quarter earnings call on Aug. 8. In the call, Bill Cassidy, executive vice president and CFO for Bonanza Creek, said about the ruling, “it was really unprecedented. We hadn’t seen that happen before.” Cassidy also indicated at that time that Bonanza would be participating in the White Cliff’s new open season. “Obviously there will be bunch of other operators going in there,” Cassidy said. “Not sure we will get the volumes that we had agreed on before our agreement was nullified by FERC. But we will get after that in the open season and then look at some other options as well.” Among those other options are a project called the DJ Lateral, being built by Kinder Morgan Pony Express Pipeline LLC (Pony Express). The DJ Lateral will offer a way for production from the DJ to connect to Kinder Morgan’s existing pipeline which runs from Guernsey, Wyo., to Kansas, and eventually on to Cushing. In early September, Rimrock Midstream, LLC, and NGL Energy Partners also announced a joint venture crude oil pipeline originating in Weld County and terminating in Cushing. Initial capacity of the new pipeline, called the Grand Mesa Pipeline Project, is expected to exceed 130,000 b/d. Meanwhile, the White Cliffs expansion
project was completed in July and placed into commercial service in August, according to SemGroup’s Roberson. Per FERC’s direction, White Cliffs conducted a second open season, which closed Sept. 5. The second open season was conducted specifically to seek long-term binding volume commitments for 40,000 bpd of priority service on the recently expanded pipeline. White Cliffs conducted a simultaneous open season to gauge interest in a new pipeline project. According to the announcement, “This new pipeline would possibly have multiple origin points in the DJ Basin and handle multiple grade of crude oil.” The nonbinding open season “affords all prospective shippers an opportunity to quantify their interest in a new pipeline and to indicate a preference for origin point.” According to Smith, Bentek definitely sees an opportunity for additional pipeline capacity out of the DJ. Although some producers are turning to rail transportation to move crude, “we think that producers would generally rather ship their barrels in a pipeline than pay more for rail transportation,” Smith said. “The main takeaway is that there is probably room for another pipeline project if White Cliffs wanted to expand or Pony Express or somebody new wanted to come in and build a pipeline,” Bentek’s Smith said, “There is probably still room to build more than 100,000 barrels a day of pipeline capacity.”
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MIDYEAR PRODUCTION SOURCE // Colorado Oil and Gas Conservation Commission
BY SHARON DUNN • SDUNN@ENERGYPIPELINE.COM
Though full half-year numbers aren’t fully in, Weld County’s oil production is about 20 percent higher than it was last year, and it shows all the signs of continuing to grow. According to numbers from the Colorado Oil and Gas Conservation Commission, total crude production across the state of which Weld County is responsible for about 80 percent and growing - is edging along the side of meeting last year’s record production. But analysts believe crude oil coming out of the Denver-Julesburg basin will continue to topple historic flows and even double in the next five years. “I would be utterly shocked if this year’s production was not substantially ahead 24 ENERGY PIPELINE OCTOBER 2014
of last year’s record,” said Pete Stark, vice president, Industry Relations for IHS in Englewood, a global consulting firm. “That’s just my gut feel. And any of the operators would tell you” the same. So far, the numbers are showing, at least through May, that Weld’s crude production is about 20 percent higher than it was at the same time last year. Preliminary production shows that through May, Weld produced 22.89 million barriers of oil, compared to 19.29 million last year at the same time. Last year, the state hit an all-time production record of 64.4 million barrels of oil for the year, shattering the previous high of 58.6 million set in 1956. In 2013, Weld County crude production had swelled about 40 percent from the previous year.
Production numbers for this year continue to trickle into the COGCC for June and July, but each month this year has surpassed last year at the same time by close to 1 million barrels. Natural gas production is running about 5 percent behind the same time last year, but analysts say that is likely because of an infrastructure shortage. Companies are working to pipe gas out of Weld as fast as possible, but pipeline capacity isn’t quite there yet. More pipelines are being built to handle the increasing demand, but when the takeaway system is constrained, operators either must slow down production or practice flaring, essentially watching profits go up in smoke. At present, about 200,000 barrels of oil
“I would be utterly shocked if this year’s production was not substantially ahead of last year’s record.” - PETE STARK, V.P. Industry Relations for IHS
equivalent a day are coming out of the Wattenberg Field. Some say by 2019, that number will surpass 500,000 barrels of oil equivalent per day, about half of what the Bakken in North Dakota is producing today. The Bakken ramped up just as fast, if not faster, than the DJ, analysts say, where operators are tapping tight shales, and using methods that are taking form here. “If you look at what’s happening other plays, and what producers are doing now, (500,000) seems ambitious, but in the context of shale plays, if you look at the ramp up in production historically, and see when producers unlock the basin, it’s not a trajectory that’s not all that shocking,” said Adam Bedard, a longtime Denver crude market analyst. Bedard said all he has to do is look at rig counts to see what he believes will be another record-setting year. The horizontal rig count grew from 10 in February 2012 to 55 today, Bedard said. “If you look at new well starts, there’s about 120 new wells being drilled a month in Weld County,” Bedard said. And companies aren’t slowing down, or spending less. Operators are hot on drilling in Weld County because the rate of returns are much better than areas where production is much higher, said Ryan Smith, a senior energy analyst with Bentek Energy in Denver. “What we’re seeing is the returns are phenomenal in the DJ,” Smith said. “It’s one of the highest rates of return plays in the country. It’s up there with economics in the Bakken and Eagle Ford. The DJ is interesting because the cost to drill a well here is much cheaper, mainly because it’s shallower and they’re not drilling as long of laterals as they are in other plays. The DJ is not getting high oil rates, but costs are cheaper here than other plays.” A growing concern, however, is the pressure on infrastructure, Bedard said, which could slow production numbers. “The pipelines and rail lines are getting full and unable to move the crude out of the basin,” Bedard said. If operators can’t move their product, they may have to slow down until that capacity is here, or find a more expensive way to move it, such as trucking.
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“You end up trucking it out of the basin, that tends to be the shock absorber there,” Bedard said. The Pony Express pipeline is set to come on line next year, allowing about 90,000 barrels a day of Wattenberg production to move to Cushing, Okla., where oil is processed and shipped to market. The White Cliff’s pipeline, is at capacity, prompting the operators to gauge the field’s tolerance for a potential new line, Bedard said. Bedard has started his own midstream company to take advantage of the basin’s growing needs to move crude. “What you see is production grows, infrastructures catches up, and there’s excess capacity, then production grows again,” Bedard said. “It’s this cycle. But I see things opening up quite well in 2015... In late ‘14 and early ‘15, we’ll have the Pony Express, then have relief, then it gets tight again. ... You have these fits and spurts where supply leads capacity and they flip flop. At some point it gets figured out.” Smith said the only caution he sees
coming out of the DJ would be in the condensate market. Condensate is an extremely light crude - lighter than the sweet crude that operators in the DJ are used to seeing - that’s growing in abundance in some fields, and in quantities that haven’t been seen historically. When refined it creates a different product, and one that is not as high in demand as those refined from heavier crudes, Smith said. Some reports show that condensate is often used to lighten or dilute heavier crude that are so heavy they cannot be transported via pipelines. U.S refineries, such as the Suncor refinery in Commerce City, are set up to handle the heavier crudes, Smith said. Someareas,suchastheEagleFordandmore and more in the DJ, already are producing larger quantities of the condensates, Smith said. “If we do see an oversupply of condensate in the U.S. market and there isn’t a place to go, that would effectively cause it to be discounted,” Smiths said. “That could be a problem that would slow producers down.
“It’s not a huge issue here,” Smith said. “Maybe 5 to 10 percent production is condensate here, and in the Eagle Ford, it’s close to 50 percent. That could be a red flag for a slow down here.” Policymakers in Washington, D.C., however, made some moves to open up condensate markets overseas, according to the Wall Street Journal. In June, the U.S. Department of Commerce, WSJ reports, granted two Texas energy companies permission to sell condensate abroad, opening up a potential new market. Smith said Bentek is forecasting oil prices to remain stable, keeping the market strong. “Our forecast is for oil to stay around $80-$90 a barrel for the next fives years,” Smith said. Bedard added: “This has been one of the longest sustained booms. It probably doesn’t have the staying power of the natural gas phenomenon. The natural gas reserves that have been unlocked are massive. The oil is 30 new years of supply and gas is 100. That’s how I’d put it.”
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‘GREATEST GENERATION’ TAUGHT US TO LEAD BY SERVING OTHERS BY RICK POWERS • FOR ENERGY PIPELINE
Punting with a purpose. You may wonder why I am talking about punting, and what does that have to do with the oil and gas industry? Sit down, strap in, and hold on for a few paragraphs. Those of us old enough to remember 8-tracks, rabbit-ear TV antennas, wood-paneled station wagons and rotary phones are also familiar with the term, The Greatest Generation. Journalist Tom Brokaw coined this phrase to describe the generation that grew up in the U.S. during the Great Depression, and then went on to fight in World War II. During that time, our country rallied together as a unified front not only overseas in combat but also by being the most productive nation on the home front, making a decisive material contribution to the war effort. These men and women worked and fought with all they had, not for fame or glory, but because it was the “right thing to do.” For many of us, these iconic Americans were our grandparents and great-grandparents, and they fostered the world’s most prosperous society. But, that was then, and this is now. I’ve had a lot of talks with operators in the field over the last 12 months, and a recurring question has been posed to me many times: “Where has the work ethic gone?” One operator went so far as to as, “What happened to just shut up and do your job?” This made me ask myself
the same thing. How would the Greatest Generation view my work efforts and my productivity? Are they smiling with pride at me, or are they turning over in their graves? Am I striving for personal recognition or
we will see that come to an end. This would mean fewer reasons for our brave men and women in the military to be sent overseas to fight and die in wars around foreign oil fields. It all depends on men and women like us, working together, striving for something bigger than ourselves. I’ve been guilty recently of pushing too hard, and not always for the big-picture reasons. Like the famous Denver Broncos punter John McCormick, I’m dropping back and punting - not to forfeit, but to help my team score a touchdown on the next drive and win the game. With this in mind, I am challenging myself to “walk the walk,” and ensure that I am not caught up in the tunnel vision of personal glory and recognition. My goal is to lead by serving others, and I am proud to be working hand in glove with you all. We’ve proven already that we can energize and sustain this region during a recession, all while being good stewards of the environment and leading the way in safety. May we all one day be viewed favorably in history as the generation who helped the oil and gas industry turn a corner, and led this nation to freedom from foreign energy. ‘Merica!
These men and women worked and fought with all they had, not for fame or glory, but because it was the “right thing to do.”
28 ENERGY PIPELINE OCTOBER 2014
fighting for the greater good? These are questions that can make us immediately defensive. But, they are worth asking because I believe that we here in this basin have a similar level of responsibility as our elders. Every MCF of natural gas and barrel of oil we bring out of the ground has not only an intrinsic profit value, but also a big picture value regarding our nation’s future and the world stage. We have a greater, collective responsibility as a whole, not for dollar signs, but for energy independence. Daily, we chip away at our nation’s need for foreign oil, and I believe in our lifetime,
Rick Powers is a field training specialist for Noble Energy Inc. He works out of the Greeley Field Office.
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USE OF DIESEL FUEL IN FRACKING STOPPED IN 2012 IN COLORADO BY ALLISON DYER BLUEMEL • FOR ENERGY PIPELINE
In a study of hydraulic fracturing fluids used in wells across the United States, an environmental organization reported in August it found evidence of illegal use of diesel fuels use by oil and gas companies throughout the country, including Colorado. But operators and officials in Colorado say the EIP jumped the gun in its assumptions of illegal activity in wells drilled between 2010 and July 2014. While diesel fuels in various forms were initially used in hydraulic fracturing when the process was being developed, Colorado operators no longer use it in fracking operations, officials say. The study stated that companies had been using loopholes in the reporting system to avoid reporting the full list of chemicals involved in their compounds. But, as with many claims against the oil and gas industry these days, there’s more to the story. Matt Lepore, executive director of the Colorado Oil and Gas Conservation Commission, said diesel fuels are regulated under the Environmental Protection Agency’s Safe Drinking Water Act. The EPA relies on states, such as Colorado, to enforce its rules. But in the case of using 30 ENERGY PIPELINE OCTOBER 2014
diesel fuel, even though the statute implies a permit is necessary, the EPA never put any rules in place about what kind of permit to issue. The EPA finally came out with rules in February, he said. “Most of what was reported by this group was big news in 2011,” said Lepore, who was with the Colorado Attorney General’s office then, when Congresswoman Diana Degette asked for an investigation into the use of diesel fuels in fracking. At that time, Lepore said, “diesel” had not been fully defined, and there were no permit guidelines to follow. “There was a period of time, maybe in the mid-1990s, when fracking was still being developed. Water wasn’t the first thing they tried,” Lepore said. “But after some period of time and trying different things, it turned out that water was the most effective thing to use.” In the past, diesel was used as part of the additive to the sand-water mix in the fracking process. Sand and water make up approximately 99.5 percent of what is injected into the well with a mix composed of 12 or 13 additives making up the other 0.5 percent, said Doug Flanders, director of policy and external affairs for the Colorado Oil and Gas Association, an industry lobby
in Denver. “Some are anti-corrosive. Each one has a different purpose and each has a reason to be in there,” Flanders said. Diesel was commonly used as an emulsifier as a way to stabilize the mixture of two substances that would normally separate, said Doug Hock, media relations manager for Encana Services Co. “Other types of gel material or ‘slick water fracs,’ that are primarily comprised of water, are now used instead,” Hock said. Additionally, Flanders said that while the overall study spanned four years, none of the Colorado well operations cited were post2012 and that all uses took place before the EPA issued the draft of its guidance on the use of diesel fuel. “Basically they’re saying, ‘You guys did something wrong’ before it was actually wrong. To retroactively punish these companies is misleading,” he said. Flanders said that the state of Colorado has some of the best rules and regulations regarding downhole activities and permitting in the country. “There is very little that is not permitted within the whole system of the (Colorado) Oil and Gas (Conservation) Commission,”
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he said. Following the release of the study, the COGCC distributed a list of the five compounds identified and prohibited without proper permit as diesel fuel by the EPA, including kerosene. “When an operator does not follow COGCC rules, they are subject to potential enforcement and penalties,” COGCC spokesman Todd Hartman said. The environmental study was based on information submitted to FracFocus, a fracking chemical disclosure registry, and EPA public records, according to EIP. All companies are required to list the chemicals they use on FracFocus. If they make changes to the registry they must provide 48 hours advance notice and complete and post to the registry within 60 days, Flanders said. “You may not have to (identify) the concentration and how you mix it, but you have to (identify) your ingredients,” he said. In addition to listing the chemicals used, companies must receive permission from the state from the beginning of exploring a potential site in order to show were they plan to go with each well, he said. Flanders said that while the industry often receives criticisms over trade secrets, the ability for companies to withhold the exact concentrations of compounds allows for more innovation through competition. “It’s a business competition issue. As technology improves, they start looking at different mixes with fewer chemicals. We wouldn’t be getting the newest and greenest solutions,” he said. To ensure environmental and health safety, multiple companies operating in Colorado, including Anadarko Petroleum Corporation and Encana, screen chemical compounds to ensure the absence of diesel fuels in their operations. Anadarko, which was listed in the study as having five wells injected with diesel, monitors the list of chemicals in all products from its contractors to ensure that all Rocky Mountain operations are completely diesel free, said Anadarko Completions Manager Mike Eberhard. “We have long since not used diesel in our operations,” said Robin Olsen, Anadarko’s external relations manager for the Rockies management area. Following the release of EIP study, Anadarko sent letters to all contractors it works with to reassert its zero-tolerance policy
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for the use of diesel in the products it buys, Eberhard said. “We’re not trying to circumvent rules and regulations,” he said. To screen out diesel from their products, Encana set up its Responsible Products Program in 2010 before fully implementing the program in 2012 after a pilot period, Hock said. The company uses an assessment tool that classifies products in terms of toxicity through ongoing quarterly audits using criteria from government databases and information from Environment Canada, the European Union, the U.S. Environmental Protection Agency and the American
Conference of Governmental Industrial Hygienists, he said. “The three categories are based on the assessment tool and whether or not a product was found to contain substances that match one or more of the criteria for environmental hazard or human health hazard,” Hock said. Products are broken up into categories based on whether they contain anything that could cause an environmental hazard, a human health hazard or if the product is not found to contain anything that would cause either, he said. “That’s why we do quarterly audits. It’s not something you can set in place and leave
forever,” Hock said. The program also includes measures in place for safe handling of chemicals involved, he said. While the company had used diesel in the past prior to 2012, Hock said concern from stakeholders and residents near the company’s wells prompted them to discontinue the use of the diesel and use other gel material in its place. Flanders said that he thinks it’s important for the public to remember that while fracking is used in 95 percent of wells in Colorado, the process is one part of a much larger operation in the state. “You have to have hydraulic fracturing to have production in this state,” he said. Additionally, Flanders said the regulations in place for the oil and gas industry in Colorado have been lauded for their transparency and efficiency. “The rules and regulations in Colorado truly are a model for other states and even other countries,” Flanders said. Representatives from Noble Energy and PDC Energy did not return calls for this story.
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38 ENERGY PIPELINE OCTOBER 2014
BY SHARON DUNN • SDUNN@ENERGYPIPELINE.COM
OCTOBER 2014 ENERGY PIPELINE 39
IN 1969, SCIENTISTS WERE LOOKING FOR A PEACEFUL WAY TO USE NUCLEAR WEAPONS.
Drilling for oil has changed from ancient spring-pole methods to cable too rigs, above, to the modern day drilling rigs. This photo was likely taken around the turn of the century. Photo courtesy of American Oil and Gas Historical Society.
Applying them in the oil and gas fields of Colorado seemed an ideal way to get to the fuels buried deep below the surface. Project Rulison was born on the Western Slope, with a 40-kiloton nuclear test project. There, they had the idea of using the bomb to unleash the natural gas below. It worked, but a hefty dose of lingering radiation contaminated the gas, and cleanup continued until 1998. Though that experiment was a “fail,” oil and gas phenoms are continually coming up with ways to meet new oilfield demands in an a more environmentally friendly way. Look no further than the drilling rig. Digging deep into the earth for the liquid du jour has catapulted from the ancient Chinese spring pole, to the cable rig with chisels drilling for brine, to today’s hybrid technology that creates a smoother, more energy efficient engine to drill tens of thousands of feet below the earth. “The average person doesn’t realize the rocket science behind it,” said Bruce Wells, a former energy reporter who started the American Oil and Gas Historical Society in Washington, D.C. “It’s amazing how ingenuity kicks in.” Drilling innovation got its start before oil
and gas were “anything more than flammable curiosities found seeping from the ground,” Wells reports in his paper, “Making Hole,” which details the history of drilling for oil and gas. Wells marvels at the discoveries, dating back to when a bent tree would provide the power to punch a hole in the ground to drill for brine water. The evolution began in 1802, when brothers David and Joseph Ruffner drilled 58 feet, much of it through bedrock, using a spring pole to find brine water, which was used for salt as a preservative for foods. They dropped a heavy chisel repeatedly into the ground and baled out the fluids with a bucket. “The irony is they they’d drill for brine wells so they could dry it out for sale, and they would curse when they found oil,” Wells said. “It ruined their salt wells.” Cable-tool drilling introduced the wooden derrick, along with steam power to make drilling more efficient. The real revolutions in early drilling came around just before Henry Ford developed the Model T. In 1900, a company in Corsicana, Texas, developed the hydraulic rotary drilling design, in which mules tied to a turn-table would screw pipe into the ground. Just before 1901, the Spindletop Field in Beaumont, Texas, had a gusher, spewing 150 feet for nine days before it was controlled. The discovery brought 500 businesses and 285 wells drilled in the area within a year. In 1909, Howard Hughes Sr. bought the rights to a new dual cone roller bit that would further revolutionize the industry. Innovations and inventions followed through the years, as the United States developed markets for kerosene, which around the turn of the century, lit street lamps. The invention of the light bulb would create a recession in the industry just before 1880, until modernization
SOURCE // San Joaquin Valley Geology and Rigs International. Years listed are AD.
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Oil wells are drilled in China up to 800 feet deep using bits attached to bamboo poles.
Mining of seep oil in medieval Persia witnessed by Marco Polo on his travels through Baku.
A 58-foot well is drilled using a spring pole in the Kanawha Valley of West Virginia by the brothers David and Joseph Ruffner to produce brine. The well takes 18 months to drill.
First modern oil well is drilled in Asia, on the Aspheron Peninsula north-east of Baku, by Russian engineer F.N. Semyenov.
Distillation of kerosene from oil by Canadian geologist Dr. Abraham Gesner. Kerosene eventually replaces whale oil as the illuminant of choice and creates a new market for crude oil.
Oil from hand-dug pits in California at Los Angeles is distilled to produce lamp oil by General Andreas Pico.
40 ENERGY PIPELINE OCTOBER 2014
Photo by: Joshua Polson • jpolson@greeleytribune.com
of the railroad industry and gas-powered car engines about six years later would again create demand for the fuels. Decades would pass. Problems would be solved, and more issues would come up, as the fuels grew harder and harder to come by. Directional drilling came about in the 1970s; the ‘80s brought more innovations. “They studied lasers for a while,” Wells said. Laser drilling technology, indeed, was studied as a tool for drilling in the 1960s, but it wouldn’t be until 2002 that the applications could be developed out of research from the Colorado School of Mines. Still, though, it’s not used much in the field. None of it was born out of sheer ingenuity; the industry advanced much of the technology through necessity. The latest advances being used in the Wattenberg Field are focusing on safer environments for workers, more energy efficient systems to save on fuel use and emissions, and noise reduction to please the neighbors. Synergy Resources is using three Automated Drilling Rigs in the field today, all which take the heavy work out of the hands of workers, who now control robotic arms to do the heavy lifting. “The old rigs, with the ropes and chains, where you used to have to pull and physically move that pipe, there were lots of places for fingers or hands to get stuck and lots of overhead things swinging,” said Craig Rasmuson, COO of Synergy. “There were multiple head injuries over the years. “You meet some of the old school guys from 20-30 years ago and you shake their hand, a lot of the time they’re missing a finger or two. That’s not the case” with the ADRs, he said. Ensign Energy, which owns the rig and whose employees drill the wells, laud their injury-free
times with signs outside for all to see. “It’s always in the hundreds of days where they haven’t had a reportable incident,” Rasmuson said. “A lot of times, the issues they have are simple falls on an icy location.” An added bonus with the ADRs is they’re natural gas powered, which reduces emissions from the standard diesel engines. That lessens not only emissions, but noise complaints. For a company like Synergy, which tends to drill closer to urban areas, that’s sacred territory. Natural gas-driven rigs became a necessity in the oil fields of Wyoming, Ensign officials explain. There, under emissions scrutiny for the Environmental Protection Agency, the state banned diesel. Rig operators developed the natural gas powered rigs, and many just used their field gas piped in from the wellhead. The necessity of greener engines will grow in North Dakota, by the year 2020, operators have to cut flaring - which NASA reported could be seen from space last year - by 80 percent. But there are disadvantages with running gas powered rigs, explained KL Tipps,
Cliff Roberts walks by the Fort Worth cable tool rig used in the Boulder Field last year in Fort Lupton off of U.S 85 and Weld County Road 20. The Boulder Field was the precursor to the Denver Julesburg Basin. Roberts bought the rig to start an oil and gas museum in Colorado. He’s still working to get the museum off the ground.
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First oil well in United States is drilled 69 feet deep at Titusville, Pa., by Colonel Edwin Drake.
First steam-powered rig in California drills an oil well at Ojai, not far from the Sulphur Mountain seeps.
Electric light bulb invented by Thomas Edison eliminates demand for kerosene, and the oil industry enters a recession.
Oil burners on steam engines in the California oil fields, and later on steam locomotives, create new crude oil markets.
Gasoline-powered autos introduced in Europe by Karl Benz and Wilhelm Daimler create additional markets for California oil. Prior to the automobile, gasoline was a cheap solvent produced as a byproduct of kerosene distillation.
First rotary rig in California reportedly drills a well at Coalinga field, but the hole is so crooked that a cable tool is used to re-drill the well.
OCTOBER 2014 ENERGY PIPELINE 41
Photo by: Joshua Polson • jpolson@greeleytribune.com
A drilling platform and derrick rise up above the door leading to Encana’s Rig 135’s power source, a massive battery, earlier this month in southern Weld County. This rig, like many in Colorado, is using alternative fuel sources to help improve efficiency.
engineering manager for Ensign in Denver. “They’re not good at low power,” he said. “Diesel will start from zero. Natural gas (won’t), and it’s just the nature of the fuel. Bigger engines don’t like light loads.” Natural gas engines don’t generate as much power as a diesel engine, so they have to be bigger to create the necessary horsepower to run the rig and the equipment. “Early in the process we put load banks, which is a means to generate heat and run engines and generators harder, so they don’t black out when you need load,” Tipps said. Think of it in the analogy of a car. If you’re barely moving, but the car is in fourth gear, when you step on the gas, it lurches. If you’re in first gear and step on the gas, it takes off. Load banks are used to keep generators in the right area for when they need to step on the gas and it can take off. Necessity.
But, Ensign officials kept pressing; having load banks to keep the gas engines running was a bit of a waste of fuel. So they developed hybrid technology. “You can replace the load bank with the battery, where instead of wasting energy generating heat, now we’re putting energy into the battery. And when we need it, we can pull energy back out,” Tipps said. The company is now trying out its hybrid rig west of Mead. They tried in Wyoming with success, but drilling up there is different than Colorado. The rig has been running a couple of months, and crews are liking it - though some admit, they are a little intimidated by the new technology. It’s kind of like the first time working on a computer with its unfamiliar bells and whistles. The hybrid rig looks much like any other. The one exception is a large blue metal trailer sitting to the side of the rig. Inside, 134 lithium batteries sit in a cooled enclosure, delivering power when necessary, a process only visible through a computer screen that shows how the battery keeps the engines running efficiently. An onsite electrical engineer from Canada monitors operations as it is still in the research and development mode. “This is still in the infant stages,” said Jim McCathron, vice president of sales and marketing with Ensign. “It’s not a proven technology. We’ve proven it can work. Now we have to prove how well it can work.” McCathron explained the battery pack was a “wild hair” they had seven years ago. They started working with some companies, but the battery packs were cost-prohibitive. “It was a $5 million project and no one wanted to bite off a $5 million project. So we let it sit,” he said. “About two years ago, we got some interest. And suddenly, we got it put together.” Rig operators say they don’t notice much difference in the rig’s operations, until they
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The original patent for the rotary rock bit was issued to Howard Hughes Sr. Walter Benona Sharp worked very closely with Hughes in developing the Rock Bit. The success of this bit led to the founding of the SharpHughes Tool Company.
Two Hughes engineers invented the tricone bit. This bit has three wheels and is still the dominant bit in the market today. The Hughes patent for the tricone bit lasted until 1951, after which time other companies started making similar bits. However, the Hughes’ market share was still 40 percent of the world’s drill bit market in 2000.
Project Gasbuggy attempted to use nuclear weaponry to fracture rock deep below the ground in New Mexico. A 29-kiloton bomb was exploded underground.
Project Rulison tested a 40-kiloton nuclear explosion in Parachute, Colo., to get at the natural gas, refined from the earlier test. It worked, but radiation contaminated the gas.
Project Rio Blanco, was the last of the nuclear-induced tests to hydraulically fracture wells with three 33-kiloton nuclear bombs. In 1977, funding for Project Plowshare (finding peaceable uses for nuclear bombs) dried up for the project.
First horizontal well in Kern County is Texaco Gerard No. 6 in fractured schist at Edison field.
42 ENERGY PIPELINE OCTOBER 2014
Photo by: Joshua Polson • jpolson@greeleytribune.com
have to run on one generator. The battery pack keeps the operations running smooth. No lurching at all. What operators like is how it dovetails with the so-called “social license” of drilling in today’s America, where they must be better stewards of the air, water and land. As drilling moves closer to the urban centers, the need for quieter rigs that use less fuel is growing. Early models have shown the hybrid rigs achieved 25 percent to 35 percent fuel savings over the average well. “We developed this primarily for helping our gas engines perform better,” McCathron said. “If they’re running off a battery pack, they have immediate power. The beauty of it is it will work with diesel. They don’t care whether it’s diesel or not, or if you’re on highline power.” Highline rigs connect directly to the grid. In peak usage times, battery packs could be especially helpful when there are power swings. “This takes the peak out of it,” McCathron said. The future is a continually evolving one, and one that will see a variety of innovation in years to come. Ensign officials would like to put more hybrid rigs out there, and others that run directly off the grid. But economics have to
make sense, too. Until then, the process continues to get upgraded. “Everything is just getting refined better and better,” said Rasmuson of Synergy. “The oldest horizontal well is probably four years old now. Every week I’m hearing something new that’s been tried. They’re not reinventing the wheel, just tweaking things.”
Dave Pauling walks past one of the natural gas generators that powers a drilling rig earlier this month in west Greeley.
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THE WEEK THE WATER WENT WILD BY SHARON DUNN • SDUNN@ENERGYPIPELINE.COM
44 ENERGY PIPELINE OCTOBER 2014
ONE YEAR LATER
Oil and gas companies remember the recovery process after millions of dollars in flood damage
OCTOBER 2014 ENERGY PIPELINE 45
AS THE FLOODWATERS WASHED THROUGH THE RIVERBEDS AND OUTLYING FIELDS OF WELD COUNTY LAST FALL, oil and gas spills were among the least of the energy industry’s worries. What would come after the two-week soak - extensive repair and recovery and a host of public scrutiny - would continue for the next year as a result of four days of flooding on the Poudre, St. Vrain, Big Thompson and South Platte rivers that drenched much of northern Colorado last September. Operators at Anadarko Petroleum, one of the top two drillers in Weld County, had to contend with more than 2,500 tank batteries and about 5,800 wells in the path of raging floodwaters that eventually spilled only a fraction of their contents. In its wake, however, was $12 million in property and structural damage. “We’ve had construction crews out rebuilding facilities, relocating facilities, reclaiming facilities, it’s been a huge workload,” said Korby Bracken, health, safety and environment manager for Anadarko. “It’s still not over. We still have facilities we’re still returning back to service, or plugging and abandoning.” Images of downed tank batteries floating atop the river flooded television, newspapers and social media sites, prompting fears and questions by an increasingly anxious public. State regulators immediately set to work
46 ENERGY PIPELINE OCTOBER 2014
Above: Floodwater penetrated large areas last fall. Here, an Anadarko site is awash with water, as well as a gravel quarry in the background. Right: Anadarko employees used ARGO, an all-terrain vehicle designed to move easily through the water, to get to locations quicker to assess damages to oilfield assets. In this picture, the wellhead is covered by a tree and railroad tie. Anadarko officials reported the well was completely intact due to the barricade around it. Photos for Energy Pipeline/Anadarko Petroleum.
on a “best practices” manifesto for the industry. Suggestions for improvement, and ways to keep oil and gas facilities more intact in the case of another similar emergency, included everything from anchoring tank batteries better to installing metal berms and tanks, or even running equipment parallel to the river, rather than perpendicular. But they remain just suggestions, and no new rules mandating the industry do anything different are on the table for consideration. Some believe no new rules are warranted, as many companies had already operated under such guidelines. Companies like Anadarko and Encana said they had already been using such practices. “I think industry probably looked at this and said, ‘We did OK, but we see ways
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we can do better,’ “ said Matt Lepore, executive director of the Colorado Oil and Gas Conservation Commission, which has spent the last year focusing on some internal changes, such as developing an emergency response plan guaranteeing better communication with local agencies. The biggest takeaway of the event, many said, was that the industry’s approach to “shut in,” or turn producing wells off before the floodwaters reached the oil field. The practice saved the area from more disastrous consequences. “The industry was able to absolutely minimize the potential impact by doing things like shutting in wells ahead of time, demonstrating their own response procedures were effective,” Lepore said. In total, the industry shut off production from 2,640 wells, which avoided uncontrolled releases, and roughly 50,000 gallons of oil and/or production water spilled from storage facilities. State oil and gas regulators inspected 3,524 locations affected by the flood, including 230 suspected spills, from which they found 50. “Of the 50 spills, all 50 have been completely cleaned up now,” Lepore said. “That includes several rounds of environmental sampling to make sure there were no remaining environmental impacts.” Anadarko, which shut in about 672 wells, named a special crew to repair damaged facilities, relocate entire facilities, including underground flow-lines, and plugged and abandoned 12 old “legacy” wells that would have been more expensive to repair than they were worth. For many, it took days, even weeks to get in to survey the damage as roads washed out or were still flooded. Noble Energy shut in a good 650 wells, officials report, well before the water hit flood levels. In the last year, Noble has been working to install sturdier anchoring systems, metal production storage tanks and heavy steel barriers at the wellhead and upstream to deflect future flooding, officials stated. Noble employees have been trained to monitor potential storm surges as well.
Encana had only two spills to report, and experienced minimum problems, reported Doug Hock, community relations manager for Encana. The company is still working to relocate one of its affected sites, which was more affected by heavy rains prior to the flood, he said. “The best practice for us was the automatic shut-in,” Hock said. “That’s what really kept us from having any significant issues. We had 100 percent coverage. It drove home the point that those types of systems are absolutely” vital. Encana’s flood-recovery price tag was about $300,000, Hock said. While this was an extreme instance, Colorado oil and gas companies plan and practice for all kinds of disasters and it showed, said Doug Flanders, director of policy and external affairs for the Colorado Oil and Gas Association. Testing of 29 sites found no oil and gas contaminants in the floodwaters, Flanders said. The event did force companies to sharpen their tools, so to speak, resulting in movement to a more modern world. Anadarko officials plugged and abandoned and relocated older, perhaps less sturdy, well infrastructure. The practice is not as easy as it sounds. They not only plug the well and cap it off, they remove all the infrastructure, above and below ground, and reclaim the land to its previous condition. While some have questioned why oil and gas facilities were ever located in a floodplain, Lepore said it is often a negotiated spot with the surface owner. Renegotiating some spots has been challenging, Bracken said. Flanders said operators evaluate floodplain locations based on a site specific analysis of the flood risks and consultation with local regulations. “Typically, oil and natural gas operators work to avoid putting wellheads, production facilities, access roads and disposal wells in floodplain areas,” Flanders said. “However, at times, circumstances may necessitate locating surface facilities within the floodplain. When it can’t be avoided, best management practices can be employed to ensure responsible and safe development of oil and natural gas within a floodplain.” This particular flood, however, shocked everyone with its extensive reach. Anadarko fared well, Bracken said, never losing equipment from its sites. “We saw unprecedented flooding, I don’t think anyone could have imagined the amount of water and flood damage we’ve seen,” Bracken said. “On some of those facilities, we had those best management practices in place from the get go - anchoring, metal berms around facilities, and protected wellheads, to name a few. “Those facilities were very robust in terms of the guarding around the well heads, and the way storage tanks were tied down,” Bracken said. “Or the way they were built. Even then, when you have that much silt running down rivers, and vehicles running down. ... It’s kinda hard to plan for a Lincoln to pass through our facility.”
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News Briefs Noble works 15-year deal to sell gas in Jordan Noble Energy Inc. has signed a letter of intent to supply 1.6 trillion cubic feet of natural gas over 15 years to the National Electric Power Company Ltd. of Jordan from its Leviathan field in offshore Israel. Sales volumes under the agreement are anticipated to begin at a rate of 300 million cubic feet per day, according to a news release. Once the company builds the pipeline infrastructure, it reports it will begin delivery of natural gas at a border location between Israel and Jordan. The deal is expected to be complete this year, and is subject to regulatory approvals in Israel and Jordan. The parties are working in coordination with, and the support of, the U.S. Department of State, the release stated. “We look forward to working with NEPCO and supporting economic prosperity across the region through development of these world-class energy resources,” said Keith Elliott, Noble Energy’s senior vice president, Eastern Mediterranean. “As we continue to mature the technical design of the project, we are making good progress on the marketing side. We now have over 60 percent of Leviathan’s initial capacity and 80 percent of targeted initial sales volumes secured with LOIs.” Noble Energy operates Leviathan with a 39.66 percent working interest. Other interest owners are Delek Drilling with 22.67 percent, Avner Oil Exploration with 22.67 percent, and Ratio Oil Exploration (1992) Limited Partnership with the remaining 15 percent. The Leviathan field has an estimated 22 Tcf of discovered natural gas resources, the release stated. Noble Energy has core operations onshore in the U.S., primarily in the DJ Basin and Marcellus Shale, in the deepwater Gulf of Mexico, offshore Eastern Mediterranean, and offshore West Africa. - Staff Reports 50 ENERGY PIPELINE OCTOBER 2014
Halliburton reaches settlement on Gulf spill claims Halliburton will pay approximately $1.1 billion to settle claims related to the massive Gulf of Mexico oil spill in April 2010, the company reported in a news release. The settlement, which includes legal fees, is subject to approval by the U.S. District Court for the Eastern District of Louisiana, and will be paid into a trust until all appeals have been resolved in three installments over the next two years, the release stated. The company’s previously accrued loss contingency provision relating to the multidistrict litigation proceedings is currently $1.3 billion, the release stated. The agreement includes the following: • Claims against Halliburton that BP assigned to the settlement class in BP’s April 2012 settlement. • Punitive damages claims against Halliburton by a class of plaintiffs who allege
damages to property or associated with the commercial fishing industry arising from the Deepwater Horizon Incident. • And affirmation that Halliburton has no liability for compensatory damages to the members of the settlement class in the BP April 2012 settlement. Payments will be held in the trust, pending the finalization of this settlement, which is contingent on final court approval. Additionally, the settlement is subject to an agreed-upon level of participation by the current claimants which, if not achieved, allows Halliburton to terminate the agreement, the release stated. - Staff Reports
Noble sees success in Gulf of Mexico venture Noble Energy Inc. in late August announced successful drilling results in its Katmai exploration well and the Dantzler appraisal well in the deepwater Gulf of Mexico.
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LLC) with 35 percent and W&T Energy VI, LLC (a wholly owned subsidiary of W&T Offshore Inc.) with 20 percent.
with two other oil and gas exploration companies to drill wells and develop acreage.
- Staff Reports
The partnership agreement, with Kodiak Petroleum and Johnson Production Corp., both Colorado companies, is for 10 wells to be drilled across 8,011 acres in western Nebraska, according to a news release from Synergy Resources.
Synergy signs joint agreement to develop Nebraska play Platteville-based Synergy Resources Corporation is finally jumping into some exploration opportunities in western Nebraska. The company will partner
The company plans to spend $10 million in the next fiscal year, which began Sept. 1, on its Nebraska drilling, a fraction of its overall capital spending budget. Overall,
the company plans to spend from $200 million to $225 million on its drilling program, 89 percent of which will be spent in the Wattenberg Field, which encompasses most of Weld County. “We are anxious to begin the development of our Nebraska assets with this agreement with JPC,” said Ed Holloway, Synergy’s co-CEO, in a news release. “We have been closely monitoring the increasing success by other operators in this area and believe this is an opportune time to begin deploying drilling capital to these assets. This
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is a conventional, shallow oil play with low drilling and completion costs for vertical wells. “It is the first step in the long-term plan for the development of these assets,” Holloway said in the release. “We have an additional 36,000 net acres surrounding the contract area with JPC in Dundy County, and approximately another 130,000 acres in nearby counties in Nebraska. ... We plan on submitting for permits and begin drilling the first well in the next few months.”
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According to a company presentation, the company could be sitting atop 40,000 to 50,000 barrels of oil equivalent (oil, natural gas and natural gas liquids) per well in its Nebraska leasehold. Synergy has been focused on the Wattenberg since its inception in 2008. The company has amassed more than 53,000 acres from which to drill in northern Colorado, and it added a third rig to its drilling program this month. Synergy’s core area of operations is in the DenverJulesburg Basin, which
encompasses Colorado, Wyoming, Kansas and Nebraska. - Staff Reports
Carrizo Oil and Gas announces executive retirement Carrizo Oil and Gas Inc. has announced that Paul Boling, vice president, CFO, secretary, and treasurer, retired as of Aug. 11. He will stay on a consultant to ensure a smooth transition of responsibilities, according to a news release.
Carrizo named David Pitts, the company’s vice president and chief accounting officer, as its new CFO and treasurer in addition to his current positions. “Paul has been with Carrizo for over 11 years. In that time he has contributed significantly to the growth of the company from one with a market cap of less than $80 million to one with a market cap of more than $2.7 billion today,” said S.P. “Chip” Johnson, Carrizo’s president and CEO in the release. “Paul’s accomplishments and integral contribution to the company’s success are too numerous to mention,
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but included raising over $2.5 billion in senior notes, borrowing base and equity during his tenure. Carrizo is grateful that he will stay on to assist in the transition.” “David has been with Carrizo since 2010 and has been a key part of the company’s senior financial leadership. We have every confidence in David and expect the transition to be seamless.”
“The growth outlook for liquid fuels use will be largely driven by demand in the developing world, especially in Asia and the Middle East,” said EIA Administrator Adam Sieminski in a news release. “Those two regions combined account for 85 percent of the total increase in liquid fuels used worldwide over that period.”
Carrizo Oil and Gas Inc. is a Houston-based energy company with drilling and exploration operations in the Eagle Ford Shale in South Texas, the Utica Shale in Ohio, the Niobrara formation in Colorado, and the Marcellus Shale in Pennsylvania.
The changes in the overall market environment have led EIA to reassess its outlook for long-term global liquid fuels markets in IEO2014, an abbreviated edition of the report that focuses on world liquid fuels markets. A full edition of the report that includes projections of supply and demand for all energy sources will be released in 2015.
- Staff Reports
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World liquid fuels use projected to rise 38 percent by 2040 Global consumption of petroleum and other liquid fuels are expected to increase 38 percent by 2040, according to a report by the U.S. Energy Information Administration.
Some key IEO2014 findings: • World liquid fuels use is projected to grow to 119 MMbbl/d in 2040 from 87 million barrels per day (MMbbl/d) in 2010. The potential for growth in demand for liquid fuels is focused on the emerging economies of China, India and the Middle East, while liquid fuels demand in the
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United States, Europe, and other regions with well-established oil markets seems to have peaked. After a long period of sustained high oil prices, efficiency and fuel switching have reduced or slowed the growth of liquid fuels use among mature oil-consuming countries. Developing Asian countries (including China and India) account for 72 percent of the world increase in liquid fuels consumption, with Middle East consumers accounting for another 13 percent.
Potential new supplies of oil from tight and shale resources have raised optimism for large, new sources of global liquid supplies to meet growing demand, the release stated. The IEO2014 incorporates larger new supplies of tight oil from the United States and Canada. Other countries, including Mexico, Russia, Argentina, and China, also will begin producing substantial volumes of tight oil between now and 2040, the report stated.
Other IEO2014 highlights: • Brent crude oil spot prices are expected to increase, even with supply disruptions in north Africa and the Middle East. Increasing supplies from the United States and Canada have offset those disruptions, which will help move up crude prices. IEO2014 anticipates oil reaching $141 a barrel by 2040, up from the $100 to $115 per barrel range seen in the last two years.
Rising prices for liquid fuels improve the cost competitiveness of other fuels, leading many users of liquid fuels outside the transportation and industrial sectors to switch to other sources of energy when possible, the release stated. The transportation and industrial sectors account for 92 percent of global liquid fuels demand in 2040. Consumption of liquid fuels in the other sectors (residential, commercial, and electric power) decreases over the projection period, the report stated.
- Staff Reports
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Short-term Energy Outlook Gasoline prices set to fall
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Driven in large part by falling crude oil prices, U.S. regular gasoline retail prices fell to an average of $3.49/per gallon in August, 12 cents below the July average and 21 cents below the average in June. U.S. regular gasoline retail prices are projected to continue to decline to an average of $3.18/gal in December, 12 cents lower than previously projected. EIA expects U.S. regular gasoline retail prices, which averaged $3.51/ gal in 2013, to average $3.46/gal in 2014 and $3.41/ gal in 2015, 4 cents lower and 6 cents lower than last month’s short-term energy outlook, respectively.
Crude prices to rise North Sea Brent crude oil spot price fell to an average of $102 per barrel (bbl) in August, $5/bbl lower than the July average and $10/bbl below the average in June. For the first time in 14 months, average Brent spot prices fell outside the relatively narrow $5/bbl range between $107/bbl and $112/bbl. Brent crude oil prices are expected to average $103/bbl in fourthquarter 2014 and $103/bbl in 2015, lower than previously forecasted. The WTI discount to Brent, which averaged $11/bbl in 2013, is expected to average $8/bbl in both 2014 and 2015.
Crude production could hit 40-year record Total U.S. crude oil production averaged an estimated 8.6 million barrels per day (bbl/d) in August, the highest monthly production since July 1986. Total crude oil production, which averaged 7.5 million bbl/d in 2013, is expected to average 9.5 million bbl/d in 2015, 0.2 million bbl/d higher than projected in last month’s STEO. If that happens, the 2015
forecast would be the highest annual average crude oil production since 1970.
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The share of total U.S. petroleum and other liquids consumption met by net imports fell from 60 percent in 2005 to an average of 32 percent in 2013. EIA expects the net import share to decline to 21 percent in 2015, which would be the lowest level since 1968.
Natural gas to see slight rise Natural gas spot prices fell 15 percent from an average of $4.59/million British thermal units (MMBtu) in June to $3.91/MMBtu in August even as natural gas stock builds continued to outpace historical norms. EIA expects that the Henry Hub natural gas spot price, which averaged $3.73 per MMBtu in 2013, will average $4.46/MMBtu in 2014 and $3.87/MMBtu in 2015. SOURCE: Energy Information Administration, Short Term Energy Outlook, September 9, 2014
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A natural gas refueling station years in the planning and months in the building still isn’t ready for use, but that didn’t stop officials from Noble Energy and the Valley Re-1 School District from conducting a ribbon-cutting ceremony Monday in Gilcrest. “I didn’t prepare any written comments, so I’m just going to start off by saying, ‘Woo-hoo!’” Weld County Commissioner Barbara Kirkmeyer said. “Natural gas, it’s affordable, it’s abundant, it’s Weld County, it’s American.” The event took place just outside the school district’s bus barn, 50 yards west of the district’s administration building on Weld County Road 42, just west of U.S. 85. Five shiny yellow natural-gas powered buses, each a year old, dotted the parking lot. Budget cuts for the school district, which serves Gilcrest, Platteville and LaSalle, had kept the district from buying new buses for nearly five years before a partnership with Noble Energy helped the district buy five
last year. The district received a grant of $600,000 from the Department of Local Affairs for the natural gas station. Noble contributed another $875,833 for the station and the
Weld County Commissioner Barbara Kirkmeyer called the buses “The Hulk,” because “They’re green on the inside.” bus maintenance barn. Members of each organization were present, as well as Valley Re-1 Superintendent Jo Barbie, who said without the partnership, none of this would have been possible.
The district’s natural gas buses had been fueling up in Fort Lupton and Kersey, two of the now four refueling stations along U.S. 85. The buses won’t be able to use the ceremoniously opened refueling station in Gilcrest until early October. Kirkmeyer called the buses “The Hulk,” because “They’re green on the inside.” No word on whether we won’t like the buses when they’re angry. The district, though, stands to see plenty of green. The Valley Re-1 School District stands to save $100,000 per year when all 12 of the district’s buses are running on natural gas, Barbie said. The district’s partnership with Noble Energy means the district pays wholesale price for the fuel. The public is also welcome to use the station, which takes credit cards at the pump. The public will pay market price. Silvers said it was hard to compare natural gas prices to regular gasoline or diesel because there’s not a big futures OCTOBER 2014 ENERGY PIPELINE 59
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60 ENERGY PIPELINE OCTOBER 2014
Photo by: Tyler Silvy • tsilvy@greeleytribune.com
market for it. Natural gas also comes by the cubic foot instead of the gallon. Noble Energy first announced its $5 million commitment to Weld County school districts and government entities about five years ago. That commitment has seen Weld County government convert about 50 vehicles to natural gas. Noble Energy has 100 vehicles that now run on natural gas. Noble has also helped other school districts, including Greeley-Evans School District 6, purchase new natural gas buses or retrofit old buses to run on natural gas. Ted Brown, a senior vice president for Noble, called natural gas a common-sense choice for the school district thanks to lower cost and reduced emissions. “As natural gas production continues to grow across our country, and across our state, our goal is to work hard so that all of Colorado will continue to reap the benefits of getting the energy that we need, the economy that we want and the environment that we value,” Brown said. Tyler Silvy covers education for The Greeley Tribune. Reach him at tsilvy@greeleytribune.com. Connect with him at Facebook.com/TylerSilvy or @TylerSilvy on Twitter.
Valley Re-1 School District Superintendent Jo Barbie, center with giant scissors, prepares to cut a ribbon Monday to ceremoniously open a natural gas refueling station on Weld County Road 42 in Gilcrest.
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62 ENERGY by: PIPELINE OCTOBER 2014
WELD’S GDP GROWTH 2ND BEST IN THE NATION BY SHARON DUNN • SDUNN@ENERGYPIPELINE.COM
Weld County’s economic growth has surged to No. 2 in the nation, with output growing 10 percent last year, according to the U.S. Bureau of Economic Analysis. More commonly known as gross domestic product, Weld County’s output was one of the few in the nation that rose to the top of the growth scales last year. And it’s all a result of the boom in oil and gas drilling. Mount Vernon-Anacortes, Wash., another oil rich area, came in at No.1 in the nation with growth of 10.6 percent. “In a historical context, it’s a pretty remarkable number,” said Martin Shields, an economics professor at Colorado State University, of Weld’s growth. “Not many places grow that quickly over time, smaller places tend to grow faster. ... It’s still quite uncommon, and the driver, the story, is oil and gas.” Overall, the national GDP increased in 292 of the country’s 381 metropolitan areas in 2013, the BEA reported. The growth was led by an upswing in finance, insurance, real estate, nondurable-goods manufacturing and professional and business service, the
BEA reported. Weld County’s GDP was $7.3 billion in 2008, and has grown steadily to $8.59 billion in 2013, according to the BEA numbers. The county grew 10.1 percent from 2012, putting the county at No. 2 across
2008
$7.3
BILLION
2013
and gas drilling, but it also was fueled in part by construction, which contributed 1.33 percentage points of the growth; and trade, which grew by .87 of a percentage point. The BEA did not release how much the oil and gas industry contributed, through categories such as mining and transportation and utilities contributed to the growth, because it would reveal confidential information. Shields said he’d like to see a little more diversity in Weld’s economy, which is predominantly oil and gas and agriculture. “These two very traditional industries, which are historically volatile, are essentially driving the economy,” Shields said. “There are very few times in U.S. economic history where sectors just continue to grow forever.” The only industries that fell in Weld were durable goods manufacturing, information and the category of education services, health care and social assistance. Durable goods, long-lasting goods such as what comes from Vestas in Windsor or Harsh in Eaton, actually fell .45 percentage points; education and health fell .27 percentage
$8.6
BILLION
the nation for GDP growth. Weld GDP grew 17.7 percent since the onset of the recession in 2008, according to the BEA numbers. In overall GDP, Weld County ranks 197th in the nation. Weld’s growth was chiefly a result of oil
OCTOBER 2014 ENERGY PIPELINE 63
“Not many places grow that quickly over time, smaller places tend to grow faster... It’s still quite uncommon, and the driver, the story, is oil and gas.” - MARTIN SHIELDS, Economics Professor at Colorado State University
points, and information fell .10 percentage points, the BEA stated. Non-durable goods, such as food and dairy, grew .45 percentage points. Professional and business services grew .82 percentage points. Fort Collins-Loveland’s GDP grew as well over the year to $12.5 billion last year, a 2.9 percent increase, putting its growth at No. 101 in the nation. Denver grew 4.3 percent to $166.15 billion, placing it at No. 47 in the nation.
Shields said the economy in Weld is helped by the interplay between Weld and Denver, and the surrounding areas. If a particular industry was hurt in Weld, workers could still find opportunities elsewhere. He said the state, however, has not recovered as a whole. Colorado Springs and Grand Junction economies are still sputtering along. “Most of the recovery in the state has
been concentrated from Denver north,’ Shields said, referring to pulling out of the recession. “None of the rest of the state has really seen the bounce back that northern Front Range has.” Colorado Springs’ and Grand Junction MSA’s GDP actually fell, -0.2 percent and -0.9 percent, respectively, in 2013. Boulder grew 3.2 percent and Pueblo grew 0.4 percent.
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MAKING HOLE
A LOOK BACK AT THE ORIGINS OF OIL & 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. BIRTH OF THE OIL INDUSTRY The modern U.S. petroleum industry began in a woodland valley along a creek in remote northwestern Pennsylvania. On Aug. 27, 1859, Edwin L. Drake found oil in Venango County after drilling with cable-tools powered by steam. He borrowed a common water pump from a kitchen in nearby Titusville. Although others had found oil before, usually using “spring poles” for drilling brine wells, Drake specifically drilled to get commercial amounts of oil. His well produced 25 barrels a day from 69.5 feet deep. In the 1840s, Samuel Kier of Pittsburgh bottled and sold oil found at brine wells as “Kier’s Petroleum or Rock Oil,” a curative for aches and pains. An entrepreneur, his interest in oil would grow. Drake’s backers at the Seneca Oil Company of New Haven, Conn., wanted oil so it could be refined into a new lamp oil in high demand - kerosene. Canadian chemist Abraham Gesner had invented a process to distill coal into “coal oil,” which he officially named kerosene in 1853. It was soon found that kerosene also could be distilled from oil. Drilling at Oil Creek, Drake, a former railroad conductor, pioneered new drilling technologies, including a method of driving an iron pipe down to protect the well bore’s integrity. But after five months of financial setbacks and drilling problems, many began calling the attempt “Drake’s Folly.” To improve his reputation,
Connecticut investors addressed their letters to him “Colonel” Edwin Drake. After the percussion drill bit dropped into a crevice on that fateful summer day in 1859, Drake’s driller, “Uncle Billy” Smith noticed oil floating at the top of the pipe. Drake pumped oil from what became known as the Venango sand and shipped it down the Alleghany River to Pittsburgh. His first customer, Samuel Kier, paid $20 for each barrel delivered to a new refinery for making kerosene. Today, the Drake Well Museum in Titusville includes a replica of Drake’s wooden cable-tool derrick. Tourists view “The Valley that Changed the World,” a 2009 documentary produced for 150th anniversary of his discovery.
HUGHES SR. PATENTS DRILL BIT
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.
Fishtail bits became obsolete in 1909 when Howard Hughes Sr. of Houston introduced the twocone roller bit. Biographers of Hughes, who received his U.S. patent for the roller bit on Aug. 10, note that Hughes earlier had a chance meeting with inventor Granville A. Humason in a Shreveport bar. By the end of the evening, Humason had sold the rights to a roller bit consisting of two interlocking cones. The University of Texas Center for American History collection includes a 1951 recording of Humason’s recollections of that chance meeting. He recalls that he sold the rights for $150 - and OCTOBER 2014 ENERGY PIPELINE 67
spent $50 of his sale proceeds at the bar during the balance of the evening. After receiving his U.S. patent on Aug. 10, 1909, Hughes and business associate Walter Sharp established the Sharp-aHughes Tool Company to manufacture and market the two-cone roller bit. The company licensed its new technology, which penetrated hard rock at much greater speeds than previous bits. Howard Hughes Jr. assumed control of Hughes Tool Company following his father’s death in 1924. Hughes’ engineers invented the tri-cone bit in 1933. Frank and George Christensen developed the earliest diamond bit in 1941. The tungsten carbide tooth came into use in the early 1950s. In 2009, the American Society of Mechanical Engineers designated the Hughes two-cone drill bit as a Historic Mechanical Engineering Landmark.
The Hughes two-cone drill bit revolutionized rotary drilling. Image for Energy Pipeline.
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Family Owned and Operated Charlie, Becky and Troy Phagan 68 ENERGY PIPELINE OCTOBER 2014
Phone: 970-351-8603 Fax: 970-353-3066 E-mail: info@crptruck.com www.crptruck.com
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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 GAS PRODUCTION
2014 DRILLING PERMITS
COUNTY *YTDPRODUCTION (% OF STATE) Garfield ................289,854,735 (40.9%) La Plata................153,551,021 (21.7%) Weld ....................128,760,140 (18.2%) Las Animas...............38,795,230 (5.4%) Rio Blanco................41,148,002 (5.8%) Mesa ........................17,592,600 (2.5%) State ................................. 709,009,662 Source: Colorado Oil and Gas Conservation Commission as of Sept. 10; figures do not include complete June or July production numbers.
(thousand barrels per day) Region ..........Sept. 2014 ..............Oct. 2014 Bakken..............1,152 ................. 1,179 Eagle Ford .........1,551 ................. 1,582 Haynesville .............56 .......................56 Marcellus ...............51 .......................52 Niobrara ...............356 .................... 362 Permian ............1,718 ................. 1,757 Utica......................40 .......................43 Total..................4,924 ................. 5,031 Source: Energy Information Administration, Sept. 8
(million cubic feet per day) Region ..........Sept. 2014 ..............Oct. 2014 Bakken..............1,390 ................. 1,418 Eagle Ford .........6,823 ................. 6,920 Haynesville ........6,728 ................. 6,757 Marcellus ........15,842 ............... 16,064 Niobrara ............4,573 ................. 4,624 Permian ............5,709 ................. 5,776 Utica.................1,385 ................. 1,462 Total................42,450 ............... 43,021 Source: Energy Information Administration, Sept. 8.
COLORADO ACTIVE WELL COUNT 70 ENERGY PIPELINE OCTOBER 2014
NO. (% OF STATE TOTAL)
Weld.......................................................................................1,400 (52.5%) Garfield..............................................................................726 (27.5%) Rio Blanco...............................................74 (2.89%) Lincoln....................................................................92 (3.5%) La Plata.........................................................45 (1.7%) Yuma.....................................................39 Moffat........................................................44 Mesa...................................................40
NATIONAL OIL PRODUCTION
NATIONAL GAS PRODUCTION
COUNTY
Adams............................................21 Arapahoe........................................21
2014 OIL
PRODUCTION
Montezuma...............................18
COUNTY *YTD
Cheyenne.....................................20
Weld ..............24,438,086 (81%) Rio Blanco .....2,084,096 (6.9%) Garfield ...........899,161 (2.98%) Cheyenne........567,845 (1.88%) Lincoln ............583,969 (1.94%) Moffat..............191,887 (0.64%) State......................... 30,169,231
Gunnison..............................16 Jackson.............................13 Morgan.........................6 Larimer....................4 State ........................................................2,639 Source: Colorado Oil and Gas Conservation Commission as of Sept. 2.
COLORADO DRILLING RIG COUNT Colorado ................................. 74 Weld ...................................... 51 Garlfield ................................. 10
PRODUCTION (% OF STATE)
Source: Colorado Oil and Gas Conservation Commission as of Sep. 10; figures do not include complete June or July production numbers.
Source: Colorado Oil and Gas Conservation Commission as of Sept. 2.
Weld..........................................................................21,597 Garfield .....................................................................10,796 Yuma...........................................................................3,901 LaPlata .......................................................................3,338
Las Animas .................................................................3,047 Rio Blanco ..................................................................2,912 36 others ....................................................................6,965 State .........................................................................52,556
Source: Colorado Oil and Gas Conservation Commission as of Sept. 2.
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8127 W. Interstate 25 Frontage Road • Frederick, CO 80516 Rental/Sales (303)485-5600 • Email Address: irs@interstaterental.net Gary Jenson/Sales (970)689-1956 • Alan Fisher/Shop&Service (303)956-0768 ENERGY PIPELINE OCTOBER 2014