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JUNE 2016 ENERGY PIPELINE 3
Features 8
TRUTH IN THE NUMBERS
Greeley real estate numbers show no decline in drilling boom. By Sharon Dunn
10
“POWERING FORWARD”
New book offers energy insights from Colorado’s 41st governor. By Killi Heitstuman-Tomko
12
LETTER OF THE LAW Colorado Supreme Court strikes down local fracking ban. By Sharon Dunn
14
PLAYING IT SAFE
Weld County’s largest oil, gas producers sell off pieces to protect the whole. By Sharon Dunn
ON THE COVER Design by Darin Bliss
24 PUSHING THE LIMIT
Companies increasingly up their game in well length, productivity. By Dan Larson
4 ENERGY PIPELINE JUNE 2016
Departments 16
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JUNE 2016 ENERGY PIPELINE 7
Oil and gas storage tanks sit near a residence off of 4th Street in Greeley on Monday afternoon in Greeley. Data from real estate research has shown that oil and gas facilities near homes do not significantly affect real estate values. Photo by Eliott Foust/efoust@greeleytribune.com.
TRUTH IN THE NUMBERS Greeley real estate numbers show no decline in drilling boom BY SHARON DUNN • SDUNN@ENERGYPIPELINE.COM days after the Greeley City Council
approved a controversial drilling project near a west Greeley neighborhood, two houses went up for sale on Nelly Morales’ block in the Mountain Vista subdivision. Morales, who represented about 100 surrounding residents against the Triple Creek drilling project, figured it was likely residents were choosing to leave before the drilling took place. Many, after the project approval in March, worried their homes would lose value because of the intense oil and gas presence represented by the project. “They happen to be along the stretch where their homes would be a lot closer to that proposed site,” Morales said of the homes that immediately listed for sale. “Based on when this first came up, a lot of the first questions and concerns were about property values because a lot of people in our area are retired. And for people like me, young families, it’s our investment, a home we want to stay in for as long as we can, and perhaps make a profit on it.” 8 ENERGY PIPELINE JUNE 2016
WELD COUNTY WILL BE REAPPRASIED NEXT YEAR... PRELIMINARY NUMBERS SHOW HOUSING VALUES WILL GO UP 20% TO 25% ACROSS THE COUNTY Based on a five-year look at median housing prices, homes in Mountain Vista increased to $415,000 last year - a 49 percent jump from 2010 when the drilling boom started. Median housing prices represent the exact mid-level of selling prices in a given area; half are below, half are above the median price.
As of mid-April, there were five homes for sale in Mountain Vista, four of which had been sitting on the market for less than a month at prices ranging $409,000 to $525,000. Three had offers. While many new commercial or industrial development projects tend to evoke resident fears of reduced property values, the concerns about oil and gas don’t seem to be founded - at least in the long run. “We have looked over the years, because that issue has come up,” said Chris Woodruff, assessor for Weld County. “We have had questions from other counties where drilling was just getting started, and we can’t find it in the marketplace. Oil and gas has been here for such a long time, I think it’s settled in the market. We can’t find an adjustment because you have an oil and gas facility nearby. We just don’t see it.” Weld County will be reappraised next year, and Woodruff said preliminary numbers show housing values will go up 20 percent to 25 percent across the county.
But there is some effect when it comes to drilling wells in an urban neighborhood. A 2015 study by Colorado State University researchers did show a slight effect during the drilling process. The study, published in Society & Natural Resources, an international journal, looked at 4,000 instances in Weld. The study, conducted by graduate teaching assistant Ashley Bennett and professor John Loomis, showed drilling had a relatively low economic impact on rural housing values, and less than a 1 percent decrease in housing price per well being drilled within a half-mile of at the time of sale in urban areas. “Once the well moves out of active drilling and into becoming a producing well, all our models show there is no statistically significant negative effect on house prices,” the study stated. Ballotpedia, a political group, published a study recently that showed seven counties in Colorado showed “no definitive evidence that fracking negatively or positively impacted 2015 home values and previous home sales.” The study revealed some homes closer to oil and gas development in some cases had higher sales prices and values than homes without.
“There are so many different things that affect home values, you just can’t pin it on any one factor,” said Kayla Harris, Ballotpedia energy and environmental policy project director who authored the study. “They say there are lot of single-issue voters, but there are lot of different things to take into account.” In Weld, Harris said, there were 26,000 homes within 1,000 feet of oil and gas. Woodruff said he hasn’t figured any one specific thing that can drive home prices down, but living near a landfill has certainly been up there. The CSU study also revealed a downward trend due to housing proximity to feedlots. Harris concluded given the amount of drilling in Weld, most people are used to its presence. Out by the Triple Creek site in west Greeley, there were nine existing oil and gas wells dotting the landscape and already in production - the drilling is over, and the petroleum quietly fills up a tank on site. Few people notice. The Triple Creek project would add another 22 in a centralized area, a focal point off several residents’ back decks.
IS SAFETY YOUR #1
“If it’s one at a time, OK there’s one over there, and one over there. It’s not like 22 tanks,” said Margie Lewis, Morales’ neighbor in Mountain Vista off 20th Street and 71st Avenue, who hopes to sell some day. “I do have a pit in my stomach, I don’t know how much we’ll lose. We’ll surely lose something, because who wants to see that?” Lewis took a drive one recent night, reporting nine total for-sale signs in her immediate area. Chalice Springfield, managing partner with Sears Real Estate, 2021 Clubhouse Drive in Greeley, said she’s seen no evidence of people shying away from properties because of oil and gas in the areas, tanks and all. “We’re just not seeing anything,” Springfield said. “We could look at specific subdivisions and see if they dipped, but I’d bet $100 that none of them have. Partially, it’s because of the market. We’re not seeing any areas where we’re feeling like it’s depressed for any reason.” Springfield looked at seven subdivisions throughout Greeley and found median housing prices hadn’t dipped in one of them from 2010, the start of the drilling boom, to 2015. The lowest growth percentage was 18 percent; the highest, 76 percent.
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JUNE 2016 ENERGY PIPELINE 9
“POWERING FORWARD” New book offers energy insights from Colorado’s 41st governor BY KELLI HEITSTUMAN-TOMKO • FOR ENERGY PIPELINE
for the first time in greeley,
local Bill Ritter, Jr. was not always a clean energy revolutionary. In his new book, Powering Forward, Ritter mentions that, while it made his campaign platform, clean energy was not a top priority in his race to be Colorado’s 41st governor. His campaign platform, known as the Colorado Promise, did not even address clean energy until halfway through the platform. Ritter’s constituency, though, had other ideas about where clean energy should fall and facilitated, through a citizen initiative, putting Amendment 37 on the ballot. This amendment demanded that, by 2015, both of Colorado’s investorowned electric utilities generate at least 10 percent of their power through renewable resources. Amendment 37 passed, and clean energy policy began to move its way up Ritter’s priority list. Ritter was elected Nov. 7, 2006, and he took office Jan. 9, 2007. The Renewable Energy Portfolio Standard, or RPS, established by Amendment 37 became the focus of Colorado’s first legislative session under Ritter. By the time he left office in 2011, 57 new laws, including the Renewable Energy Financing Act of 2009, the Clean Air Clean Jobs Act and Energy Transmission Development, were redefining energy policy in Colorado. Clean energy policy also redefined Ritter. Rather than return to law, his career before becoming governor, Ritter kept his focus on clean energy policy, founding the Center for New Energy Economy at Colorado State University, where he continues to work to promote clean energy.
HOW BAD CAN IT BE? The temperature of the Earth has risen .85 degrees Celsius since the Industrial Revolution. Two degrees Celsius seems is the number climate experts hold to be “highly dangerous” to the planet, but officials at the National Oceanic and Atmospheric Administration believe that, even now, some of the impacts of greenhouse gases may not be reversible for a millennia. 10 ENERGY PIPELINE JUNE 2016
Dire predictions on the future of the planet are no longer given with timeframes in several hundred years but perhaps in as early as 2036 at our present emission of greenhouse gases. Scientists point to rising oceans, violent storms and increased incidents of earthquakes and volcanic eruptions as only part of the evidence of the damage we as a people are causing. In 2007, the Intergovernmental Panel on Climate Change stated that the indisputable reality of climate change was caused primarily by the burning of fossil fuels. The Unites States is second only to China in the emission of greenhouse gases, with the two countries together emitting more than 40 percent of greenhouse gases globally. Ritter also states in Powering Forward that we as a society have neglected to consider the true cost of fossil fuels, citing the rise in health problems, air pollution and damage to crops, timber and water supplies as costs alongside production, usage and subsidies.
SOLUTIONS Ritter states early in his book that he believes there is hope - solutions can be found that “transcend partisan politics.” He offers clean energy options that can possibly break down partisan barriers, calling the need to act a moral issue for everyone. “The goals necessary to abate climate change are a science issue,” he wrote in one chapter. “How we achieve those goals is a political issue. None of them should have become a partisan issue.” During his governorship, Ritter courted clean energy alternatives, wooing wind turbine manufacturers to the state and encouraging the use of solar photovoltaic systems. Ritter also believes carbon pricing would be a huge step forward. Among carbon pricing options are carbon trading and a carbon tax, which would encourage a clean energy economy through innovation and the creation of low-carbon alternatives. Ritter told EP that carbon pricing is a must if the nation is to have a clean energy economy, but that it will take more than just the effort of the states. “I think we are best served if (carbon pricing) happens at the national level and is not required to implement state by state by state,” Ritter said. Ritter said he felt a global pricing on carbon would be impossible at this point but mentioned the precedent set by the Paris Climate Agreement that was approved in Paris in December and signed April 22 in New York City.
“That was really a remarkable place in history to have 175 countries agree, and having those countries make those declarations, putting in place their verifications for countries meeting their targets is holding all nations accountable for this agreement,” Ritter said.
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THE IMPACT OF CLEAN ENERGY ON FOSSIL FUELS Early in Powering Forward, Ritter states though he became an advocate for clean energy, he “never undervalued the importance of fossil energy production to Colorado’s economy or to the nation.” For the first time in 20 years, the United States is producing more oil than it is importing, but this sudden oil independence comes on the cusp of a paradigm shift to clean, renewable energy. Ritter explores the futures of both fossil energy and natural gas in separate chapters. “Natural gas is a hydrocarbon but it has real climate benefits if you burn natural gas as opposed to burning coal,” Ritter told EP. “You reduce CO2 by 50 percent. You eliminate all the mercury. Those are really big benefits, but only if you’re sure you’re capturing methane along the value chain of natural gas.” In his book, Ritter calls natural gas a “bridging fuel” carrying us from the use of coal to the use of renewable resources. He said he believe if the fuel is produced responsibly, it can be a valuable part of the “energy mix.” Ritter mentions technology that is being developed to de-carbonize fossil fuels by either capturing CO2 in the smoke stack or sequestering it in the ground. “If we do that effectively, coal and natural gas can both be a part of a clean energy economy for a long time to come,” Ritter said. Petroleum fights a slightly different battle affected by changes in lifestyle. Cars are more fuel-efficient. Millennials are moving to more urban areas, and travel by car is down 7 percent over a 10-year period. Instability in the oil market changes how both investors and consumer spend their money in this area. The Federal Highway Administration has predicted significantly less vehicle travel as compared to the past few decades.
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LEADING THE FIGHT Ritter put Colorado on the front lines of a fight before many in the nation realized there was a fight. And, while Colorado can lead the nation in a clean energy revolution, Ritter believes America should lead the global community. In his book, he writes, “We are among the world’s 10 most innovative nations. We rank first in high tech companies, with nine of the world’s largest. We are the country that invented solar and wind energy technology. Our national laboratories have reduced the cost of wind power by 80 percent, developed power lines that transmit electricity with virtually no energy loss, played a key role in improving batteries, created technology to reduce acid rain, and even demonstrated how 3-D printing can be used to manufacture vehicles.” Ritter goes on to point out that the United States also is responsible for putting more greenhouse gases into the atmosphere in the last 160 years than any other nation, and that it is the second largest source of carbon pollution in the world after China. In the book’s last line, Ritter offers a simple admonishment: “It is neither desirable nor possible for us to stand still, so let us power forward.”
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11
LETTER OF THE LAW Colorado Supreme Court strikes down local fracking bans BY SHARON DUNN • SDUNN@ENERGYPIPELINE.COM
with a dark cloud hanging over the oil
and gas industry, most Many Weld County leaders saw this day coming four years ago. They said Front Range cities’ attempts in 2012 to ban drilling and place moratoriums on hydraulic fracturing would fail because they were contrary to state law - a law defined in Greeley in 1992, when the city of Greeley attempted the same thing. On May 2, the Colorado Supreme Court struck down the attempts by Longmont and Fort Collins to ban or delay fracking in their boundaries, in what is being called a major victory for the oil and gas industry. “What the Supreme Court did in my opinion is uphold the law,” said Weld County Commissioner Sean Conway, who along with the remaining Weld County commissioners have backed oil and gas drilling for years. Weld County produces 90 percent of the state’s crude oil, which contributes mightily to the county’s annual budget. The court ruled that a ban on fracking in Longmont and a five-year moratorium in Fort Collins are invalid because they conflict with state law. State officials and the industry argued the state has the primary authority to regulate energy, not local governments. The courts may not have the final say, however. Fracking critics hope to get at least four measures on the November ballot to amend the state Constitution to restrict the industry or allow local governments to do so. The industry has said it will fight those proposals. The cases before the Supreme Court were an outright ban on fracking approved by Longmont voters in 2012 and the moratorium imposed by Fort Collins voters in 2013. The Colorado Oil and Gas Association sued both cities, and lower courts threw 12 ENERGY PIPELINE JUNE 2016
THE COURT RULED THAT A BAN ON FRACKING IN LONGMONT AND A FIVEYEAR MORATORIUM IN FORT COLLINS ARE INVALID BECAUSE THEY CONFLICT WITH STATE LAW out the ban and moratorium. The cities appealed, and the cases were put on a fast track to the state’s Supreme Court. The law was cemented in Greeley in June 1992 when the Supreme Court ruled against the city of Greeley’s efforts to ban drilling in city limits, stating a city could not prevent companies from accessing their minerals, a private property right. Industry opponents said the ruling struck a blow to local control, but Conway disagreed. “The Supreme Court today did not strike a blow to local control. It said you cannot take someone’s personal property under any circumstances,” Conway said, much like residents can’t take each other’s cars, or a governments can’t take someone’s land. “The Supreme Court struck a great balance today,” he added. “They said no government entity, city council or any other entity should ever be given authority to take someone’s private property rights.” The Colorado Oil and Gas Association “has always maintained that these bans on
responsible oil and gas development are illegal, and we’re pleased that today the Colorado Supreme Court has agreed with us,” said Dan Haley, president of the group. Longmont Mayor Dennis Coombs expressed disappointment in the ruling. But he said the city has other regulations in place, including a ban on drilling in neighborhoods and minimum distances between wells and waterways. Fort Collins officials were reviewing the decision, spokeswoman Emily Wilmsen said. The Boulder commissioners stated they needed to take a close look at their regulations before taking any action to change its stance on fracking in Boulder County. At least three other local governments have imposed a moratorium on fracking or on oil and gas development. Bill Tuthill, attorney for the city and county of Broomfield, said he expects a judge to overturn Broomfield’s moratorium. The oil and gas association also sued Broomfield, and the case was on hold awaiting the Supreme Court ruling. The Colorado decision has no direct effect outside its borders because oil and gas regulation is largely left up to individual states. Fracking, or hydraulic fracturing, has long been a contentious issue in Colorado, the nation’s No. 7 energy-producing state. Fracking injects a high-pressure mix of water, sand and chemicals underground to crack open formations and make it easier to recover oil and gas. Colorado regulators approved new rules earlier this year intended to ease the conflicts by giving local governments the right to consult with energy companies on the location of multiple-well drilling sites and other big facilities.
WHAT THEY’RE SAYING In a statement Colorado Gov. John Hickenlooper said Colorado has come a long way already. “The work of the Task Force amplified the role of local governments in siting large oil and gas facilities and built a stronger connection between state and local regulators,” Hickenlooper stated. “Communities are working more productively with operators, crafting solutions that take into account local concerns while respecting property rights.” Weld commissioners took issue with the latest rules, which they said resulted in the state Oil and Gas Conservation Commission usurping its authority. The new rules, in part, defined large-scale oil and gas facilities by surface size and production scale, that would touch off mandatory discussions between local governments and operators. Commissioners said the rules cut out the surface owner in such discussions. Conway said that state statute gives the COGCC the right to govern the drilling process, or “downhole” activities; local governments control the land use issues. As a result, the commissioners are working to revamp the drilling approval process in Weld to a use-by-special-review process, which further gives the commissioners control over the siting of oil and gas drilling in the county. He said the Supreme Court just reinforced that idea with its May 2 ruling. “This (Supreme Court) decision gives us the ability to solve some of these issues,” he said. “It is very clear this gives us a path forward to work with communities in terms of their land use authority.” The Legislature has mostly stayed out of the issue this year, waiting for the Supreme Court’s decision. - The Associated Press contributed to this story
Here is a compilation of thoughts from leaders interested in the Colorado Supreme Court’s ruling to overturn local fracking bans and moratoriums:
DAN HALEY, Colorado Oil and Gas Association president and CEO: “COGA has always maintained that these bans and moratoriums on responsible oil and gas development are illegal, and we’re pleased that today the Supreme Court of Colorado has agreed with us. This is not just a win for the energy industry but for the people of Colorado who rely on affordable and dependable energy and a strong economy. It sends a strong message to anyone trying to drive this vital industry out of the state that those efforts will not be tolerated. Bans and moratoriums on oil and gas are not a reasonable or responsible way to address local concerns. With this legal battle over, we look forward to working with Longmont, Fort Collins and other local communities to find a balance that allows for responsible oil and gas development while still meeting the needs of local communities under Colorado’s already rigorous regulations.”
BRAD HOLLY, COGA board chairman and Anadarko Petroleum Corp. senior vice president, operations (Rockies): “For COGA, and for the broader oil and natural gas industry, these lawsuits were an unfortunate, but necessary action, as it is imperative for our state’s economy and its citizens that we strongly support the thousands of people we directly and indirectly employ, as well as their families, and the essential energy we responsibly provide. Our state and our business environment thrive when the oil and natural gas industry is allowed to operate and innovate. With this litigation behind us, we’re excited to continue doing what we do best - safely producing the oil and natural gas we all need and working collaboratively and constructively with the state, local governments, and communities to ensure that responsible energy development continues in Colorado.”
STEVE HOUSE, chairman, Colorado Republican Committee: Today’s Colorado Supreme Court decision is an enormous win for individual property rights and responsible resource development in Colorado,” said Colorado GOP Chairman Steve House. “The over 1000 Colorado businesses connected to our energy industry are vital to our economy and our local communities. It is outrageous certain far-left extremists continue to peddle baseless pseudoscience to directly attack the livelihoods of middle class Coloradans. Low cost and cleaner burning natural gas derived from hydraulic fracturing presents Colorado with an incredible economic opportunity. We are pleased the Colorado Supreme Court has affirmed the appropriate role stakeholders and regulators at the Colorado Oil and Gas Conservation Commission should play in ensuring environmentally responsible resource development.”
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PLAYING IT SAFE Weld County’s largest oil, gas producers sell off pieces to protect the whole BY SHARON DUNN • SDUNN@ENERGYPIPELINE.COM
“Do not expect us to increase our capital spending even if oil exceeds $50. We could reallocate money, but we’ll be very patient as we look beyond ‘16 to increase capital and return to growth mode if warranted.” AL WALKER, CEO, Anadarko Petroleum
14 ENERGY PIPELINE JUNE 2016
weld county’s top two oil and gas
drillers may just get a little smaller in scope before the energy industry downturn swings back up. Noble Energy and Anadarko Petroleum, which produce together roughly 357,000 barrels of oil a day equivalent out of Weld, and employ hundreds of workers in the Greeley-Evans area, are weathering continued slumping prices through the first quarter of the year. In earnings calls in May, executives at both companies lauded their company’s continued cost-cutting efforts but said there would be more especially asset sales - to get them through to 2017, when they expect commodity prices to have somewhat stabilized. For the most part, executives report they’re feeling a bit more comfortable, given commodity prices are moving up. In early May, crude had climbed up to the $44 range. While not yet even half its $100 peak in June 2014, prices have slowly been heading up after settling below $40 for the first three months of the year. “It almost goes without saying that things feel better today than they did 90 days ago,” said Al Walker, Anadarko’s CEO in an earnings with analysts. “The fragile energy capital markets we’ve seen for most of the first quarter appear to be stabilizing, the outlook for commodity prices are improving, and I think for the industry, our operating environment is definitely strengthening.” While prices are improving, he said, he’d rather wait it out, given the market volatility. “Any meaningful change could take several months,” he told analysts. Walker, too, said Anadarko would not jump on the production bandwagon if prices hit the $50 mark: “Do not expect us to increase our capital spending even if oil exceeds $50,” he told analysts. “We could reallocate money, but we’ll be very patient as we look beyond ‘16 to increase capital and return to growth mode if warranted.” Walker added that any re-deployment of cash at this point would be toward the Delaware Basin in west Texas.
Dave Stover, CEO of Noble Energy, said as prices move to more comfortable levels - above $50 - he’d consider moving money around. “I think we’d continue to build out our DJ Basin, accelerate some of that inventory, and we’d probably ramp up and accelerate some of the Delaware Basin,” he said. Both companies, however, continue to see mounting losses. Noble reported a net loss of $228 million in the first quarter this year, while Anadarko’s first quarter earnings tumbled just over $1 billion. The companies have been in costcutting mode for almost a year to get to break-even points where they could still make money on falling commodity prices. Much of the cost cutting has involved trimming workers, cutting services costs and finding more efficient ways to drill and produce wells. Both companies tout recordlow drilling prices. They’ve also left many wells undone, meaning they have drilled them but they’re waiting to produce them until prices return to higher levels. Walker reported on Anadarko’s earnings calls that cost-cutting should save the company $350 million a year. Asset sales have become a major player. On May 3, Noble announced it would sell 33,000 net acres (72,000 gross acres) to Synergy Resources Corp., for $505 million effective April 1, following $238 million in asset sales in the first quarter; Anadarko on May 2 promised another $700 million in asset sales in the second quarter, following $1.3 billion in asset sales in the first three months of the year. Stover told analysts Wednesday selling what is called the Greeley Crescent on the western border of their Weld holdings would still keep Noble competitive and make the assets more valuable, given the buyer planned to drill there and Noble retains an interest in the properties. “The Greeley Crescent transaction significantly accelerates values of this acreage for Noble,” Stover said in the earnings call. “We weren’t going to develop it for a while, so it made sense to move forward. The biggest reason we sold that
FIRST QUARTER EARNINGS acreage was we felt someone else could create more value by accelerating (production) than we were going to create, and it increased our value.” Stover said future asset sales would likely be in the company’s Middle Eastern holdings that are more focused on natural gas. “One place we’ll continue looking to monetize is over in Israel,” Stover said. “It could be possible to bring some of our interest down in that areas. Asset sales are helping the companies pay down debt, giving them more cash on hand. That puts them in better positions, they say, to ramp up production when the market turns. Many feel that may not come for a while. “We did retain a decent amount of flexibility in our ability to ramp up activity when prices recover,” said Gary Willingham, Noble’s vice president of operations in Noble’s call. “We’re just running two rigs now (in Weld County), and we have the capacity to handle a bit more when the time is right.”
Noble Energy and Anadarko Petroleum are Weld County’s largest oil and gas producers. Both companies have been in serious cost-cutting mode for several months to weather downturns in commodity pricing. For the first quarter of 2016, while they both continue to face mounting losses, they pointed to some high points in the Denver-Julesburg Basin, from which they drill in Weld. NOBLE ENERGY Reduced well costs to $2.4 million to $2.7 million per well - that’s about half what they were two to three years ago, and down 35 percent from the same time in 2015. Drilled 24 wells (but didn’t complete them to produce), while reducing drilling times down to under six days for standard-length wells. Sales volumes reached 118,000 barrels of oil equivalent (oil, natural gas, liquids) per day, up 2 percent from the same time last year.
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TECH TALK
PORTABLE SAFE ROOM FOR OIL FIELD WORKERS DURING TORNADOES BY GARY BEERS • FOR ENERGY PIPELINE
TORNADOES POSE RISK IN OIL FIELDS
OPTIONS FOR WORK CREWS IN REMOTE AREAS
The major tornado alley in the U.S. extends from the Dakotas south to Texas and crosses several major oil/gas producing basins. Recently, there have been incidents of tornado damage to oil field facilities and field crews.
Fortunately, the work crew at the above remote site near Calumet was lucky and had access to a ‘”safe room” due to the presence of one of the rooms in the drill rig structure. This option is not commonly available to field crews working on temporary projects in remote areas (i.e., pipeline construction, work-over of oil/gas wells, construction of oilfield storage tank area, haul road construction) or living in small man camps. Sheltering-in-place options have evolved over the decades from fixed underground shelters (i.e., root cellars, engineer-designed concrete or steel shelters) to above-ground, engineered, anchored shelters that are designed to withstand EF-5 tornadoes, as well as industrial debris from oilfield structures. In 2008, the National Storm Shelter Association was formed and adopted standards for the best available technology for above-ground storm shelters (Mobile Safe Rooms, O. Scott, Well Servicing Magazine, 2015). Two types of anchoring are the only methods proven to withstand extreme wind forces of a tornado and associated airborne debris.
• Gas drilling rig (Canadian, Texas, May 2015). • Man camp (Watford, North Dakota, May 2014). • Oil storage facilities (Cushing, Oklahoma, May 2013). In another instance, an oil rig (Calumet, Okla.) was demolished by a tornado in May 2011, but there were no injuries to the 12-member field crew and the facility damage was $14 million. The oil company had taken precautions to anchor the rig’s change house to withstand a F5 tornado, at a cost of $500,000. This precaution was taken by the company’s vice president for human resources in response to a tornado-based incident (in 2007) where another oil company’s trailer house was blown away, killing one man and injuring another. In 2012, the company’s drilling superintendent told the IADC Health, Safety, Environment and Training Conference and Exhibition held in Houston, the following: “Twelve men walked into that change house, and twelve men walked out. I’m going to challenge everybody that’s got authority to go out on a limb... and try to make some kind of emergency plan. Get something out there for (your crew). Come up with an idea, because (an emergency) will happen and you can’t say (your plan) won’t work.” (Drilling Contractor, K. Scott, 2012). Further, the superintendent added the precaution was implemented after initial doubts and resistance. 16 ENERGY PIPELINE JUNE 2016
For over 50 years, GARY BEERS, has worked in numerous fields of environmental science as a consultant, regulator and educator. This career included senior management position with major consulting, nonprofit and public organizations. He has founded several successful firms to capture emerging resource management markets. One of his latest ventures, EnviroScienceINFO, provides content for public media.
FIGURE 1
• Gravitational anchoring is realized when a concrete or metal shelter is anchored to the ground with a foundation and associated wire anchors. Since these are permanent shelters, ‘new’ shelters must be constructed for each “move” to the next remote site for protection of the field workers. This is a very expensive approach. • Aerodynamic anchoring is realized when the tornado winds are utilized to hold the shelter in place. Without the need for a foundation, the advantages of this shelter are portability and less expense. Because of this patented, unique design and associated “near absolute” protection level, a description is provided on the next page:
PORTABLE SAFE ROOM The portable safe room comes in two models (reddogshelters.com). The capacity of the smaller unit is 12 people and is trailermounted for transport by a æ-ton truck. The capacity of the larger unit is 32 people and requires a tractor trailer/lowboy for transportation as non-permitted load. Aerodynamic anchoring is based on Bernolulli’s principle for fluid dynamics which
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states that an increase of the speed of air over The safe room can be equipped with many a surface causes a decrease in pressure on that features. The standard features include blastsurface. For example, due to the lift created resistant, air conditioners/heaters, rapid coolby the wing design, a Boeing 747 that weighs down station, retractable desk and benches, 500,000 pounds can take off at about a 150 and an external tornado/ lightning warning mph wind speed. system consisting of external strobes and siren The design of the portable safe room alarm. Popular optional features include (Figure 1) is based on the fact that if low bubble-tight hatch closures with positive pressure created by a wind can be made pressure breathing air supply for noxious to pick an object up, then that same low gas exclusions, television monitors, DVD pressure can be made to push the object players, computer workstation, self-contained down. The safe-room shelter weighs 40,000 diesel generator (eight-day run), first aid pounds, but when a 350 mph wind passes kits, eyewash station, security camera, and over the shelter, the effective shelter weight automatic emergency cardiac defibrillator. is over 115,000 pounds. As a result of this The safe rooms may be acquired as a massive downward force and the unique purchase or through a lease. The large model shelter shape and configuration, the shelter costs about $130,000 while the smaller model is locked to the ground, which keeps it costs about $92,000. Lease arrangements are from being lifted, overturned or otherwise made on a site-by-site basis. being moved by the wind. In fact, the higher the wind speed, the stronger the shelter is anchored to the ground. An EF-5 tornado has winds of up to 250 mph. Since wind forces The portability and relatively low cost of increase geometrically with wind speed, wind these “near absolute protection” safe rooms loads at 350 mph are twice as forceful as those should receive interest for a variety of at 250 mph. Most residential and community other uses for work crews at remote sites. storm shelters are designed for wind speeds Certainly, major construction projects come We have a huge selection of remote control cars of 250 mph. to mind.
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JUNE 2016 ENERGY PIPELINE 17
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PUSHING THE LIMIT
Companies increasingly up their game in well length, productivity BY DAN LARSON • FOR ENERGY PIPELINE
D
rilling an oil well that stretches horizontally two miles from the well pad has become commonplace, but it wasn’t always the development option it is today. A decade and a half ago, oil and natural gas companies began pairing horizontal drilling with multi-stage hydraulic fracturing to unlock new unconventional oil and gas resources, often in the same fields where conventional production was ongoing for decades. In the years since, prolific new plays sprung up in old fields near places like Williston, N.D., LaSalle County, Texas, Washington, Pa., and Greeley. High oil and gas prices and reduced risk roused investors to provide companies with the financial backing to push the accepted limits of horizontal wells and frac stages. While the sustained drop in oil prices has severely reduced activity in all domestic shale plays, the limits continue to be tested. Now, even as companies relentlessly squeeze the last bit of excess from their budgets, implore their workers to do more with less and make sure all hatches are battened down, companies point investors to successful projects involving longer laterals and well completions with more stages and tons of proppant. “When I drilled my first horizontal well 25 years ago, it went out 1,000 feet,” said William Fleckenstein, adjunct professor of Petroleum Engineering at the Colorado School of Mines in Golden. “Everyone thought that was a big deal. Now, companies routinely drill two miles out.”
18 ENERGY PIPELINE JUNE 2016
“The technology is readily available to overcome the challenges drilling horizontally used to present,” he said.
Lateral Success Companies operating in the DJ Basin highlight their success with longer laterals when seeking to build interest with investors or earn approval of the public. At an investor conference in March, Noble Energy, the second largest producer in the DJ Basin, said it had reduced the cost of drilling its long lateral wells by 40 percent and cut well development costs to less than $3 million per well. In 2013, Noble reported it had successfully drilled a lateral well of 9,978 feet, which is 582 feet short of two miles. More recently, Noble reported drilling and completing long lateral wells at its Wells Ranch field east of Greeley for less than $3 million, among the lowest horizontal well development costs in the country. Synergy Resources, long-time operator in the Wattenberg Field, told investors that while some wells were intentionally drilled but not completed, its plans for 2016 and beyond call for drilling longer lateral wells. The company’s drilling plans are “shifting from standard laterals, those of 6,000 feet or less, to mid-length laterals, greater than 6,000 feet, and to long laterals, greater than 9,000 feet,” according to a Synergy report. As part of
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a shift toward longer reach horizontal wells, Synergy’s report refers to extended-reach laterals of greater than 11,000 feet but there were no indications that it plans to drill such wells. Synergy concluded that drilling longer lateral wells produce more oil, provide better returns and faster payout of investments. Anadarko, the largest producer in the DJ Basin, recently reported that its capital budget for 2016 has been reduced by 70 percent from 2015 and investment in the DJ Basin cut by more than half. The company does not disclose a well count for lateral length but indicated it plans to drive down drilling costs for all wells to $2.7 million per well in 4,800 ft. short-lateral equivalent dollars from $3.7 million in 2015. Even with a reduction in drill rigs to one from seven rigs operating in 2015, Anadarko reports production this year will continue at levels slightly above last year. Extraction Oil & Gas described its plans to drill long laterals at recent hearings on its proposal to develop up to 22 wells from its Triple Creek pad in west Greeley. The company’s plan was approved by the Greeley City Council in March. An attorney for Extraction, a privately held company, testified that its plans include drilling horizontal wells up to 2 ½ miles from the well pad. Drilling more expensive long-lateral wells allow for development of minerals while “minimizing impact on the public,” the company representative said.
Drilling Down Companies have shown that drilling horizontal wells further into a formation like the Niobrara or Codell, when completed with modern, multi-stage hydraulic fracture operations (see Energy Pipeline, May 4, 2015), can result in a well that produces more oil, gas and condensate in greater daily volumes than do shorter lateral wells. Why are today’s unconventional plays like the Niobrara able to tap resources that were largely overlooked in the past? Conventional oil production in North Dakota’s Williston Basin, for example, began in earnest in 1951 and eventually peaked 35 years later. Once the two key techniques, horizon-
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Source: Anadarko Petroleum Corp.
tal drilling and fracking, were applied in the Williston’s Bakken and Three Forks formations beginning in 2000, the total amount of oil in the basin that was either already produced or was now accessible increased by more than 29 percent to 3.8 billion barrels, according to the U.S. Geological Survey. For nearly 40 years, conventional production made the Wattenberg Field in the DJ Basin one of the top producers of natural gas in North America. Starting in 1970, companies found success by drilling vertically into the J Sandstone and applying proven fracturing techniques to complete the wells. In the early 1980s, companies, still drilling vertically, found they could fracture the rock in the shallower Codell and Niobrara formations to tap a new source of oil, gas and condensate. Then in 2009, companies across the DJ Basin began applying horizontal drilling technology that allowed the driller to “build” a quarter-circle radius into the path of the well bore. By combining horizontal drilling with hydraulic fracturing, companies found they could tap into oil further out in the Codell and
Niobrara formations and away from the conventional accumulations in hydrocarbon traps. Combining the two keys of horizontal drilling and hydraulic fracturing opened the door to an expansion of development across north central Colorado. Assisting this expansion in a region that was also seeing an influx of new homes, businesses and public facilities, was deployment of new drilling rigs that allowed the company to drill several wells from a single well pad and reduce the number of surface locations in a spacing unit.
Spacing Out In Colorado, a traditional, vertically drilled oil or natural gas field was developed according to spacing units authorized by the Oil and Gas Conservation Commission. Depending on which part of the state or specific field being developed, a spacing unit, also called a drilling unit, would typically start with not more than four wells per 640-acre section, or one per 160acre quarter section.
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In applying for permission to develop all or part of a section of land, an operator files a request of the commission to allow it to form a spacing unit to share the proceeds of development fairly among all mineral owners. A spacing unit might include a single mineral owner or, as often seen with ownership split among family members or sold piecemeal, several owners. In these cases, the spacing unit divides the proceeds, less the costs, of drilling and producing all wells within the unit. In forming a unit, Colorado requires all mineral parcels to be included, or pooled, even if an owner refuses to lease their minerals to an operator. Often referred to as “forced pooling,” this allows all mineral owners to enjoy the benefits of production even if one or more neighbors within the unit choose not to lease. In prolific oil or gas fields, the operator can request the commission allow additional wells to be drilled within the spacing unit to more effectively drain the resource. Any additional production is again divided proportionally among the mineral owners. As a result, productive areas where infill spacing allowed up to one vertical well per 40 acres, or 16 wells within a square mile, were often used to illustrate what some saw as over-development. Such fields were featured in aerial photos as examples in campaigns against new drilling in undeveloped areas.
Drilling Costs The sharp decline in commodity prices for oil had an immediate effect of reducing costs across the board for oil companies and their suppliers. Faced with lower prices, operators cut staff and squeezed oilfield service and supply companies. In turn, the service companies found ways to cut prices through efficiencies, smaller employee rosters and simply getting by with less. Drilling costs however, were already declining before prices started dropping 18 months ago. A new report commissioned by the Energy Information Administration indicates drilling costs peaked in 2012 and have since declined by 25 to 30 percent. The EIA report was compiled by Englewood-based IHS Inc. and released in March. It examines, among others issues, drilling and completion costs over 10 years for the five largest oil and natural gas fields and offshore Gulf JUNE 2016 ENERGY PIPELINE 19
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of Mexico. Neither oil drilling in the Wattenberg field nor gas drilling in the Piceance were included in the study. As development in unconventional plays progressed from 2008, lateral well bores drilled to 2,000 feet or less were steadily extended to 10,000 feet or more. Completions became more complex requiring more pumping horsepower and fracture proppant. Costs followed suit until a peak was reached in 2012 and have been on the decline since. “For now, it seems that about 7,500 feet is the sweet spot for long laterals,” School of Mines’ Fleckenstein said. “The additional costs are incremental but drilling further requires the operator to justify the geology, the spacing unit and rig time.”
Technology Horizontal drilling in formations such as the Niobrara requires degrees of precision unheard of 25 years ago, Fleckenstein observed. Drills that can be “steered” have been in use for decades, he said. However, expensive problems sometimes arose where the drill might reach its target or encounter a geologic anomaly. Now, in addition to steering the drill bit to hit the target formation, the driller is provided with vital data from a mile and a half below the surface about where the drill is, what sort of rock it is encountering and how much pressure is being exerted on the well bore. Guiding a drill bit equipped with self-contained motors and a suite of sensors feeding back a continuous stream of data, the driller is able to hit and stay within the oil-bearing rock. The driller also has access to modern seismic scans and analysis rocks encountered in previously drilled wells. According to one drilling services company, drilling data includes directional surveys, gamma ray measurements, changes in rock hardness, temperature, and pressure on the well bore. Such information “enables the driller to make reliable well bore decisions with less down time.” Such information is vital if the driller expects to stay within a layer of rock that might pinch to less than 20 feet thick and continue within that layer for up to two miles. Even as oilfield service companies have 20 ENERGY PIPELINE JUNE 2016
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“FOR NOW, IT SEEMS THAT ABOUT 7,500 FEET IS THE SWEET SPOT FOR LONG LATERALS.” WILLIAM FLECKENSTEIN adjunct professor of Petroleum Engineering, Colorado School of Mines
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overcomes the weight of the drill string and stops further progress. The pipe and drill must then be “tripped” or removed from the hole. Use of polycrystalline diamond cutter, or PDC, drill bits has helped overcome some of the obstacles of friction in horizontal wells, Fleckenstein said. “PDC bits can drill at lower weights, are not slowed as much by compression and can deliver good rates of penetration.” There are limits to getting the weight needed down to the bit if the path has a lot of bends to it. “It’s like driving down a straight road versus driving with a lot of twists and turns,” he said. “You can’t go as fast. More friction means less weight on the drill.” Fleckenstein noted that use of mechanical spacers or of vibratory tools that increase fluid pressure or create pressure waves within the casing can reduce friction and prevent lock-up.
Far Enough? wrung every possible dollar out of their day rates, time is still money. If something happens, the drilling company has to justify to the operator why the rig was idled. Avoiding unexpected shutdowns is in everyone’s interest. Drilling fluids also have benefited from advancements in technology. Drilling fluids, often referred to as drilling mud, are either water, oil or synthetic based. They have always been used to suspend cuttings, control pressure within the well bore, stabilize exposed rock and provide buoyancy, cooling and lubrication. Fluids today include additives to prevent water in the mud from causing shale to swell and increasing drag on the drill string as well as special lubricants to reduce friction.
Fact and Friction Pushing a drill through layers of rock relies on the weight of the drill string to maintain the force needed to break up the rock. Top-drive drill rigs rotate the drill string while gravity pushes the drill string against the drill bit. Today, most horizontal wells are drilled using mud motors to rotate the drill bit rather than the drill string while gradually turning the drill in the direction needed. As the well bore turns, the drill string bends and where it comes in contact with the well casing, friction increases. Such friction can build to where it
So, what is the limit on horizontal wells? Wells have been drilled to amazing distances. Offshore wells can be drilled in ocean depths of two miles and another four miles into the earth. An onshore record was established in 1998 when BP announced it had drilled an extended reach well of 10.1 kilometers, or 33,136 feet. Extended reach wells are directionally drilled, frequently with more than one bend and aimed at a target reservoir rather than the way a modern horizontal well exposes the producing formation along its length. In 2008, a well drilled for Maersk Oil in Qatar reached a total depth of 40,320 feet with a horizontal reach of 35,770 feet. This was followed last year by a well drilled for the Sakhalin Consortium on the Orlan platform off the eastern coast of Russia. This well was drilled to a total depth of 44,291 feet, with a horizontal reach of 39,478 feet, and is the current record holder for longest horizontal well. Fleckenstein observed that companies are faced with limits other than friction and pressure in designing longer lateral wells. “The landman might have trouble securing leases in such large spacing units. Regulations designed to maintain separation between new wells and existing production might be another obstacle. There are a number of questions that longer laterals can raise for the operator.”
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MAKING HOLE A look back at the origins of oil and gas BY BRUCE WELLS • AMERICAN OIL & GAS HISTORICAL SOCIETY
Discovering Los Angeles oil “everyone thinks of los angeles as the ultimate car city, but the city’s relationship with petroleum products is far more significant than just consumption,” declared the Center for Land Use Interpretation in 2010. “Los Angeles is the most urban oilfield, where the industry operates in cracks, corners, and edges, hidden behind fences, and camouflaged into architecture, pulling oil out from under our feet,” explained the Culver City center’s “Lay of the Land” newsletter. Following the state’s first oil wells in Pico Canyon in 1876, the Los Angeles petroleum history began in 1892 when struggling prospector Edward Doheny and his mining partner Charles Canfield decided to drill a well just north of the city. Doheny picked a site where “tar seeps” of natural asphalt bubbled to the surface. Local lore says he was visiting downtown when he noticed a cart with the black, sticky substance on its wheels. He asked the driver where the cart had come from. Doheny drilled at a site near present-day Dodger Stadium. On April 20, 1892, the exploratory well struck oil and revealed the Los Angeles City oilfield. The well produced about 45 barrels of oil a day from the prolific field, which still produces seeps at the tourist attraction La Brea Tar Pits. Actually composed of asphalt and not tar, the animaltrapping pools were discovered in 1769 by a Spanish explorer. Petroleum seeps would prove common throughout California - onshore and offshore. Doheny’s 1892 oil well set off California’s first major drilling and production boom. Within two years, 80 Los Angeles wells were producing oil and by 1897, more than 500 wells pumped the thick, “black gold.” By 1895, Los Angeles City field produced about 750,000 barrels, more than half of the 1.2 million barrels produced in the entire state of California. In 1925, California supplied half of the world’s oil.
22 ENERGY PIPELINE JUNE 2016
CALIFORNIA OIL QUEEN Like many others, Emma Summers got caught up in the excitement of California’s burgeoning petroleum industry. She soon became a woman to be reckoned with in the rough and tough Los Angeles oil patch. A refined southern lady who graduated from Boston’s New England Conservatory of Music, Summers moved to Los Angeles in 1893 to teach piano. Her home was not far from the historic discovery well completed just the year before. Summers invested $700 for a half interest in a new well just a few blocks from Doheny’s producing well. Her first drilling attempt did not go well. The well casing collapsed and expensive cable-tools were lost, but Summers persevered. She borrowed another $1,800 to continue the well. “Night after night, by the light of a flaring torch, she hovered over it, as if it were a sick babe’s cradle,” reported one witness. Weeks dragged on as her money dwindled, but the well finally came in as a small producer. Encouraged, Summers drilled more wells. “When I found myself $10,000 in debt, I thought if I ever got that paid and as much more in the bank, I would be glad to quit,” she later recalled. But she didn’t quit. Summers became a constant presence in the forest of drilling rigs that had turned the heart of Los Angeles into a “vibrant, oil-soaked little canyon.” The former piano teacher was soon known as the California Oil Queen. Today, the Los Angeles area has produced more than 9 billion barrels of oil. There are still more than 30,000 active wells pumping about 230 million barrels of oil a year.
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.
Disguised oil production continues today in the L.A. oilfield, discovered in 1892 near presentday Dodger Stadium. Photo courtesy the Center for Land Use Interpretation.
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.
2016 DRILLING PERMITS COUNTY
RIG COUNT BY STATE State Colorado Louisiana Oklahoma North Dakota Texas California Alaska Ohio Pennsylvania Wyoming
April avg. 17 47 62 27 196 4 8 11 16 8
Mar. Avg. 17 47 63 27 197 4 8 12 17 9
NO. (% OF STATE TOTAL)
Weld.................................................................................................559 (66%) Garfield............................161 (19%) La Plata..........35 (4.1%)
Feb. Avg. 17 49 67 32 221 7 12 11 18 9
Rio Blanco...22 (2.6%) Adams .......20 (2.4%) Jackson...18 (2.1%) State................360 Source: Colorado Oil and Gas Conservation Commission as of May 1
2016 OIL
PRODUCTION COUNTY *YTD
Source: Baker Hughes Rig Count.
2016 GAS PRODUCTION
COUNTY *YTD PRODUCTION (% OF STATE) Weld............................................. 98,923,056 (35%) Garfield........................................ 84,478,577 (30%) La Plata ....................................54,080,050 (19.1%) Las Animas ................................ 15,726,399 (5.6%) Rio Blanco .................................... 8,842,382 (3.1%) Mesa ............................................. 6,226,299 (2.2%) State......................................................282,325,631
US RIG COUNT
The U.S. rig count peaked at 4,530 in 1981 and bottomed at 488 in 1999. Area April 8 Mar. Avg. Feb. Avg. U.S. 438 479 532 Canada 41 88 211 Source: Baker Hughes Rig Count, April 29.
PRODUCTION (% OF STATE)
Weld 16,968,968 (89.3%) Rio Blanco 712,205 (3.7%) Garfield 244,255 (1.3%) Cheyenne 270,308 (1.4%) Larimer 170,784 (0.8%) Lincoln 125,104 (0.66%) Adams 114,276 (0.6%) State19,008,130
Source: Colorado Oil and Gas Conservation Commission as of May 5.
Source: Colorado Oil and Gas Conservation Commission as of May 5.
COLORADO ACTIVE WELL COUNT
Weld ..........................................................................22,774 Garfield .....................................................................11,075 Yuma ...........................................................................3,878 LaPlata........................................................................3,326
Las Animas .................................................................2,962 Rio Blanco ...................................................................2,898 State .........................................................................53,746 JUNE 2016 ENERGY PIPELINE 23
Source: Colorado Oil and Gas Conservation Commission as of May 1.
TOYOTA SERVICE CENTER QUALITY TOYOTA REPAIR AND OEM PARTS
Whether you purchased your vehicle from us or not, Ehrlich Toyota is your #1 destination for auto service and repair for your vehicle in Northern Colorado, Northeastern Colorado or Southern Wyoming . Our team of specially trained technicians has the know-how and tools at their disposal that enable them to provide quality repairs and maintenance for all of our clients during every visit.
Call or schedule your appointment online today.
ave in Greeley EhrlichToyota.com
970.339.3900 24 ENERGY PIPELINE GREELEY, JUNE 2016
CO
EhrlichToyotaEast.com
ToyotaOfLaramie.com
970.867.1400
307.742.7423
FT MORGAN, CO
LARAMIE, WY