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JULY 2016 ENERGY PIPELINE 3
Features
18
14
Going up or down?
Therapy horses
Agriculture community also affected by oil and gas slowdown.
Special needs students, PDC Energy volunteers spend day with Colorado Therapy Horses.
By Nikki Work
By Nikki Work
8 greeley triple creek drama
On the cover
Extraction Oil and Gas may have to refine state permit for west Greeley project.
Design by Joshua Aho
By Sharon Dunn
11
curbing emissions
EPA finalizes methane emissions rules across the country. By Sharon Dunn
16
the great asset swap
Departments 12
Field Worker Profile
16
Tech Talk
21
Making Hole
Synergy Resources to buy Noble Greeley assets in its biggest deal yet. By Sharon Dunn
4 ENERGY PIPELINE JULY 2016
Meet Miguel Prieto, Titan Energy Services, LLC
Electrodialysis of produced water for optimal reuse in water flooding. By Gary Beers
A look back at the origins of oil and gas. By Bruce Wells
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ENERGY is your
BUSINESS PUBLISHER Bryce Jacobson EDITOR Randy Bangert General manager Bart Smith BUSINESS MANAGER Doug Binder MANAGING EDITOR Sharon Dunn CONTRIBUTING WRITERS Gary Beers Bruce Wells Nikki Work
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ENERGY PIPELINE MAGAZINE 501 8th Ave. P.O. Box 1690 Greeley, CO 80632 For all editorial, advertising, subscription and circulation inquiries, call (970) 352-0211. Send editorial-related comments and story ideas to: editor@energypipeline.com For advertising inquiries, contact: bjacobson@energypipeline.com July 2016, Volume 3, Issue 11. Published by Greeley Publishing Co., publisher of The Greeley Tribune, Windsor Now, the Fence Post, and Tri-State Livestock News.
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triple creek drama re-emerges Extraction Oil and Gas may have to refile state permit for west Greeley project BY sharon dunn • sdunn@ENERGYPIPELINE.com
An oil and gas company that has already received the green light to drill a large oil and gas facility in a west Greeley neighborhood has a little bit more work to do. Extraction Oil and Gas will likely have to amend its state site application — called a form 2A — for its Triple Creek site in west Greeley to comply with rules the state Oil and Gas Conservation Commission approved in January that force more conversation with local governments and push more measures to reduce concerns of noise, pollution and traffic issues associated with the proposed large sites when they are within 1,000 feet of occupied structures. The Triple Creek site is situated north of 18th Street in an empty field just west of 71st Avenue, with plans for 22 oil and gas wells, plus accompanying storage tanks and equipment. The plan is to put the facility on a 14-acre piece of a 69-acre property, which also is surrounded on all sides by about nine existing well sites. In March, the Greeley City Council overturned the Greeley Planning Commission’s denial of the project, which occurred in January before the new state rules were adopted, The city council’s action 8 ENERGY PIPELINE JULY 2016
The state permits locations and regulates wells, and local governments approve the land use and ways to mitigate neighborhood concerns. allowed the project to move forward. So far, Extraction has not begun construction there and they likely not until the new permitting issue has been resolved. Neighbors, who have fought the site due to and concerns of traffic and pollution in their backyards, to name a few, brought to light an inconsistency in the state permits in recent complaints to the state. It will require Extraction to ensure its local permit aligns with its state site permit.
Oil and gas facilities are approved at different levels. The state permits locations and regulates wells, and local governments approve the land use and ways to mitigate neighborhood concerns. The permits must align to move forward. In this case, the Triple Creek site falls under the new state rules, due to the timing of their approval, which makes the original application for the site — filed by Mineral Resources Inc., several years ago — out of compliance. Extraction bought the Triple Creek site from Mineral Resources as a stateapproved site. When the city reviewed the plan, officials required Extraction, among several other mitigation measures, to construct 14-foot berms as a sound and sight barrier, which expanded the size of the drill pad. That expansion, however, pushed the site within 1,000 feet of 14 homes. The 1,000-foot barometer is not a setback. State law requires sites be at least 500 feet away from homes, which in this case is true. Per the new state rules, however, when a site of eight wells or more comes within 1,000 feet of 11 homes, it becomes a large urban mitigation area, which requires a few
more discussions about mitigations, such as using the best available technologies to reduce surrounding impacts and early notification of local governments. It also requires an analysis of alternative locations. In this case, local government notification is moot. The company already has an agreement with the city, which the city council signed off on in March through its public hearing. Best available technologies could conceivably mean piping out oil and gas versus taking it out in trucks — something operators had told residents they would do during neighborhood meetings in recent years. Residents want to force the company to live up to that promise. Company officials later learned piping out oil wouldn’t be feasible based on the number of easement agreements from landowners they’d have to secure for more than 30 miles to get the product to market. In the downturn, when drilling had slowed to a trickle, they decided it was a move they couldn’t afford. As a result, Greeley officials didn’t require the company to pipe out the product. “The best available technology still has to be available technology,” explained Greg
Deranleau, environmental manager with the state COGCC, who has been assigned to address the complaints of this case. While the new rules trigger more discussion about such mitigations, they do not lock companies into specific equipment or techniques. “We believe the language really does tighten our ability to ensure we are getting the best from our operators,” Deranleau said. “But things still have to be reasonable.” Still, Extraction officials will have to address the extra protection to residents in those areas through an amended permit that puts them in line with the new state rules, Deranleau said. Extraction President Matt Owens said he believes the site already meets state rules. “The total distance to the nearest structure is well beyond the regulated setback distance, and the mitigation measures we’ve taken go beyond what is required by even the most recent rulemaking,” Owens said. Before Extraction bought the properties, Mineral Resources officials had numerous sites in mind to get to the minerals below ground. Eventually, the Triple Creek site was approved.
“This one had fewer challenges than some other ones,” Deranleau said of Triple Creek. Extraction officials said the site was their only option left to extract the minerals, owned by 1,800 mineral rights owners eager to exercise their property rights. Owens said the company is committed to mitigating surrounding impacts as much as possible. He said he plans to do so with the berms, as well as electric drilling rigs to reduce noise as well as new technology called LACT, which Owens said “eliminates the need to open hatches on oil tanks, thus eliminating fugitive emissions that usually come with transferring oil from tanks to truck. “We spent a tremendous amount of time working in concert with the local government in Greeley to ensure this project is a bestin-class-facility, which it is,” Owens said in a statement. The residents state that by allowing Extraction to site such a large facility in their neighborhood as well as allowing 24-hour-aday trucking is “criminal.” “Our neighborhood should not have to suffer the constant truck traffic, air pollution and fire risk from this location,” Nelly Morales, a neighbor in the area, said in a news
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release. “The rules require the COGCC to minimize impacts to adjacent homeowners. We expect that is what they’ll do.” Greeley Mayor Tom Norton said the city’s requirements to mitigate impacts are more stringent than the state. “We did all of the mitigation programs, and our mitigations requirements are more than what state’s have been all along,” Norton said. “I’m not sure what would be
accomplished by redoing it.” Deranleau agreed in part. Under the old rules, yes, Greeley’s requirements would be more stringent. “That doesn’t mean they’d be more stringent than what we might require under today’s rules,” Deranleau said. He said the state has received 19 complaints about the facility in recent weeks, but he said he doesn’t see anything that varies
from what the state has already addressed on this site. “Could public comment grind this whole thing to a halt?” he said. “Based on the content of complaints, I don’t see something there that makes me think, ‘We hadn’t considered that.’”
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curbing emissions EPA finalizes methane emissions rules across country BY sharon dunn • sdunn@energypipeline.com
The U.S. Environmental Protection Agency on May 12 made final rules that will regulate methane emissions from all new oil and gas facilities across the country. The rules are based on Colorado rules that became effective in February 2014, and they require oil and gas operators across the country to detect methane leaks and repair related equipment on any new oil and gas facility. In Colorado, state air officials created strict guidelines on oil and gas operations — new and old — to contain up to 95 percent of methane emissions from storage tanks, operations and equipment. Methane leaks in the oil gas fields typically occur when storage equipment ages, or valves loosen. The EPA rule, which was introduced last fall, is expected to reduce 510,000 tons of methane, or the equivalent of $100 million in wasted natural gas, by 2025. Already, Colorado’s rules are showing progress and lead regulators to believe similar results can be achieved across the country. “The rules over the last two years are working. They’re proven. Companies are complying and methane pollution is being reduced,” said Dan Grossman, the Rocky Mountain regional director for the Environmental Defense Fund, in a media call organized by Conservation Colorado. Grossman said in recent state inspections with infrared cameras, regulators are finding 75 percent fewer leaks from operations in Colorado than before the state regulations went into effect. Officials envision that progress on a grander scale with the EPA rules. “We share the same wind from other states like Utah and New Mexico that also create pollutants that come to our state,” said Christine Berg, mayor of Lafayette, in the call. “Oil and gas companies are releasing
millions of tons of methane pollution into the air, and today’s announcement is the best way to protect Americans from the disastrous impacts of those pollutions.” Colorado’s rules are tighter than the EPA rules announced May 2. The national rules come with the caveat that states with similar or more restrictive programs can continue to operate under such programs. Colorado’s rules require companies to inspect their facilities from monthly to quarterly depending on the facility’s size. Smaller areas are required for at least once or once a year. The EPA regulations require operators across the country to inspect well sites with infrared cameras at least twice a year and repair them promptly, Grossman said. “Colorado’s regime is more protective than the rules that were announced today by the EPA, but nonetheless, the rules are groundbreaking as they are a first at the federal level,” Grossman said. “We’re very pleased, and we look forward to more progress.” The new EPA rules only affect new oil and gas facilities. The rules do not address existing oil and gas facilities. Coupled with the new rules, the EPA also issued a request for information from oil and gas companies on the best ways to efficiently address methane detection and leak repair on existing facilities. “At the federal level, we’d like to see the EPA pivot as quickly as possible to address existing sources,” Grossman said. “They’re responsible for 100 percent of the emissions we see today, and even out until the next decade. By not addressing existing sources … a lot of emissions are on the table.” Colorado’s rules address both new and existing structures. Grossman said there are a few other states
working to create their own rules, including California, Wyoming, Pennsylvania, Utah and Ohio. “It’s important to look at what the EPA rule is doing today is creating a floor, not a ceiling,” Grossman said. “California and Pennsylvania proposals go well beyond what the EPA is suggesting today, which is positive. … It’s our hope these states are not going to look at what the EPA does as a limitation but really as a floor” beyond which they can go with their own programs.
Methane Methane is a potent greenhouse gas with a global warming potential more than 25 times greater than that of carbon dioxide. Methane emissions from the oil and gas sector have declined 16 percent since 1990, but they are predicted to increase in the next decade. Sources of methane emissions across the country: • Other, 8 percent. • Manure management, 10 percent. • Coal mining, 10 percent. • Landfills, 18 percent. • Livestock (cattle, buffalo, sheep, goats), 26 percent. • Natural gas and petroleum systems, 29 percent. Source: Inventory of U.S. Greenhouse Gas Emissions and Sinks: 19902013, EPA.
JULY 2016 ENERGY PIPELINE 11
FIELD WORKER PROFILE
Miguel Prieto Titan energy services, LLC staff report • for energy pipeline
HOMETOWN Guanajuato, Mexico.
whEre do YOU LIVE? Greeley.
HOW LONG HAVE YOU BEEN WORKING IN NORTHEASTERN COLORADO? Three years.
HOW DID YOU GET INTO THE INDUSTRY? When I got out of high school I wanted an opportunity to build a career and the oil industry offers a lot of opportunity for someone to come in work hard and build a career.
12 ENERGY PIPELINE JULY 2016
WHAT IS YOUR JOB TITLE AND DUTIES? I am a field supervisor. My duties are to ensure all field tasks are done in a safe and efficient manner.
WHAT IS THE MOST INTERESTING THING ABOUT YOUR JOB? I always get different things coming my way and there is always the opportunity to learn something new.
WHAT IS THE BEST PART OF YOUR JOB? I work with a fantastic team!
WHAT IS THE HARDEST PART ABOUT YOUR JOB? I love my job but sometimes the long hours can be pretty hard.
WHAT DO YOU DO IN YOUR PARE TIME? Volunteerism, school, sports? I love spending time with my son, and in my spare time working on cars, riding dirt bikes, fishing, camping — anything where I can be outdoors.
WHAT ARE YOUR FUTURE AMBITIONS IN THE INDUSTRY? I want to help Titan become leaders in the industry by providing environmental and personal safety.
WHAT does the wattenberg field and the DJ basin mean to you? I grew up here so it means a lot to me, and I am glad that there is a company like Titan so we make sure that our area is clean and safe.
how do you feel about the current environmental debate going on with fracking in Colorado? I believe that companies like Titan are important to the debate as we strive to come up with innovations to help oil companies meet their environmental needs.
How have you weathered the downturn? By coming up with solutions to help oil companies operate more safely and efficiently.
wattenberg asset swap Synergy Resources to buy Noble Greeley assets in its biggest deal yet BY sharon dunn • sdunn@energypipeline.com
Synergy Resources Corp. is moving on up. The Platteville-based oil and gas exploration company plans to buy extensive acreage from Noble Energy in and around Greeley that will boost it to be among the top oil and gas producers in Weld County. The company in May announced a deal to buy 33,100 acres of land called the Greeley Crescent in and around Greeley for $505 million in cash — its largest acquisition to date. The announcement comes on the heels of the company reporting a $51.4 million earnings loss in its first quarter of the year. “This acquisition is transformational for Synergy and a significant step forward in the company’s evolution to become a leading operator in the Wattenberg Field,” said Lynn Peterson, chairman and CEO of Synergy, in a news release. “By consolidating our properties into a more focused footprint, we should be able to gain operating efficiencies.” The Wattenberg Field encompasses Greeley and is the chief drilling area in the county, rich in natural gas. Noble is the No. 2 producer in Weld behind Anadarko Petroleum Corp. Together, the companies control the lion’s share of Weld oil production. This acquisition is expected to bump Synergy up to the No. 3 or 4 producer in Weld. Synergy, which originated in Platteville and is now headquartered in Denver, has been slowly increasing its foothold in Weld in recent years. In the past six years, the company has taken on eight acquisitions, the largest of which was $125 million. This latest deal also comes with the news that the company will sell assets in Adams County for $27 million. “We’re consolidating our operations,” Peterson said in an interview. “We just wanted to put focus into one area.” Synergy reports it has identified more than 900 locations on the land on which to drill, which will create a multi-year drilling inventory in the asset sale. At present, the
assets on the land sale produce 2,400 barrels of oil equivalent per day — or a combination of oil, natural gas and natural gas liquids. David Stover, Noble Energy’s chairman, president and CEO, said Noble’s energy is focused in northeastern Weld County, which will keep the company competitive, even with this sale. Noble also will retain 31,800 acres in the sale area. The acreage remains dedicated to Noble Energy’s midstream business for oil and water gathering, as well as freshwater services, Noble’s release stated. The sale represents the latest for Noble totaling more than $775 million in proceeds this year, “which further enhances our flexibility to strengthen our investment-grade balance sheet and accelerate activity levels once justified by higher commodity prices,” Stover said in the release. The lands are largely contiguous around Greeley, and they contain mostly vertical wells. The area is ripe for horizontal drilling, which allows companies to reduce their drilling footprint with multiple wells on one pad site. “In the long run we’ll get rid of lot of vertical wells to come and lessen the footprint,” Peterson said. Peterson said company officials will sit down with Greeley officials to lay out their plans going forward. The company already is working on the Bestway drilling project at 4th Street and 35th Avenue in Greeley. Peterson declined to say where future drilling areas could be. “We’re part of the community, and we want to continue to be that,” Peterson said. “We’ll try to do it the right way.” The deal is expected to close later this year. Synergy will finance the deal with cash on hand and proceeds from “financing transactions, including a private placement of $80 million in notes for which it has a commitment letter in place.” Synergy also in May announced it would offer up 45 million shares of common stock to help
finance a portion of the acquisition. That $27 million Adams County sale equates to 3,700 undeveloped acres and 107 vertical wells. With these transactions, the company will have an interest in roughly 47,200 net largely contiguous acres in the company’s defined Wattenberg fairway area and approximately an additional 22,000 net acres of other Wattenberg acreage, the release stated. “This was a unique opportunity to acquire a contiguous block of acreage in the heart of the Wattenberg Field that may never present itself again,” Peterson said in the release. “This acquisition presents the opportunity to develop a largely de-risked leasehold predominately through mid- and extendedlength lateral wells and, since the acquired assets are largely held by production, we maintain our flexibility to deploy capital when appropriate.”
Synergy first quarter Synergy Resources in May reported a net loss of $51.4 million in the first quarter of 2016. As of March 31, the company’s cash and equivalents totaled $50.9 million and it had $145 million of availability on its credit facility for total liquidity of $195.9 million, the release stated. Net oil and natural gas production increased 65 percent from the same time last year, and averaged 11,510 barrels of oil equivalent (crude oil, natural gas ans natural gas liquids) per day versus an average of 7,029 BOE/d in the same period a year ago, according to the release. JULY 2016 ENERGY PIPELINE 13
Therapy Horses
Special needs students, PDC Energy volunteers spend day with Colorado Therapy Horses in Greeley BY Nikki work • for energy pipeline George Zadel, one of the students in Johnstown/Milliken Re-5J School District’s special education program for students ages 18-21, leans into one of the horses May 12 at the Colorado Therapy Horses in Greeley. The equine therapy program focuses on building bonds with the horse rather than on riding. Photo by Nikki Work/nwork@greeleytribune.com.
Spending time with the horses at Colorado Therapy Horses is good practice for KC Jones. The 19-year-old is graduating high school this year, and he’ll walk into the future next to hooves — or paws, or claws. He wants to work on a farm or a ranch, but he hasn’t made too many decisions yet. As long as there are animals, he’ll be happy. That’s a few years off for Jones, though. First, he’ll be in
Johnstown/Milliken Re-5J School District’s special education program for students ages 18-21 next year. The program started this year to help students transition into the next phase of their lives after high school graduation. Teacher Kacy Little Owl brought the program’s participants and future students, like Jones, to the Colorado Therapy Horses ranch in Greeley on May 12 for a preview of what the program holds. Jones, sporting a wide grin
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under a wider-brimmed cowboy hat, couldn’t have been happier with the sneak peek. “I love being around horses,” Jones said. The Johnstown/Milliken program was one of three special needs classrooms invited to the Colorado Therapy Horses. When they got to the field, which just recently dried up enough for hooves and boots to plod through, a group of volunteers from PDC Energy was waiting alongside the horses. More than 30 PDC employees fed the animals, cleaned stalls and did other ranch duties while the groups of students came and went, all so they could see the magic in person. Magic is exactly what happens when you put people in a field with horses, said Colorado Therapy Horses founder Richard McMahan. He pointed around the pasture, where special needs students and volunteers alike laughed as dark brown and black Trakehner horses snuggled into the students’ arms and gnawed on hay. Nearly everyone was smiling. Colorado Therapy Horses was one of many nonprofit organizations PDC Energy chose to support on its annual companywide volunteering day called “Energizing Our Community.” McMahan said. Other employees went to places like the Boys & Girls Clubs, other equine rescues and more. Unlike many other equine therapy groups, visitors to Colorado Therapy Horses don’t ride the animals. Instead, they groom, feed, halter and lead them. It’s about bonding with the horse and finding self-confidence, Susan Fakharzadeh, community relations manager for PDC
Colorado Therapy Horses hosts barbecues The Colorado Therapy Horses, along with PDC Energy and Boy Scouts of America Troop 247, will host monthly barbecues for veterans, first responders and their families. The events will include a church service by Church of the Wind, lunch and a chance to meet the horses. Dates: July 17, Aug. 14, Sept. 18 and Oct. 16 Times: Church service begins at 10:30 a.m., Barbecue is 12:30-4 p.m. Where: 5206 F St., Greeley RSVP/more information: (970) 302-5204
Energy, said it was great to watch not only the students interact with the horses, but also her coworkers. She said on the way to the ranch, she told the volunteers they would get more out of the day than they gave. She said her promise came true. “I think it’s great to watch people just get out of their daily lives,” she said.
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TECH TALK
Electrodialysis of produced water for optimal reuse in water flooding BY gary beers • For eneRGY PIPELINE
Every problem contains within itself the seeds of its own solution Stanley N. Arnold, American Management Consultant The availability of water for hydraulic fracturing and for water flooding is one of the major problems faced by oilfield operations. Early solutions involved reliance on nearby municipal and agricultural suppliers of water; however, advances are being made to recycle produced water to meet these two oilfield demands. Obviously, the establishment of this water recycling loop is the basis for a sustainable solution within the oilfield operations. These two water demands are different in duration and volumes. • Hydraulic fracturing is a short-term action needed after a new well is drilled or years later when the well is upgraded to increase production. Several million barrels of water are needed for each of these actions. • Water flooding is a long-term action where water is injected to flush additional oil in the reservoir toward extraction by production wells. Typically, oil production is increased for decades by this secondary recovery step. Hundreds of millions of barrels of water are needed for this multi-year process. The supply of produced water increases over time as wells continue to produce oil. Typically, this supply far exceeds the hydraulic fracturing demands as the oilfield is built-out and disposal of produced water emerges as major expense and environmental problem. Water flooding can consume a major portion of the produced water; however, this option is sensitive to the cost of treating produced water over the decades. Produced water is high in salts which must be
16 ENERGY PIPELINE JULY 2016
lowered before this water is suitable for injection to enhance oil recovery. The purpose of this column is to describe a treatment process that can manage the salt levels employing a technology that economically capitalizes on the ionic properties of produced water. The resulting treated produced water is well suited for water flooding.
Separation of Ions based on Electric Charge (Electrodialysis) Electrodialysis (ED) is an electrically-driven, membrane process that is capable of separating selected ions from water (Figure 1). Two types of selectively permeable membranes are placed between an anode and cathode, which generate a direct current through the water contained in a water-tight compartment. Thus, the ions in the feed entry will migrate to the electrode of the opposite charge. For example, positively charged sodium ions will migrate towards the cathode and negatively charged chloride ions will migrate towards the
For over 50 years, Gary beers, has worked in numerous fields of environmental science as a consultant, regulator and educator. This career included senior management position with major consulting, nonprofit and public organizations. He has founded several successful firms to capture emerging resource management markets. One of his latest ventures, EnviroScienceINFO, provides content for public media.
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anode. However, the membranes will control this migration process:that is, the anion transfer membrane (positive membrane, A) allows only the passage of negatively charged ions and the cation transfer membrane (negative membrane, K) allows only the passage of positively charged ions. When produced water (feed entry) is introduced to the electrodialysis process, the salt will be removed and the exiting water will be lower in salts (total dissolved solids or TDS ). The removed salts will exit the process as a concentrate stream which can be recycled through the process to control the TDS level in the exiting water. The electrodialysis process has been used for decades with most application to water developed by General Electric. Recently, a Canadian firm (Saltworks Technologies, saltworkstech.com) has upgraded the ED process with patented additions* and successfully treated produced water to meet the optimal TDS (2,000 mg/l) for low salinity water flooding. Examples of chemical data for the inflow and outflows are provided in Table 1. The TDS content of the two outflows can be adjusted through the extent of recirculation of the concentrate and produced water mixtures. Treated water with lower TDS would be a candidate for other beneficial uses (i.e., agricultural waters), while treated waters with high TDS, also, would be a candidate for beneficial uses (i.e., dust control on unpaved roads). This advanced treatment technology holds substantial promise for supporting additional recycling of produced water to beneficial uses and, thus, reduce the need for final disposal options (i.e., injection wells, evaporative ponds). *The advanced electrodialysis process (EDX) includes improvements to treat higher salinity waters, to minimize accumulations on membranes through reversal of polarity in water chamber, to provide self-cleaning capabilities, to reduce needs for pre-treatment of produced water, to minimize damage to polymers which maximizes their continued reuse in water flooding, and to minimize generation of a residual solid waste for disposal. The firm reports the total cost of ownership (CAPEX and OPEX) is site and TDS dependent and estimated in the range of 16 cents to 32 cents per barrel of produced water treated.
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Table 1. Chemical Data Water 2,280 937 2.89 9.59 6 939
Concentrate (Brine) 38,800 13,800 77.5 277 154 22,300
Re
l
Picture it differently.
Parameter (mg/l) Inflow Produced Water Outflows Low TDS TDS 10,200 Sodium 3,960 Calcium 80.4 Magnesium 57.1 Potassium 40 Chloride 5,300
T
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Chuck Sylvester, a LaSalle farmer, points out the Poudre River, which runs right next to his land. When the river flooded in 2013, it caused significant damage to his home and barn. He’s relied on money from oil and gas leases to make his house livable again. Photos by Nikki Work/nwork@greeleytribune.com.
Going Up or down? Agriculture community also affected by oil and gas slowdown
BY Nikki Work • nwork@greeleytribune.com
W
hen the South Platte River flows high, Chuck Sylvester doesn’t get nervous. He grew up on the river. His family’s farm has been in LaSalle for 150 years. High water, low water — he’s seen it all more times than he can count. But he’s only seen the water rise higher than the doorknob of his garage once. He and his wife have only had to escape via a tractor and watch from a nearby hilltop as the foundation of their house disappeared underwater. The house is raised 4 feet off the ground. If it were 2 more feet off the ground, he thinks they may have been OK. As it was, they weren’t. “It’s just part of the trials and tribulations you go through,” he said. “God’s just testing to see if we’re strong enough to stay alive.” The 2013 floods in Weld County caused
18 ENERGY PIPELINE JULY 2016
significant damage to Sylvester’s property. If it weren’t for the oil and gas wells on his land — and the monthly checks he receives from the leases — Sylvester said his family never would have been able to make the necessary repairs to keep their house livable. Farmers and ranchers often use oil and gas royalties as fallback money when things go wrong, like during natural disasters or when commodity prices fall. But when the royalties are lo w and commodity prices are low, like now, when they’re both at their lowest in 10 years, that can cause significant struggles. Farmers aren’t new to volatile markets. Commodity prices are always sliding up and down, and Colorado Farm Bureau President Don Shawcroft said farmers were expecting the oil and gas bubble to burst, though how quickly and severely it did came as a surprise.
Even now, almost three years after the floods, Sylvester is still working to undo the damage done by one week of weather. The difference is the checks coming from the oil and gas companies are smaller these days. Farmers and ranchers have worked with oil and gas companies since development began in the state more than 30 years ago. While these relationships have both give and take, the two sides have come to agreements to make the partnerships profitable and livable. In the early days — the 1980s and ‘90s — the two industries were often at each other’s throats. In a 2015 Energy Pipeline article, Greeley farmer Dennis Hoshiko said the relationship now couldn’t be more different than it used to be. “It’s like night and day,” he said. “It’s by no means perfect, but the relationship between
the two is remarkably better.” Oil companies work around farmers’ dayto-day operations, give right of way to animals, try to minimize traffic and clean up sites when they’re finished. Farmers lease the land to the oil companies so they have the land to drill on, which is getting harder to access due to urban sprawl. After years of working together, it’s symbiotic. “We’ve heard from the agriculture community that these royalties and payments help farmers and ranchers through their lean years,” Flanders said. “They use these funds to put their kids through college or pay off an inheritance tax so they can keep their farm in the family. These checks make a real impact in people’s lives.” But at the end of 2014, oil and gas prices dipped, so production started to slow. By the end of 2015, the price per barrel fell to less than $40, and drilling had come to almost a
halt. In Weld County, the leading oil producing county in Colorado, the rig count fell from more than 60 in 2014 to less than 20 in 2016. “It’s been difficult – we’ve seen some layoffs and we’ve seen office closings. The rig count compared to last year is down by two-thirds,” said Doug Flanders director of policy and internal affairs of COGA. The industry continued to slip at the start of 2016, but is finally beginning to see some gains. At the beginning of June, the price per barrel was hovering just below $50 — a much healthier market. As the downturn hit the oil industry, it impacted farmers, too. More than 600,000 people in Colorado own mineral rights of some sort, according to the Colorado chapter of the National Association of Royalty Owners, many of whom are in the agricultural community. Shawcroft estimates at least 10,000 farmers and ranchers have wells on their property.
“There are a number of (Colorado Farm Bureau) members certainly who are very concerned about it,” Shawcroft said. “We hear from them and those royalty checks being less. It’s not a majority of our (more than 24,000-person) membership by any means, but definitely a significant number of farmers and ranchers are in that situation.” Shawcroft said there’s an old joke among farmers throughout the Midwest, where the typical crop rotation includes corn, soybeans and wheat. Farmers around there always joke that the best rotation around the farm is an oil well — it’s consistent, there are basically no input costs and the impact on the owner is fairly low. But when that well runs dry, it hurts, Shawcroft said. Many farmers include their mineral interests in loan plans they propose to the bank. When the oil and gas money doesn’t hit its expected numbers, the entire budget has to change in order for the farm to stay
Semi-retired farmer Chuck Sylvester stands near the crude oil storage at one of the oil wells on his property in LaSalle. Many farmers and ranchers in Colorado use money from oil and gas royalties to fall back on when commodity prices fall. Now, with oil prices and commodity prices low, these ag producers are looking to supplement their income in other ways.
JULY 2016 ENERGY PIPELINE 19
When floods caused massive amounts of damage to his home and barn in 2013, Chuck Sylvester relied on the money from oil and gas leases to make necessary repairs. Now that the royalties are lower, he’s had to put off finishing the repairs, like those to this barn.
profitable, Shawcroft said. For Sylvester in LaSalle, the prospects aren’t that grim. He’s semi-retired. He only raises a couple horses on his pastures and leases his cropland out to some younger farmers. For the Sylvesters, the checks for his several wells through companies like Noble, have never been a primary source of income. In the good times, the oil and gas income has helped the Sylvesters support scholarships for 4-H kids in Weld County. It’s helped them uphold water and land stewardship, something which is a passion for both Sylvester and his wife, Roni. Until the oil money picks back up, those things may have to fall by the wayside. If they relied on the checks for income, or something bad were to happen now, which Sylvester knows better than to count out, his safety net is all but gone. That said, he knows oil and gas has its peaks and valleys, and he believes there will be another peak. The number of wells on his property changes cyclically dependent on the lives of the wells — it always has since the first well was drilled in 1980. “The energy industry is kind of like farming. It has its ups and downs,” Sylvester said. “There’ll be better days, (we) just have to wait it out.” Other Colorado farmers, like Jim Park, who farms east of Kersey, said the oil and gas money has always been supplementary. Though the Parks, who farm alfalfa and corn, have never seen too much development on their property, 20 ENERGY PIPELINE JULY 2016
Park said the royalties they do receive are shrinking. “Because the price of oil is half or less, it’s slowed up the royalties some,” he said. Though his operation hasn’t seen much change, he’s seen it happening around him. “I know some of the guys around, they’re shutting in some of the wells. They’re even shutting some of them down.” Shawcroft said in the past, when commodity prices fell, farmers typically relied on other sources of income, like their oil and gas royalties. Since these payments are shrinking at the same time as corn, beef and other commodity prices are slipping downward, farmers are looking to supplement in other ways. Shawcroft said this dichotomy is forcing farmers to get creative in how they market
their product and how they produce. Some are cutting spending on necessary items like fertilizer in hopes that their yields are still large enough and crop quality is still viable enough to carry them through the season. While Shawcroft said many farmers hope the oil market will turn around soon, the ag community as a whole is more concerned with the crop and livestock market. That’s their industry — the one they actually can impact. Everything else just tops off the tank. “There’s a lot of those folks that have interests in oil and gas and they recognize it is a very pleasant thing to have a significant amount of income coming from,” Shawcroft said, adding with a laugh that unlike agriculture, “production of oil is not very susceptible to weather.”
We live on... The Colorado Farm Bureau keeps energy issues, including the development of mineral interests, among its top legislative and policy priorities every year. Don Shawcroft, president of the Colorado Farm Bureau, said oil, gas and natural energy development are all key to agricultural production. “Natural resources are what agriculture and what the rural lifestyle really are all about,” Shawcroft said. “We live on, we rely on and we enjoy the natural resources from water, soil, mineral interests and the beauty around us.”
Making hole A look back at the origins of oil and gas BY BRUCE WELLS • American Oil & Gas Historical Society
Yellow Dog – Oilfield Lantern In many producing states, it is rare when the community oil and natural gas museum that doesn’t have a “yellow dog” in its collection. The strange, two-wicked lamp is an oilfield icon. Some say the lamp’s unusual design originated with whaling ships, but neither the Nantucket nor New Bedford whaling museums can find any such evidence.
Inventor Jonathan Dillen designed a lantern for use in the Pennsyvlania oil regions, “where the explosion of a lamp is attended with great danger by causing destructive conflagration.
Railroad museums have collections of cast iron smudge pots, but nothing like these heavy, oddshaped, crude-oil burning lanterns once prevalent on petroleum fields from Pennsylvania to California. Although many companies manufactured the iron or steel lamps, the yellow dog’s origins remain in the dark. Oil patch lore says these lanterns were so named because their two burning wicks resembled a dog’s glowing eyes at night. Others say the lamps cast a dog’s head shadow on the derrick floor. Inventor Jonathan Dillen of Petroleum Centre, Pa., was first to patent what became the Yellow Dog lantern of the early oil patch. His U.S. patent was awarded on May 3, 1870. The lamp was designed “for illuminating places out of doors, especially in and about derricks, and machinery in the oil regions, whereby explosions are more dangerous and destructive to life and property than in most other places,” Dillen noted in his patent application. “My improved lamp is intended to burn crude petroleum as it comes from the wells fresh and gassy,” Dillen further proclaimed. “It is to be used mainly around oil wells, and its construction is such as to make it very strong, so that it cannot be easily broken or exploded.” Dillen’s patent was improved and reissued in 1872 and again in 1877, when it was assigned to John Eaton and E. H. Cole. Eaton, Cole & Burnham Company grew from John Eaton’s 1861 business trip to the booming oil region of western Pennsylvania. Within a few years, he set up his own supply business with Edward Cole. With the addition of Edward Burnham, the company grew to become a preeminent supplier of oilfield equipment. It became Oil Well Supply Company in 1878. At its 45-acre Imperial Works along the Allegheny River in Oil City, Oil Well Supply produced oilfield engines and “cast and malleable iron goods” – including yellow dogs. The 1884 catalog listed yellow dog lamps at a price of $1.50 each. Oil Well Supply became part of United States Steel Corporation in 1929. Today, along with their shadowy origins, yellow dogs are relegated to museums, antique shops and collectors.
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.
JULY 2016 ENERGY PIPELINE 21
Every bolt and joist. Every permit and approval. It all needs to come together, quickly and efficiently. Choose a partner who will make each connection a strong one. Incorporated in the “Keystone State,” Forest Oil’s logo features the iconic Every bolt and joist. Every two-wicked lamp invented in 1870. permit and approval. It all Forest Oil Corporation is credited with developing a secondary needs to come together, recovery of oil technique (water-flooding) in the early 1900s – a quickly and efficiently. Choose revolutionary event for the petroleum industry at that time. Forest Oil adopted an image of the yellow dog derrick lantern a partner who will make each its corporate logo in 1916, when Forest Dale Dorn and Clayton Every bolt and joist. Every permit and approval. Itasall connection a strong one. needs to come together, quickly and efficiently. Choose Glenville Dorn established an oilfield service company in northern
a partner who will make each connection a strong one. Pennsylvania. The company’s roots can be traced to the nation’s first
Landmark Builders, Inc. 970-330-8855 Joe Morton www.landmark-builders.com
Landmark Builders, Inc. 970-330-8855 Joe Morton www.landmark-builders.com
giant oilfield in Bradford, discovered in 1871. By 1916, oil production in the Bradford field had declined to just under 40 barrels a day. The reserve was considered by many to be dry. Undeterred, Dorn applied his new water-flooding technique to start secondary recovery of oil. The success of Dorn’s method prompted him to create his own water-flooding company. Within five years, Forest Oil was recognized as a leader in secondary oil recovery systems. The Forrest Oil logo’s keystone shape in the center of a Yellow Dog lantern symbolizes the state of Pennsylvania – where the first commercial U.S. oil well was drilled in 1859. The company is now headquartered in Denver. For further illumination, visit the Penn-Brad Historical Oil Park and Museum just south of Bradford — where the modern natural gas shale boom has renewed the historic oil patch economy. The Penn-Brad oil museum “preserves the philosophy, the spirit, and the accomplishments of an oil country community – taking visitors back to early oil boom days of the first billion dollar oilfield.” “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.
Landmark Builders, Inc. 970-330-8855 Joe Morton www.landmark-builders.com
22 ENERGY PIPELINE JULY 2016
A museum near Bradford, Pa., educates visitors about a region that once produced 75 percent of U.S. petroleum.
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
Jun 17. 16 46 58 24 191 5 8 12 13 7
May. Avg. 16 45 57 24 182 5 6 10 16 7
April Avg. 17 47 62 27 196 4 8 11 16 8
NO. (% OF STATE TOTAL)
Weld................................................................................................660 (62%) Garfield ..........................................................256 (24%)
Mar. Avg. 17 47 63 27 197 4 8 12 17 9
La Plata ..........40 (3.7%) Rio Blanco...30 (2.8%) Adams........27 (2.5%) Jackson...18 (1.7%) State................1,060 Source: Colorado Oil and Gas Conservation Commission as of June 1
PRODUCTION COUNTY *YTD
Source: Baker Hughes Rig Count. June 17
2016 GAS PRODUCTION
COUNTY *YTD PRODUCTION (% OF STATE) Weld........................................150,650,923 (37.2%) Garfield...................................118,907,142 (29.4%) La Plata ....................................75,873,754 (18.7%) Las Animas ................................ 17,793,483 (5.6%) Rio Blanco .................................. 13,392,925 (3.3%) Mesa ........................................... 8,746,926 (2.15%) State ......................................................405,125,480
2016 OIL
US RIG COUNT
The U.S. rig count peaked at 4,530 in 1981 and bottomed at 488 in 1999. Area June 17 May Avg. April Avg. Mar. Avg. U.S. 424 409 438 447 Canada 69 42 41 45 Source: Baker Hughes Rig Count, June 17.
PRODUCTION (% OF STATE)
Weld 25,415,223 (89.4%) Rio Blanco 1,090,616 (3.8%) Garfield 351,159 (1.2%) Cheyenne 281,902 (0.99%) Arapahoe 261,511 (0.92%) Larimer 257,648 (0.9%) Lincoln 173,314 (0.61%) Adams 159,825 (0.56%) State 28,432,900
Source: Colorado Oil and Gas Conservation Commission as of May 31.
Source: Colorado Oil and Gas Conservation Commission as of May 31.
COLORADO ACTIVE WELL COUNT
Weld ..........................................................................22,779 Las Animas .................................................................2,961 Garfield ..........................................................................11,084 Rio Blanco ...................................................................2,897 Yuma ...........................................................................3,878 State .........................................................................53,749 LaPlata........................................................................3,326 JULY 2016 ENERGY PIPELINE 23
Source: Colorado Oil and Gas Conservation Commission as of June 1.
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