covering the energy industry in the rocky mountain region
Rising rig count, fewer unemployment claims equate to oil and gas industry bounce-back WELD OIL PRODUCTION SLIPS
IMPROVING AIR QUALITY
MAKING HOLE
Weld County oil production fell last year, but volumes should recover this year.
Latest Colorado ozone plan nears finish line
History column recalls the pumpjack capital of Texas
march | vol 4 | issue 2
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COVERING THE ENERGY INDUSTRY IN THE ROCKY MOUNTAIN REGION
Design by Rising rig count, fewer unemployment claims equate to oil and gas industry bounce-back
Liz Banman
Features
PRODUCTION UPDATE
THE STATE OF THE OZONE
LEGISLATIVE OUTLOOK
Rebound predicted for Weld crude oil production
Latest Colorado Ozone Plan nears finish line
Legislative session may be kind oil, gas this year
MARCH | VOL 4 | ISSUE 2
12 The State of the Ozone
15 trending up
Colorado’s rig count steadily increases, signaling an industry turnaround.
8
Production update
Weld County’s oil production fell during the 2016 downturn, but 2017 expected to bring more volumes.
Colorado’s ozone concentrations lower amid higher population and oil and gas activity.
18
Making Hole
Yes, there is a pump jack capital in Texas. Bruce Wells
20
Dan Larson
Tech talk
Oil and gas companies will need to expand pipeline/ inspection monitoring systems. Gary Beers
10
Legislative outlook
Oil and gas issues may take the back seat in Colorado’s legislative session this year. Sharon Dunn
4 ENERGY PIPELINE March 2017
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March 2017 ENERGY PIPELINE 7
Rebound predicted for Weld crude oil production BY Dan Larson • for energy pipeline
The number of barrels of oil produced from wells in Weld County and across the DJ Basin declined last year compared to the 2015 milestone, but the production drop was not steep and has since leveled off, according to recent figures from the state’s database. The forecast for this year indicates that steadying prices and increased efficiencies likely means recovering volumes and increased activity in the coming months, say industry analysts. Among the leading companies in the area, most continue to post strong numbers and indicate continued interest in growth and development. While production here does not face the headwinds some regions are seeing, oil produced from the Niobrara in the DenverJulesburg Basin competes “at a slight disadvantage,” with oil produced elsewhere, said Bernadette Johnson, vice president of market intelligence at Drilling Info, in Littleton. DJ Basin crude oil sells at a discount of $2 to $3 per barrel to benchmark West Texas Intermediate oil from the Permian Basin. “Companies here still need prices to go a bit higher before we will see a significant increase in activity,” she said.
8 ENERGY PIPELINE March 2017
BY THE NUMBERS The Colorado Oil and Gas Conservation Commission reports Weld County still leads the state in oil production by a wide margin. Through the first 10 months of 2016, production in Weld County stood at an average 8.64 million barrels of oil per month. Production from the state’s other 63 counties combined was an average 1.023 barrels per month. Weld County is on track to post another plus-100 million barrels in 2016 to complement its 2015 production milestone, though numbers won’t final for a while, as state database lags a good 45 days to two months. Two years ago, oil production posted an average monthly volume of 9.14 million barrels and 109.7 million barrels for the year. That figure exceeded 2014 annual production of 81.6 million barrels and was a nearly eight-fold increase since 2011. If production figures for November and December remain consistent with the first 10 months’ average, 2016 production in Weld will total approximately 103.7 million barrels. On the downside, Weld’s state-leading production volume comes with front-runner status in both notices of rules violations and reported spills. One of every four violation notices issued by the COGCC last year
went to operators in Weld as well as roughly half the reported spills.
CRUDE DISCOUNTS Much of the oil produced from DJ Basin wells is classified as ultra light crude or condensate. In today’s market, such light crude oil trades at a disadvantage to mid-grade crude such as produced in the Permian. “Refiners want to produce more of what the market demands,” Johnson noted. “These days, distillates are in greater demand than gasoline and lighter crudes tend to produce more gasoline, so DJ crude doesn’t have the same value on the market as WTI.” She added that DJ producers also face space constraints on the pipelines that carry oil to the trading hubs at Cushing, Okla., and the Gulf Coast. Those lines, most of which originate in the Bakken, operate at or near capacity, adding to the cost shippers must pay to reach buyers. Although permission to finish the controversial Dakota Access Pipeline is pending approval, once that line is completed, a significant portion of Bakken oil that now ships on lines traversing Colorado will shift to the DAPL, Johnson observed. “Opening the DAPL will be a gamechanger,” Johnson said. “Bakken crude will compete with WTI to the disadvantage of
DJ crude but producers here will see more space on the lines and lower shipping costs. It is a double-edged sword.”
TOP PRODUCERS Reflective of the overall decline in barrels pumped, the biggest producers in the DJ Basin saw some reduction in volumes in 2016. This year’s list of top five producers includes two new names and two companies dropping off. Leading producer, Anadarko, posted a 10 percent decline in daily volume in the 15 months between May 2015 and September 2016, according to data provided by Drilling Info. In second place, Noble saw its production increase by 10 percent over the same period. PDC Energy moved up to third place, displacing Encana, which exited the DJ Basin and sold its assets to newly formed Crestone Peak Resources. PDC improved its acreage position last summer in a land swap with Noble and continues an active development program in Colorado and Texas. As a result, it expanded both proved reserves and production. The other new name on the list of top five producers is Extraction Oil & Gas. In a year that saw the company issue an Initial Public Offering, Extraction’s DJ production increased to 21,754 barrels per day by September. Rounding out the top five was Bill Barrett Corp. which, according to Drilling Info, posted 11,069 barrels per day of oil production in September.
PROJECTING GROWTH Domestic production is projected to grow 400,000 barrels per day over the next two years, according to a recent report from the U.S. Energy Information Administration. Most of those gains will come from the Permian and Eagle Ford basins in Texas, followed by growing production in Oklahoma and New Mexico. “Our projections see a bit more growth than the EIA forecast,” said Johnson. “However, both the DJ and the Bakken declined sharply in 2016 so they have a ways to come back.” The number of drilling rigs operating is seen as an indicator of growth and activity in the industry. In its weekly “Rig Count,” published Feb. 3, Baker Hughes, an oilfield services company, notes there were 729 rigs running in the US, an increase of 17 from
the prior week and up 158 rigs from a year earlier. In the DJ Basin, the rig count has recovered from the slowdown, though not as dramatically as in the Permian, noted Johnson. “The DJ never shut completely down,” she said. “The trough was 11 rigs last spring and now, it is back to 26 rigs running in Colorado with 21 of those in the DJ.” The DJ rig count peaked at 64 rigs in October, 2014, according to Baker Hughes.
“The DJ and the Bakken declined sharply in 2016 so they have a ways to come back.” Bernadette Johnson, vice president of market intelligence at Drilling Info in Littleton.
FINDING MARKETS The major oil producers and the trading companies they work through were reported in February to be shipping large cargoes of crude to Asia in response to a widening of the price differential between Brent crude and WTI. One report indicated between 700,000 and 900,000 b/d of crude was being shipped to refiners in China, Japan and Singapore.
Much of the crude oil shipments were said to be originating in the Gulf of Mexico and through terminals along the coast. How much more crude oil is being produced around the globe than is currently used is “the biggest question out there,” Johnson said. When OPEC announced last fall that its member countries would cut production, prices rallied from the mid-$40 barrel doldrums, according to market reports. Johnson noted that it remains uncertain whether the cartel can sustain its reduction goal until its next meeting in July. Even with reduced OPEC production, the U.S. is now in a position to become a long-term net exporter of crude oil and refined products. The U.S. is a net importer of crude oil and imports a minimal amount of refined products. Demand for refined products in the US stands at about 13.5 million barrels per day, Johnson said. Domestic refineries produce 16.5 million barrels of gasoline, distillate and other materials. “Refineries in the U.S. can produce more product faster and cheaper than overseas,” Johnson observed. “As a result, we can easily export 3 million barrels per day of products and still have enough to meet domestic demand. This provides an energy security that this country did not have in the past and improves our trade balance.” Regarding prices, Drilling Info projects oil to stay in the low- to mid-$50 range for most of this year, Johnson said. “The market is still at a hair-trigger,” she said. “An unexpected event, a dip in oil storage or a growth in demand could easily push prices up into the $60s. And at that level, you will see an increase in oil field activity.”
DJ Basin Top 5 Producers Company
Oil b/d*
BOE** b/d
Anadarko........................................89,966........................204,169 Noble.............................................72,005........................138,138 PDC Energy.....................................30,390..........................72,456 Extraction.......................................21,754..........................39,755 Bill Barrett......................................11,069..........................16,355 * barrels per day; ** barrels of oil equivalent As of Sept. 1, 2016 Source: Drilling Info March 2017 ENERGY PIPELINE 9
Legislative session may be kind to oil, gas this year By Sharon Dunn • sdunn@energypipeline.com
Industry
legislative session will be a much easier one on oil and gas interests than in past years, mostly because of education.
Rep. Lori Saine Colorado State Representative R-Dacono
Dan Haley
Colorado Oil and Gas Association
Tracee Bentley
Colorado Petroleum Council
10 ENERGY PIPELINE March 2017
watchers think this
After last year’s failed ballot measures to increase oil and gas setbacks and more local control, and the previous two years of rulemaking chock full of industry education for residents, some industry watchers and legislators have come into the 2017 session with a firmer grasp of industry standards and practices. That means fewer bills to consider. “I am more optimistic about this session,” said Tracee Bentley, executive director of the Colorado Petroleum Council in Denver. “Due to the election last year, and the conversations surrounding the ballot initiatives and energy being a pillar of the Colorado economy, a lot of good conversations were had, between myself and members and incoming and existing legislators. “The level of engagement there was great, and it is better than I’ve seen in the past,” Bentley said. “Industry made a cognizant effort to educate more and talk to people before we we’re in crisis mode. We made it a point to be more proactive and to reach out over the past year than perhaps years in past, and we’re going to see that pay off.” So far this session, which began in January, only a handful of bills have been introduced that affect oil and gas, and those include (as of Feb. 10), bills to make it a felony to tamper with oil and gas equipment, require local governments to reimburse companies and land owners for lost money due to bans or moratoriums, and one to allow federal mineral lease districts to invest money from the federal mineral impact fund.
Bentley, however, worries that some late bills may come in to re-ignite the debate about the state’s setback requirements or the push for more local control, both of which have been the source of major contention in Colorado since 2014. It’s been known to happen. “We’ve heard rumblings,” Bentley said. “I think part of what we need to do, and we do this every year, is remind folks that we just redid our setback rules. The process to redo those rules was so thorough, every stakeholder at the table from sportsmen to farmers and ranchers, to homebuilders, developers, oil and gas, it was a very thorough and thoughtfully negotiated set of rules. To undo that if you will over one session is not the most” responsible thing to do. State Rep. Lori Saine, R-Dacono, said the pressure should be off oil and gas this year. “I don’t think that will be a real focus this year,” Saine said. “I’d be real surprised.” She agreed that education efforts may have quelled concerns about oil and gas in the last few years. “More people are more comfortable with oil and gas,” Saine said. “It’s been around since the ‘70s in Weld, and no one has sprouted two heads, and (water) wells haven’t been poisoned, and we have some of the cleanest air in Colorado still. You can see a lot of pollution moving up the I-25 corridor, from Denver, the brown cloud is creeping into Weld.” Dan Haley, president and CEO of the Colorado Oil and Gas Association, said he too expects a rather quiet year, legislatively. “So far it’s been pretty quiet, from an oil and gas standpoint,” he said. “I’m hopeful that will continue. But as you know, leadership will often let late bills in. We prepare for anything really to come.”
2017 Legislative session bills introduced as of Feb. 10 » Senate Bill 35, sponsored by Sen. Jerry Sonnenberg, would make the crime of tampering with oil and gas equipment or gathering operations a felony. The law now states tampering is a misdemeanor. The bill, which states such tampering could put others in danger, is meant to dissuade the practice, which for some has become a rite of passage, earning bragging rights on social media by posting videos of their actions. “Although there is a crime for tampering with equipment associated with oil or gas gathering operations, people continue to break into enclosed areas, break locks, and adjust valves on oil or gas gathering equipment,” the bill states. If passed, the act would take effect Sept. 1. » House Bill 1124, sponsored by Rep. Perry Buck, would make local governments who work to ban or place a moratoriums on hydraulic fracturing of oil and gas in their communities liable for the value of mineral interest that would be lost, and be required to “compensate operators, mineral lessees and royalty owners for all costs, damages, and losses of fair market value associated with the moratorium.
» HB 1152, sponsored by Rep. Diane Bush and Yeulin Willett. The bill would give a federal mineral lease district the option to invest a portion of the funding it receives from the local government mineral impact fund in a trust fund. Current law requires the district to distribute the funding to impacted areas in the district, but also allows the district to reserve all or a portion of the funding for use in subsequent years, according to the bill. If passed, the bill would allow the district to appropriate and disburse all sums in excess of the invested funding, including interest, dividends, or similar appreciated values, “but specifies that the district may not disburse any part of the invested funding except upon the enactment of a resolution identifying a compelling public need or similar emergency circumstance.”
Haley said COGA officials are specifically interested in Sen. Jerry Sonnenberg’s bill to make it a felony to tamper with oil and gas equipment. “We are supporting that bill,” Haley said. Sonnenberg said he devised Senate Bill 35 after seeing videos on social media that depicted people damaging oil and gas facilities in North Dakota. Subsequent searching, he said, led him to websites that actually encouraged people to vandalize such facilities, for example, by shutting off valves that regulate pressures of oil and gas in pipelines. “I’ve had a number of people send me emails, and I’m not sure they understand the bill. This is about public safety — not about taking anyone’s ability to protest,” Sonnenberg said. “I tell people, ‘Stand in front of the gate if you want to protest. I don’t want you putting your neighbors in jeopardy.’ I get your protest and I support that ability, but that doesn’t make sense when you put people in harm’s way.” The bill doesn’t change the elements of the crime that’s already on the books, he said. It simply increases the penalties. A strong supporter of the industry, which contributes immensely to the Colorado economy, Sonnenberg said he is glad that oil and gas has taken a back seat in the session this year. “That doesn’t mean there won’t be some (bills) coming,” Sonnenberg said. All involved in the industry also are going to keep a keen eye on the severance tax
fund, which has become a regular pot of money the state dips into during times of financial crisis. According to the Denver Post, there’s only $10 million left in that fund. During the past eight years, the state has sent $615 million in severance tax to municipalities and counties, according to the Denver Post, and it’s been a regular pot of money for several pet projects. Gov. John Hickenlooper has asked the legislature for another $77.4 million this year to repay the fund for costs related to a lawsuit won by BP Production American Co., which expanded industry tax deductions. That court ruling allows oil and gas producers to amend their tax returns for the past four years to deduct capital costs for transportation, manufacturing and processing costs and continue claiming those deductions into the future., the Denver Post reported. Since 1995, the tax also has been used to fund the day-to-day operations of four agencies under the Department of Natural Resources, which last year amounted to almost $18 million the Denver Post reported. Ideas for change abound, including creating a trust that can earn interest, such as the funds in Wyoming and New Mexico. State Rep. Dave Young, D-Greeley, who sits on the Joint Budget Committee, told the Denver Post in late January he’s intrigued about creating a trust that would produce interest earnings.
“That takes a lot of discipline to do,” Young told the Post. “It’s not undoable, but for it to happen there has to be a moment and time that everyone agrees that that’s the direction as a state we’re going to go. And I do mean everybody.” Industry officials will be watching what the legislature does about severance taxes with a keen eye. Colorado companies pay much less in severance taxes than they would elsewhere, such as Wyoming, or New Mexico, the Post reported. Wyoming’s $7.1 billion severance tax fund produces enough interest earnings annually to pay almost a third of the state’s budget. New Mexico has a $4.5 billion tax trust fund — enough to generate interest earnings every year of $200,000, the Post reported. “We’re watching severance tax all the time to see if there’s any sort of movement,” Haley said. “But we’re not seeing much yet.” Saine is in the mood for change on that front. The severance tax fund is where the state “robs the piggy bank,” Saine said. “We don’t have a revenue problem, have spending problem,” she said. “Our revenues have grown 40 percent since 2009. I struggle to find any Colorado family willing to tell me their budget has grown 40 percent. We need to prioritize our budget instead of having departments always asking for more.” Added Bentley: “There are some folks who think maybe it’s time to re-look at how the severance taxes are distributed.” March 2017 ENERGY PIPELINE 11
the state of the Latest Colorado Ozone plan nears finish line Dan Larson • For Energy Pipeline
A
ir quality along Colorado’s Front Range is improving and a plan showing how the state can meet a federal ozone standard is on track to be submitted to the federal government this spring. Colorado’s Ozone State Implementation Plan for the Denver Metro and Northern Front Range Nonattainment Area was approved by the nine-member Air Quality Control Commission at a hearing in November. An approved ozone SIP is required under the Clean Air Act for regions like the northern Front Range classified as “moderate” nonattainment for ozone pollution.
MARGINAL TO MODERATE The EPA declared the metro Front Range as a marginal nonattainment region for ozone in May 2012. Under federal rules, that decision triggered a three-year, end-of-year deadline for the state 12 ENERGY PIPELINE March 2017
to show how it has met the 2008 standard of 75 parts per billion of ozone measured over 8 hours. All this is spelled out in the National Ambient Air Quality Standard, a body of air pollution rules and guidelines that evolved from the Clean Air Act. Unfortunately for Colorado, a D.C. Circuit Court ruling in 2014 pushed the response deadline up to mid-July 2015, smack in the middle of the ozone measurement season and effectively costing the state a full year of ozone measurement data that showed how the Front Range squeaked in under the bar. With the changed deadline, “we were not able to show the required number of years to maintain a marginal nonattainment designation,” said Chris Colclasure, planning and programs manager at the Air Pollution Control Division. “As a result of missing the deadline, we were bumped up to moderate nonattainment. This plan shows that we can meet that standard in 2017.” The state’s forecast was substantiated recently by an air issues expert. “When numbers are plugged into the models, the state can show that it meets the standards,” said Eric Waeckerlin, an attorney at
David Graham & Stubbs, in Denver. “The margin is razor-thin at four of the monitors, but it meets the level for attainment.” Still unclear, he said, is what the data collected this past ozone season shows. Ozone samples are taken at 14 air monitors along the Front Range operated by the APCD and two federally operated monitors in Rocky Mountain National Park. Four of the ozone monitors regularly record borderline readings. They are: Chatfield Reservoir in Douglas County, the National Renewable Energy Lab in Golden, western RMNP, and the west side of Ft. Collins. Despite the close calls, the numbers still show compliance, state reports show. A summary presented to the Regional Air Quality Council in September stated: “a supplemental modeling analysis of data from 2009 to 2013 demonstrates attainment at the four highest monitors.” The RAQC is the state’s lead air quality planning agency for Denver and the Front Range. Its 26-member board is appointed by the governor and charged with developing air quality initiatives with input from state and local governments, industry, stakeholder groups and private residents. Emissions inventories, analysis and permitting, and implementation of the vehicle inspection and maintenance program are within the purview of the Air Pollution Control Division, a unit of the Colorado Department of Public Health and Environment. The division assists RAQC in developing the ozone plan and enforces federal air regulations. As a result of modeling and the steps outlined in the moderate nonattainment ozone plan that was approved by AQCC in November, the Metro Denver Front Range will earn a passing grade from EPA this year, noted APCD’s Colclasure. While the RAQC report acknowledges there is a degree of uncertainty in any forecast involving the weather, it predicts that based on “ozone projections for 2017 and weight-of-evidence analyses, the control measures contained in the 2017 Denver ozone SIP will likely result in attainment of the 2008 8-hour (air quality standard) in 2017.” Meanwhile, EPA took another step in its mission to further reduce ozone levels by lowering the standard to 70 parts per billion from the 75 ppb standard enacted in 2008. Can the Front Range meet the new standard? Indications are that it can, although Colclasure declined to speculate on how the next round of ozone planning would get it there. “Our moderate nonattainment plan includes additional reductions from area’s largest sources of emissions under what are referred to as Reasonably Available Control Technology,” Colclasure said.
“We do know we are seeing a downward trend in ozone concentration in the atmosphere and that has been consistent for a number of years,” he stated. “Annual averages fluctuate and that is normal, but we see a general downtrend despite a significant boom in population and more cars and more oil and gas activity.”
IMPORTANT MILESTONE Approval of the ozone SIP by the Air Quality Control Commission in November was an important milestone, Colclasure said. Next stop is a legislative review, likely early in the session. If approved there, the plan will be sent to EPA for final approval. EPA approval of the plan helps assure Colorado will not be subject to an ozone plan developed by EPA. Specific controls and requirements of companies regulated under in the ozone plan are enforceable under federal rules.
“We do know we are seeing a downward trend in ozone concentration in the atmosphere and that has been consistent for a number of years. Annual averages fluctuate and that is normal, but we see a general downtrend despite a significant boom in population and more cars and more oil and gas activity.” Chris Colclasure, planning and programs manager at the Air Pollution Control Division. States that do not meet National Ambient Air Quality Standards face reduction in federal funds while individual violators can be fined or denied permits. The new 70 ppb ozone regulations, while considerably more strict, include provisions allowing states to factor in pollutants counted locally but transported from outside the nonattainment area. Also, companies can earn credits for reductions in some pollutants. Finally, the clock does not start ticking on compliance with the new standard until a regional ozone plan is approved for attainment under the earlier standard.
THE GOOD AND THE BAD Ozone is a pale-blue gas that forms at ground level when volatile organic compounds such as gasoline vapor react under heat from sunlight or from an electrical discharge such as lightning with an oxide of nitrogen, either nitric oxide (NO) or nitrogen dioxide (NO2). Nitrous oxide (N2O) is a different compound March 2017 ENERGY PIPELINE 13
Getting Ahead of Ozone: Emissions Sources, 2017 vs. 2011 2017 NOx
2011
VOC Oil & Gas O&G Point 16.3 Condensate Tanks 78.7 O&G Area 59.0
CO VOC
NOx
CO
20.6 0.6 44.6
19.7 2.3 31.4
14.8 216.0 48.9
18.1 1.1 22.2
17.0 2.3 12.9
Oil & Gas Total Point Sources Area Sources Non-road Mobile On-road Mobile
154.0 28.4 67.5 44.3 55.0
65.8 40.1 0.0 54.9 73.3
53.4 17.3 1.6 759.7 554.7
279.7 26.5 60.6 58.2 93.7
41.4 60.7 0.0 75.9 142.0
32.2 17.7 1.4 800.2 832.8
Total Man-made Sources Emissions Decrease Biogenic Sources
349.2 33% 170.5
234.1 27% 6.1
1386.7 18% 21.6
518.7
320.0
1684.3
170.5
6.1
21.6
Total Nonattainment Area
519.7
240.2
1408.3
689.2
326.1
1705.9
Tons per day; source CDPHE The emissions inventory for ozone precursors represents a typical day in July. Point sources are storage tanks, stationary generators, boilers and process units. Area sources are portable generators, coatings, sealants, personal care products and cooking. Non-road mobile sources are lawn mowers, commercial equipment and personal watercraft. On-road mobile sources are cars, trucks and motorcycles
and while it is considered a greenhouse gas, is not part of ozone formation. The resulting gas, ozone (O3), is considered a health hazard. Its pungent, chlorine-like odor can be detected by most people at even very low concentrations and its properties as an oxidant cause irritation to respiratory tissues. The name ozone comes from the Greek verb for smell, referring to its distinctive odor. It was discovered by a European chemist who, in 1839, recognized it as the smell left after a lightning strike. For much of the following century, ozone was considered supportive of a healthy life by naturalists who would travel to higher elevations for the perceived benefit. Ozone is formed naturally in the upper atmosphere, between 6 to 30 miles above sea level. It is beneficial to life on earth because it filters much of the sun’s UV-B rays and all UV-C rays that would otherwise cause everything from extreme sunburns and skin cancer to DNA damage in animals and plants. Ozone depletion in the upper atmosphere by man-made chemical compounds was addressed by rules first adopted by the U.S., Canada and Norway. A ban on these chemicals was formalized as the Montreal Protocol and eventually won approval by all 197 nations around the world. The ban on ozone-depleting chemicals is already having a positive effect. In 2003, a study by the American Geophysical Union showed that the rate of depletion of ozone in the upper atmosphere was slowing. EPA estimates the ozone layer should fully recover within 50 years. At levels closer to the ground, ozone is considered harmful to the environment. On its own, ozone is harmful. When high concentrations combine with other compounds such as nitrogen oxides, sulfur dioxides, smoke or particulates, it forms smog, that characteristic hazy layer over cities and large towns long considered a health hazard. Ozone is one of six compounds classified as criteria pollutants by EPA, meaning the government considers each of the six to be a 14 ENERGY PIPELINE March 2017
health hazard and so, it sets a bar for each pollutant that cities and states are directed to meet.
REASONABLY AVAILABLE A key factor in the APCD’s plan for moderate-level ozone attainment is implementation of Reasonably Available Control Technology for emissions at the largest “point sources” in the region and of identification of other sources that might benefit from additional controls. In letters to companies operating these point sources, the division asks them to describe the emission sources, how equipment is operated, what control technologies are used and what additional steps could further reduce emissions. Sent to the companies last summer, the letters saw responses from both those major sources already covered by RACT and those major sources that were reviewed for additional controls.
ALREADY APPROVED As part of a package of revisions to Colorado’s “Reg 7” that was approved by AQCC in 2008 and EPA in 2011, much of the control technology already applied to oil and natural gas operations is included in the latest ozone SIP. New requirements for oil and gas include auto-igniters on all VOC combustors and that operators conduct regular site inspections according to “sound, sight and smell” guidelines. Other Colorado regulations covering leak detection and repair (LDAR) and use of intermittent pneumatic controls are discussed in the plan but not made federally enforceable.
TRANSPORTATION BUDGETS Another important part of the ozone plan is the motor vehicle inspection and maintenance program. In place on the Front Range since the mid-1990s, the vehicle IM program saw significant changes in 2009, when parts of Larimer and Weld counties were added, and again in 2012 and 2014.
One of 14 permanent ozone monitoring stations along the Front Range, this nondescript facility shares space with the Arvada Gardeners plot. (Photo for Energy Pipeline/Dan Larson)
dynamometer. Vehicles 12 years old to 1982 models are given an IM/240 test which includes a run on the dynamometer while those 1981 and older and medium- and heavy-duty trucks are given a “tailpipe” 2-speed idle test. Also added in 2014 is the on-highway inspection called Rapid Screen that allows vehicles to pass inspection without visiting an Air Care Colorado station. Finally, the ozone SIP includes a budget for motor vehicle emissions. Measured in tons per day, the amount of motor vehicle emissions are forecast based on car and truck census, estimated miles traveled and fleet age. That total is rolled into the final SIP. Highway or transit projects that count on federal funding must be reviewed for possible impact on regional emissions levels.
COOPERATION NEEDED
In the most recent revision, the Air Care Colorado program extended the new vehicle exemption to vehicles seven years old from the previous four-year exemption. Also, a pass/fail inspection for vehicles eight to 11 years old was adopted in which plug-in inspections of onboard diagnostics (OBD) replaced a run on the
As state regulators look ahead to the next round of ozone compliance discussions, a degree of latitude for pollutants from sources other than those produced locally will be required, said regulatory counsel Waeckerlin. “The state has taken all the low-hanging fruit with this latest SIP,” he said. “Ozone transport and background levels are the biggest chunk. It is going to be tough to reach the next level without some cooperation from EPA.”
March 2017 ENERGY PIPELINE 15
Trending Rising rig count, fewer unemployment claims equate to oil and gas industry bounce-back By Sharon Dunn • sdunn@energypipeline.com
C
olorado’s rig count is at its highest level in more than a year, suggesting the oil and gas downturn in the past couple of years is on the rebound, and hundreds more people are working.
As of Feb. 10, the rig count sat squarely at 26 in Colorado. The last time the rig count in Colorado was near that level came in December 2015 16 ENERGY PIPELINE March 2017
when the Colorado count was at 25, plummeting after reaching a high of 64 that year. The rig count settled a bit in 2016 to hover in the 17-20 range, jumping to 28 by Christmas. The rig count is important in an oil and gas producing area because each rig puts roughly 100 people to work in various roles. Unemployment claims in the third week of January fell to year-long lows as well, according to numbers provided by the Colorado Department of Labor and Employment. Continued unemployment claims in the mining sector (of which oil
and gas is a majority contributor) fell to 528 as of the third week of December, dropping 55.7 percent in the past year, and the largest drop of any industry in the state, according to the state department. The year-long high was posted in the third week of March with 1,595 continued unemployment claims. Oil prices plummeted in the past two years, hitting a low of $26.68 per barrel almost a year ago. While that may have been good news at the gas pump, it devastated the industry. Companies spent all year wait-
“We’re hoping things stay where they are so we can stay solid. We have the ability to add a rig if commodities dictate, but also pull back if commodities dictate.” Craig Rasmuson, executive vice president of business development for Synergy.
ing for the return to solid prices of $50 or more per barrel. Today’s prices could equate to a bit more confidence among oil and gas operators throughout Weld County. Anadarko Petroleum, the largest oil and gas producer in Weld, reduced its drilling rigs to one last year, but added two more in October. The company added three more in January to a firm six. In the industry’s heyday in 2014, the company was running 13 rigs in Weld County. “I would anticipate our activity levels to return to 2014,” said Robin Olsen, public affairs manager for Anadarko’s Rockies division in Denver. “Due to the efficiencies that we’ve gained in our cycle times and our technology in our well design, we’re able to drill the same number of wells with half the number of rigs. “That’s something we’re super excited about, because we continue to invest in technology that reduces disturbance, the surface impacts and continuing to produce the resources we all need and use.” Bill Barrett Corp. stopped its drilling program in March but just announced in December it would resume it. Noble Energy, Weld’s second largest producer, operating with two rigs last year in Weld, plans to add a third rig by mid-year. Synergy Resources, which moved its offices to Greeley from Platteville last year, have been operating all year with two rigs; a third could be added this year. “We’re hoping things stay where they are so we can stay solid,” said Craig Rasmuson, executive vice president of business development for Synergy. “We have the ability to add a rig if commodities dictate, but also pull back if commodities dictate.”
PDC Energy, which is another top producer in Weld, has revamped its expected capital investment in the county for the year to $490 million, up about 32 percent from what it estimated just a couple of months ago. Some of that will come with the addition of a fourth rig to its drilling program. Likewise, Extraction Oil and Gas added a third rig in December. The company plans to add a fourth “on a spot basis,” according to its investor presentations. While the rig count increases, on paper it looks to have added about 800 jobs to the oil patch since December, that may be a bit deceiving. Rasmuson said service companies, which employ rig workers, are remaining conservative. They may have added only 400 workers, and doubling their crews’ time. That will increase costs to oil and gas companies. But adding an experienced work force to handle excess work may be a bit tricky in this environment. Rasmuson said many oil field workers who were laid off had to find new careers to feed their families. “They’re probably pretty skiddish about coming back,” Rasmuson said. “I don’t think they’re going to jump back in.” Rasmuson said he feels like more time is necessary to see if this rally is indeed a comeback. “It’s probably too soon to tell,” he said. “There have to be a few quarters in ‘17 to see how things settle out, if you will. Obviously it’s a good sign, but it’s so early. I don’t think it’s knee-jerk, but we’re at the first of the year. The election has given the industry some optimism.” He said those in charge of company budgets will likely play it safe until midyear to see if the current oil prices are sustainable. March 2017 ENERGY PIPELINE 17
Making hole A look back at the origins of oil and gas BY BRUCE WELLS • for energy pipeline
The pump jack capital of Texas An
April Fools’ Day in 1911 brought prosperity to Electra, the future “Pump Jack Capital of Texas.” The discovery well just south of the Red River border with Oklahoma launched a North Texas drilling boom. oil gusher on
“As news of the gusher spread through town, people thought it was an April Fools’ joke and didn’t take it seriously until they saw for themselves the plume of black oil spewing high into the sky,” noted Bernadette Pruitt in a 2001 article for the Dallas Morning News. “That day secured Electra’s place in the history books as being one of the most significant oil discoveries in the nation,” she added about the Clayco Oil & Pipe Line Company well. Founded in Wichita County in 1907, Electra had been named after the daughter of ranching baron William T. Waggoner. His ranch, which surrounded the town, was established in 1849 by his father, Dan Waggoner. Both had complained of finding oil when drilling water wells for cattle. The Clayco No. 1 gusher of the Waggoner ranch settled into production of about 650 barrels of oil a day from about 1,600 feet deep. Hundreds of shallow-producing wells followed, leading to the Electra oilfield’s peak production of more than 8 million barrels of oil in 1913. Although the town’s population grew to 5,000 from 1,000 within months of the discovery, the chaos often associated with oil booms was kept to a minimum since much of the surrounding land had been leased. Many who rushed to Electra seeking quick profits just as quickly departed. Electra and other North Texas oilfields were soon producing almost half of all the oil in Texas. Refineries began to appear in nearby Wichita Falls in 1915 when Wichita County alone reported more than 1,000 active oil wells. The discoveries were part of a petroleum-producing region in the central and southwestern United States, the MidContinent, which today includes hundreds of oilfields reaching from Kansas, Oklahoma and Texas into parts of Louisiana and Missouri.
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.
The April 1, 1911, oil gusher on the Waggoner Ranch led to hundreds of shallow-producing wells surrounding Electra. (Photos for Energy Pipeline/American Oil and Gas Historical Society)
18 ENERGY PIPELINE March 2017
Electra, Texas, was named after the daughter of W.T. Waggoner, who once complained about finding oil in his ranch’s water wells. (Photo for Energy Pipeline/American Oil and Gas Historical Society)
Oil wealth would make the Waggoner children celebrities, according to a January 2011 article in The Texas Monthly. “The rich and spoiled siblings nearly squandered the family fortune on wild parties, all-night poker games, trips around the world and divorce settlements,” the magazine reported. “Legend has it that Electra once blew $1 million in a single day at Neiman Marcus.” In 2001, with 5,000 pump jacks within a 10-mile radius, Electra hosted a special celebration of its historic oil discovery. The 77th Texas Legislature, citing “the remarkable concentration of pump jacks dotting the land, and the residents viewing them “as wholesome symbols of prosperity,” pro-
claimed the town the Pump Jack Capital of Texas. “Like mesquite trees, the jacks are such landscape fixtures that most Electrans pay little attention to them,” Pruitt concluded in her article. “But tourists do ... they move their hands up and down and ask, ‘What’s that out there?’” Today, about 2,800 Electra residents host an annual parade and festival celebrating the 1911 April Fools’ Day gusher. The Pump Jack Festival features historic photos displayed inside Electra’s Grand Theatre on Waggoner Street. The Grand, a community landmark since it was built in 1919 for $135,000 ($1.9 million today), once hosted Vaudeville traveling troupes.
You see work gear. We see tax deductions. WORK BOOTS $200 SAFTEY GLASSES $30
HELMET $75
The festival also offers a chili cook-off along with a walking tour of antique oilfield equipment, including the original boiler from the Clayco No. 1 well. As the Electra Chamber of Commerce proclaims, “Oil wealth built infrastructure, schools, churches and civic pride in Electra for generations.” “Making Hole” is a term for drilling coined long before oil or natural gas were anything more than flammable curiosities. 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.
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TECH TALK
Aliso Canyon gas leak renews pressure on pipeline integrity measures BY gary beers • For eneRGY PIPELINE
In California’s Aliso Canyon, a leak in the metal pipe in a breached casing of an injection well caused the worst natural gas leak in U.S. history during October 2015 to February 2016. Investigations into the causes of this disaster revealed lack of an adequate monitoring/ emergency-response plan and removal of safety values on numerous old 1950’s era pipes. Four months later, the Protecting our Infrastructure of Pipelines and Enhancing Safety Act (PIPES Act) was extended until 2019 with increased regulations to address safe transmission of gas and hazardous liquids in U.S. pipelines. Importantly, more stringent regulations addressed improvements in pipeline leak detection systems and expansion of pipeline integrity management programs beyond high-consequence areas (Pipeline Law, Barnes & Thornburg, LLP, July 2016). Consequently, oil and gas companies are required to improve and expand pipeline inspection/monitoring systems. Some of the “smart technology” tools available to support this needed improvement to minimize pipeline leaks are overviewed below.
SMART INLINE SENSORS
A view of a typical smart pig (Pipeline Inspection Gauge) is shown in Figure 1. Depending on the overall length, the units may be separated by flexible joints to allow movement through bends in the pipeline. The drive package is the lead unit which is followed by a combination of sensor units, for example (Fact Sheet: In-Line Inspections, U.S. Department of Transportation, July 2014): magnetic flux measurements. • Magnetic Flux Leakage — measure metal loss in longitudinal section of pipe wall through use of temporarily applied magnetic field. • Transverse flux — measure metal loss in circumference of pipe wall through use of temporarily applied magnetic field. ultrasonic measurements. • Compression wave — measures pipe wall thickness and metal loss.
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.
• Shear wave — detects longitudinal cracks and weld defects. geometry measurements. • Mechanical or Electro-mechanical — measures bore of pipe, including dents, deformations, changes in girth welds, and wall thickness.
These inspection tools are free-swimming and travel inside the pipeline. The data collected by the sensors are not transmitted real-time and are stored onboard for downloading after exiting the pipe.
SMART PIG Early pigs were dumb. Basically, cylindrical in shape, these pigs consisted of brushes and scrapers to loosen and push debris during transit in the pipeline. Earliest versions consisted of wire cylinders densely packed with straw. 20 ENERGY PIPELINE March 2017
Figure 1. Smart Pig (Source: Intertek)
After the pig is retrieved from the pipeline, the collected data is electronically downloaded. Pigs can be modified to serve non-sensing purposes. Sealing pigs provide a good seal and separate dissimilar liquid products moving one after the other in a pipeline. A plug pig serves to seal end of pipeline when the pipeline is opened for maintenance or remedial work.
SENSOR LININGS These smart pipeline devices primarily report leaks. A fiber-optic sensing cable is attached to the outer wall along the length of the pipeline. This cable provides for continuous monitoring of temperature (leak detection), vibration (warning of potential mechanical damage), and strain (indicator of material creep) (Smart Pipe Project, OXY, 2015). The cable is connected to an above-ground computer for real-time monitoring.
SENSOR BELTS
Figure 2. Exploded View of A Smart Ball (Source: Pure Technologies)
SMART BALL In contrast to the smart pig, which collects physical measurements of the pipe integrity, the smart ball is an ancillary tool that locates leaks based on the sound generated by product exiting through a crack in the pipe wall. The smart ball (Figure 2) is typically less than one-third the diameter of the pipe and consists of an instrument package enclosed in a plastic sphere. The advantages of this unit are increased acoustic sensitivity, accurate location capability, and useable in non–piggable pipelines. Also, the smart ball can be outfitted with magnetic sensors to identify areas of stress in the pipe wall. The smart ball rolls silently through the pipeline and can record measurements for 20 to 400 hours depending on pipeline diameter (Pure Technologies Ltd.)
These smart devices monitor pipeline integrity and forecast potential breaks. For subsea oil pipelines, Scandinavian engineers have installed belts around pipelines, at 74 foot intervals, which are packed with sensors that measure pipe wall thickness, tension, temperature, and vibration. A thick insulating layer of polypropylene, containing a cable, covers the length of the pipe and provides for wireless data transmission, in real-time, from the belt to offshore or onshore platforms (Green Light for the World’s First Intelligent Oil Pipelines. Physical Organic News, March 2015).
IN GROUND SENSORS These smart devices monitor soils and geologic conditions along the pipeline and forecast potential problems.
An approach of a Swiss firm (Omnisens SA), specializing in fiber optics, emphasizes monitoring conditions external to the pipeline as a basis for identifying leaks and forecasting threats to pipeline integrity. The prime components of their smart pipeline system (Figure 3) provide real-time monitoring of: • Geohazards and ground movement – temperature and strain sensing fibers are sensitive to movement of soils, including landslide, rock fall, or seismic event • Third party intrusion – vibration and acoustic sensing fibers detect any physical intrusion in the pipeline corridor • Leaks – temperature sensing fibers can detect changes caused by leaks and groundwater movement.
Self Repair Taking the concept of a smart pipeline to the next level, a Canadian firm (Smart Pipeline Company Canada Inc) has developed a pipe that can self-repair leaks. The self-monitoring composite pipe, with on-board fiber optic and communication systems, can replace a corroded or compromised pipe wall from the inside, without the need to excavate the entire pipeline (Development of High Pressure Self-Monitoring Composite Pipeline System, Smartpipe Technology, to Improve Environmental Security for Oil sands Transportation. Sustainable Development Technology Canada, February 2017).
SMART PIPELINES A more effective approach to a long-term solution to quick detection of possible threats to pipeline integrity is the placement of sensors in pipe walls and buried along the outside of the pipeline.
Figure 3. Sensors Alongside Pipeline (Source: Omnisens SA)
March 2017 ENERGY PIPELINE 21
DATA CENTER
The oil and gas industry is a large part of Colorado’s economy. Below, find statistics on drilling production, well permits and rig counts.
OUR BUSINESS
ON T 2017 DRILLING PERMITS
RIG COUNT BY STATE
COUNTY
NO. (% OF STATE TOTAL) 135 (64%)
Weld 41 (19.4%)
Garfield State Feb. 3 Jan. Avg. Dec. Avg. Nov. Avg. Colorado 26 28 26 20 Louisiana 52 59 48 50 Oklahoma 102 86 82 77 New Mexico 46 39 32 31 North Dakota 36 34 32 35 Texas 355 336 310 271 California 6 6 6 6 Alaska 10 8 7 8 Ohio 21 20 18 16 Pennsylvania 33 33 31 27 Wyoming 20 19 19 16 Source: Baker Hughes Rig Count, Feb. 3. Source: Baker Hughes Rig Count, Feb. 3.
2016 GAS PRODUCTION
County *YTD‘16 .......................................Production Weld............................................569,100,441 (37%) Garfield....................................457,236,220 (29.8%) La Plata ...................................282,562,004 (18.4%) Las Animas ................................. 63,987,504 (4.2%) Rio Blanco .................................51,466,090 (3.35%) Mesa ............................................ 32,014,412 (2.1%) State....................................................1,536,070,677 Source: Colorado Oil and Gas Conservation Commission as of Feb. 4.
COLORADO ACTIVE WELL COUNT 22 ENERGY PIPELINE March 2017
23 (11%)
Mesa
8 (3.8%)
Jackson
2 (0.95%)
Arapahoe Adams
1 (0.47%)
Gunnison
1 (0.47%)
2016 OIL
PRODUCTION
State: 211
COUNTY *YTD
Source: Colorado Oil and Gas Conservation Commission as of Feb. 1, 2017.
Weld
‘16 PRODUCTION
93,087,713 (89%)
• We specialize in commercial/fleet fina Rio Blanco 3,857,071 (3.7%) • We find the best incentives for your bu Garfield 1,477,718 (1.4%) • Great B2B programs for your business US RIG COUNT Cheyenne commercial/fle 1,116,410 (1.1%) • 50 years of specialized The U.S. rig count peaked at 4,530 in 1981 and previously bottomed at 488 in 1999. • We will come to you! No need to come Arapahoe 794,579 (0.76%) Area U.S. Canada
Feb. 3 Jan. Avg. Dec. Avg. Nov. Avg. 729 688 634 580 343 302 209 172 • Source: Baker Hughes Rig Count, Feb. 3.
• • • •
Lincoln
797,071 (0.76%)
Diesel mechanics with 100 years of co 709,376 (0.68%) Night crews – dropAdams off at night and pic 655,942repairs (0.63%) Mobile service vanLarimer for minor Monthly billing for State approved104,538,309 companie New facility to be completed inCommission 2017 Source: Colorado Oil and Gas Conservation as of Feb. 4.
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Weld ..........................................................................23,088 Garfield .....................................................................11,196 Yuma ...........................................................................3,877 LaPlata........................................................................3,326
Las Animas .................................................................2,937 Rio Blanco ...................................................................2,890 State .........................................................................54,111
Source: Colorado Oil and Gas Conservation Commission as of Feb. 1.
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March 2017 ENERGY PIPELINE 23
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