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SEPTEMBER 2016 ENERGY PIPELINE 3
Features
18
12
OIL PRICES
GREENHOUSE GASES
Oil prices will need to climb higher to kick-start stalled drilling in Weld County.
Energy industry helps lower CO2. By Kathleen Duff
By Sharon Dunn
8 OIL & GAS HEALTH
ON THE COVER
Weld County health incidents level with rest of state despite more oil and gas development.
Design by Joshua Aho
By Bridgett Weaver
11 14
FAIR SALE
Oil, gas companies buy Weld County Fair animals. By Samantha Fox
PDC PLANS CHANGE
PDC Energy abandons west Greeley relocation plans.
Departments 16
Tech Talk
20
Making Hole
22
News Briefs
By Sharon Dunn
4 ENERGY PIPELINE SEPTEMBER 2016
Converting flared gas to electricity at the tank battery. By Gary Beers
First Lone Star discovery. By Bruce Wells
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BUSINESS PUBLISHER Bryce Jacobson EDITOR Randy Bangert GENERAL MANAGER Bart Smith BUSINESS MANAGER Doug Binder MANAGING EDITOR Sharon Dunn CONTRIBUTING WRITERS Gary Beers Kathleen Duff Samantha Fox Bruce Wells Bridgett Weaver
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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
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SEPTEMBER 2016 ENERGY PIPELINE 7
OIL & GAS HEALTH Weld County health incidents level with rest of state despite more oil and gas development
BY BRIDGETT WEAVER • FOR ENERGY PIPELINE
Standing 50 feet away from someone who is smoking a cigarette probably won’t give you lung cancer. Sure, secondhand smoke is harmful, but just like any fume, smoke dissipates with distance. Dr. Larry Wolk, with the Colorado Department of Public Health and Environment, uses this example to explain why there are rules about how far oil and gas wells must be from other development. “If you’re smoking and inhaling a cigarette, it’s a lot different than if you’re standing 50 feet away from somebody who’s smoking,” he said. Wolk, who is the executive director and chief medical officer for the health department, said as long as people aren’t standing on a well and inhaling the fumes, there is no apparent health risk. “I’m not going to tell anybody to go drink a pint of liquid petroleum or stand over an active well site and wave the fumes in to breath them in,” Wolk said. “Nobody would argue that this stuff isn’t toxic, but it’s all about exposure to toxins, and we don’t see anything to be concerned with at this point in time.” Despite public fears that oil and gas development is causing asthma, birth defects and cancer, statistics from the health department show oil and gas has not affected the general health of Weld County, which produces 90 percent of the state’s oil. An intense disagreement has waged between the two sides of the oil and gas development coin. Groups against further development 8 ENERGY PIPELINE SEPTEMBER 2016
claim it is ruining the environment, livability and peoples’ health. But those who support the industry say the opposite. The debate will come to a head this November if two proposed initiatives make it to the ballot. The initiatives would allow local governments to ban oil and gas development and require all future drilling to be 2,500 feet from residential structures and “areas of special concern” such as playgrounds, rivers and streams. Opponents, and state officials, say that measure alone could stop drilling altogether by limiting the available drilling space. The health department statistics show it at least doesn’t impact health in ways previously thought. Bill Jerke, executive director of Fostering Unity and Energizing Leadership (FUEL) Colorado, gives presentations aimed at refuting the claims that oil and gas development hurts locals’ health. FUEL defines itself on its website as an alliance of Weld public and private sector officials committed to increasing the public’s understanding of the natural resources industry in Weld. “We’ve had at least 10,000 wells or more in Weld County for about 30 years or more and with that number of wells, we clearly have been the canary in the mine,” he said. “It’s obvious that there would be health effects if indeed oil and gas was causing health issues that would take us out of the normal range. If it was going to be a problem, it should have shown up long ago, but it hasn’t.”
The statistics show that even though Weld has about 70 percent more active wells than other northern Colorado counties, it does not have more health issues. Wolk said he believes there is not causal relationship between development and chronic diseases. He said the department looked at the data collected to check for negative patterns in health. Each piece of data is collected differently — some are monthly and some are only annually, but most of the data is collected from each county’s health department. Mostly, Wolk said, the Colorado health department officials want to stay impartial to any political issues, and just see what the cold, hard statistics show. “We want to make sure that we stay very much objective and neutral and just report the facts,” he said. The numbers, which were reported in two-year increments between 2008 and 2012, show that Weld does not have significantly more, and in many cases, it has fewer, instances of asthma, cancer, birth defects, infant mortality and low birth weights than other Front Range counties. Wolk started by looking at the number of wells in each area, then compared it to the reported instances of health issues. In Weld, there were 22,088 active wells in 2015. In Larimer there are 257 active oil and gas wells. Boulder reported 316 and Denver reported only 52. Lisa McKenzie, a University of Colorado research professional who has studied the
health effects of oil and gas development, said those numbers are inconclusive because they were collected mostly at the county level, which leaves room for dilution. When looking at Garfield County (which was not included in these numbers), McKenzie said the problems in collecting statistics in this way becomes obvious. “In Garfield County, almost all of the oil and gas wells are in the western part of the county, and there are almost none in the eastern part,” she said. “So if you looked at all the birth defects in Garfield County, because
But it’s a little harder to dismiss the statistics in Weld, which has 85 percent more wells than other counties. “It says that there’s no reason to believe that there is a causal relationship between oil and gas operations and chronic diseases or cancers,” Wolk said. “That plays out in the end numbers.” A study released in 2014 by a research team, headed up by McKenzie, with the Colorado School of Public Health caused some concern on the topic of birth defects found in children, but because of the narrow
WELD
BOULDER
DENVER
257
22,088
316
52
(OIL & GAS)
ACTIVE WELLS
LARIMER
10%
LARIMER
WELD
BOULDER
DENVER
HEALTH INCIDENTS
8% 6%
4%
2% 0% Asthma > 18 yr. old
Cancer
Birth Defects
Infant Mortality
Low Birth Weight
< 1 yr. old
Source:Colorado Colorado Department of Health Environment, Colorado Health Indicators Source: Department of Health andand thethe Environment, Colorado Health indicators
the people living on the eastern side have no (or little) exposure to oil and gas, you could see where that might be diluted out.” In other words, she said, there might be only 7 percent suffering from cancer, but if all of that 7 percent lives in close proximity to a well, it’s worth looking into. “That’s a major limitation of that study, when you aggregate up to the county level,” McKenzie said. “It’s far from conclusive.”
factors the study considered, Wolk said he thought the study was inconclusive. The study, called “Birth Outcomes and Maternal Residential Proximity to Natural Gas Development in Rural Colorado,” showed that certain birth defects are as much as 30 percent more common among mothers living near natural gas wells. But, McKenzie said, her team recognized the limitations of their study.
“Research is a slow process, and it oftentimes takes place in steps, so you do the less expensive, simpler studies first, and if those are indicating there might be potential for health defects, that provides justification for the larger studies,” she said. “So it’s progressive.” McKenzie said it’s not the job of the study to make conclusive ties between birth defects and oil and gas development because this was a preliminary study. “I think right now what we know is that our study indicated that those living in closer proximity to oil and gas wells had a higher likelihood of having a child with a congenital heart defect,” she said. “But that’s not enough to show that oil and gas development causes those heart defects.” McKenzie said that her team has received funding from the American Heart Association to continue its research. “We’re working on addressing the limitations in that first study that we published,” she said. She said it’s important to continue on to the next phase of research on this topic because there are an estimated 375,000 Coloradans living within a mile of oil and gas development. Wolk said research like McKenzie’s is relevant, but residents should take the time to understand that it’s the first in many steps to proving an issue. McKenzie agreed. “People should do their own research before making assumptions,” Wolk said. “I want to make sure people aren’t presuming there’s a health hazard. We wanted to make sure the public wasn’t unnecessarily misled.” Pete Stark, with IHS, an Englewood-based market analytics firm, said he thinks there’s a lot of confusion around oil and gas development, which causes other problems. “I think that what we see when you get heightened concerns over any industrial type operation, is that you get a lot of heightened negative messages,” he said. “The inferences are that (development) is absolutely much, much worse than reality.” He said there are still a lot of negative feelings revolving around development, especially hydraulic fracturing. But when hard facts, like those from the health department, are presented, it’s easier for all parties to understand and make compromises. “We are more sensitive to those concerns today,” he said. “But when you have better, hard data and facts, then the industry and residents can respond with quite reasonable solutions.” SEPTEMBER 2016 ENERGY PIPELINE 9
FAIR SALE
Oil, gas companies buy Weld County Fair animals BY SAMANTHA FOX • FOR ENERGY PIPELINE Kylie Kayser, 13, smiles as she walks her pig away from the auction area in July during the Weld County Fair Junior Livestock ale at Island Grove Events Center in Greeley. Kayser was among the hundreds of kids showing and selling their animals. Photos by Joshua Polson/jpolson@greeleytribune.com.
The mixed emotions were easily found between smiles and puffy red eyes. It was a bittersweet day Aug. 1 at the Junior Livestock Sale, the final event of the 2016 Weld County Fair. The auction was really the day 4-H kids prepared for when they got their animals, but it was one that came at a price.
For some, that price was saying farewell to part of the family. Alyssa DePorter, 18, was the first 4-H kid to walk into the auction circle. Family surrounded her, as she walked her steer, named Touch Down, around the ring for a final time. Her family held up the accolades Touch Down earned at the Weld County Fair — among them a purple grand
TOP DOLLAR Area oil and gas companies shell out cash to help 4H kids’ futures Category Beef Turkey Swine
Shown by Alyssa DePorter Grant Vickland Libby Schelich Cade Simpson Rayna Hodgson Dakota Morgan Karsyn Fetzer Cal Sidwell
10 ENERGY PIPELINE SEPTEMBER 2016
Placement Grand champion Reserve Grand champion Grand champion Reserve Reserve Reserve Reserve
Purchaser PDC Energy, Inc. Bill Barrett Corp. Anadarko Petroleum Anadarko Petroleum PDC Energy, Inc. Select Energy Services PDC Energy, Inc Bonanza Creek
Price $9,500 $4,600 $1,100 $6,750 $4,000 $600 $5,800 $5,750
champion banner. The bidding started with a couple reminders from the auctioneer it was the grand champion up for grabs. “Sold, for $9,500.” PDC Energy was the first buyer, and the Eaton girl was happy about it — to an extent. “There’s excitement before and after,” she said. “It’s going to be hard. I love Touch Down. He’s my baby.” Then she paused. The tears were about to come out of her eyes, but that’s because Touch Down is family. DePorter said she loves being in 4-H and working with the animals, but it’s still hard. The kids know their goal is to sell the animals — if not at the Weld County Fair, then at the Colorado State Fair. It still makes selling them a mix of emotions. The ability to work with an animal and do well is a proud moment. “I feel like I’ve accomplished something, and I’m proud to be in 4-H,” said Libby Schelich, 12. Libby, of Eaton, got $2,100 between her two turkeys, named Handsome Man and Chicken Little. Handsome Man wore a striped pink tie, so it was easier to tell the two
males apart. Libby got $1,100 from Anadarko for Chicken Little, her grand champion. Handsome Man took reserve and sold for $100 less. First-year 4-Her Cade Simpson, 8, of Ault got $6,750 for his grand champion pig, Porkchop. Cade said the last week was crazy, but Porkchop did well. Cade said the timing of the swine show Saturday helped Porkchop. The pig gets crabby in the morning because he doesn’t like waking up, so the pair did just fine in Saturday’s show. The reality that he sold Porkchop didn’t set in for Cade, but the lesson from the sale is one his mom said is important. “They’ve got to understand the food cycle,” Marinda Simpson said. The sale also was a chance to learn how the economy can work. For the kids who have sold at the county fair before, there has been a decline in prices in recent years. “The gas and oil industry is a big contributer,” Carrie Huenink, treasurer for the sale committee said. “The ranchers and farmers aren’t doing as well as they had been, either.” The price for DePorter’s steer was well under the $14,000 for last year’s champion. But that was to be expected. Families decide where the money from the market will go, but a common theme is college. Grant Vickland, 18, of Longmont is one who will use his money toward college. He said he still plans on keeping livestock, but farming won’t be a main source of income. His steer brought in $4,600, and he said his reserve finish and market total means a lot, especially in Weld. “It feels great winning this one,” Vickland said. “It’s one of the hardest fairs in the country.”
Miranda Shea, 10, smiles as she walks her back to the barn after the beef auction at the Weld County Fair junior live stock sale in the Island Grove Events Center.
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GREENHOUSE GASES Energy industry helps lower CO2 BY KATHLEEN DUFF • FOR ENERGY PIPELINE
A federal report showing a 12 percent reduction in carbon dioxide emissions in the United States from 2005 to 2015 is encouraging news, particularly for a county as rich in energy as Weld County. Abundant resources of natural gas, wind and solar such as that found in Weld are playing a role in the reduction of carbon fuels and in the diversification of the energy industry. Weld is the No. 1 producer of oil in Colorado, but it also produces 26 percent of the natural gas and 25 percent of the wind energy in the state. It has a burgeoning solar presence, as well. The county also is home to three wind-turbine component plants owned by Vestas, which expects up to 10 percent of the world’s energy to be satisfied from wind power by 2025. Scott Denning, Ph.D., a professor of atmospheric science at Colorado State University, said the U.S. carbon dioxide reduction, as reported by the U.S. Energy Information Administration, is particularly positive because the nation’s economy grew 15 percent at the same time CO2 decreased. “It’s doubly moving in the right direction and shows that we don’t have to shut out the lights in order to reduce emissions.” Denning said the carbon dioxide decrease is driven by new technology, including directional drilling or fracking, which has made natural gas drilling more accessible, as well as more efficient construction building materials and energy market changes. Although natural gas emits carbon dioxide, it does so at half the rate of coal. “It’s actually a pretty hopeful story,” he said. He agreed Weld is well-positioned with 12 ENERGY PIPELINE SEPTEMBER 2016
WELD IS THE NO. 1 PRODUCER OF OIL IN COLORADO, BUT IT ALSO PRODUCES 26 PERCENT OF NATURAL GAS AND 25 PERCENT OF WIND ENERGY IN THE STATE. IT HAS A BURGEONING SOLAR PRESENCE AS WELL. its diverse energy portfolio, although he also noted much of the county’s abundant natural gas is being piped out of the state.
Meantime, the economic climate is changing, too. Natural gas is cheaper and cleaner, and demand for wind and solar energy is growing rapidly. China has boosted its role in wind power, which has reduced the price of wind power equipment due to economies of scale, making it more accessible throughout the world, he said. “What we are seeing in the energy industry is phenomenal,” Denning said. Solar is not a significant factor yet in energy production in Weld, but it does have a role, said David White, member relations manager of Poudre Valley REA. “Solar energy is an intermittent generation source as the level of generation is dependent on the amount of available sunlight. The demand for energy exists whether there is sunlight or not. Generation utilities need to have generation resources on standby to fill in the gaps caused by variations in available sunlight,” White wrote in an email. “Natural gas is the typical generation
source for standby since it can be ramped up and down much quicker than coal. As a result, this could cause a higher demand for natural gas than coal. This could certainly play a role in Weld County’s energy production.” The addition of two solar projects earlier
compared with about 59 percent of Colorado’s electricity by 2015. Still, challenges remain in Colorado. About one-third of the state’s CO2 emissions come from coal-fired power plants, another third from transportation sources (half from
this year means PVREA is generating enough power to meet the electric needs of more than 1,300 Weld homes. White added, “Renewable energy is a good fit for PVREA when three criteria are met. The project must be economically sound, maintain system reliability and conserve natural resources. The cost of solar generation has been steadily decreasing, which makes it a more economically competitive generation source. The change for PVREA is not necessarily a culture change, rather an economic one.” In Colorado, the market for renewable energy has seen a profound shift. Renewable energy accounted for one-half percent of all energy produced in Colorado in 2005, growing to more than 15 percent in 2013, according to Taryn Finnessey, climate change risk management specialist with the Colorado Department of Natural Resources. She said Colorado was the first state in the nation to adopt renewable energy standards, and the culture change is supported by Gov. John Hickenlooper’s commitment to address how Colorado can reduce greenhouse gas emissions. For example, wind energy accounted for 2 percent to 3 percent of annual electricity produced in Colorado in 2005. By 2015, wind produced more than 10 percent of the state’s electricity. Conversely, coal sources produced 72 percent of the state’s electricity in 2005
automobiles and half from commercial transportation) and one-third from industry and manufacturing. Colorado is in the midst of a pilot plan that brings a multitude of state agencies together to discuss how to implement the Colorado Climate Plan to reduce CO2 emissions. Denning explained Coloradans particularly should care about greenhouse gases because CO2 from natural and man-made sources traps heat from releasing into space. The warmer the air, the more water evaporates. That leaves forests, crops, reservoirs and grass without much-needed water even if rainfall or snowfall levels don’t change. “We don’t have too much water in
Colorado; we will notice the difference,” he said. With Colorado expected to be home to 8 million people by 2050, the evaporative climate will have a major impact. Denning said Colorado’s climate could more likely compare with Albuquerque’s if greenhouse gases are not reduced. President Barack Obama committed the United States to reducing greenhouse gas emissions by 26 percent to 28 percent by 2025 from 2005 levels as part of this year’s Paris Agreement — a goal Denning said is reachable given the progress shown in the federal report. Denning said additional creative measures will have to be taken to meet even more progressive goals of reducing emissions by 80 percent before 2050. He said carbon fee and dividend structures are being debated, in which fees are charged at the source of greenhouse-emitting fuel production, and the money is returned to households as a method of compelling alternative energy usage and support. “It would be left up to each country to get their set price and let the free market determine the outcome,” Denning said. He concluded, “Climate change is going to become an extremely serious issue.”
In south Weld County, a group of fire departments meets quarterly as a regional hazardous material training group to practice and prepare should a chemical emergency arise. The training group includes Fort Lupton Fire Protection District, Frederick-Firestone Fire Protection District and Mountain View Fire Rescue, which is based in Longmont. “They get together and do hazmat training scenarios, go over equipment and practice their skills,” said Fort Lupton Fire Protection District Chief Phil Tiffany. About once a year, the group tries to arrange a coordinated event — such as the one Halliburton hosted in Fort Lupton on June 23 — to practice in a hands-on training scenario. SEPTEMBER 2016 ENERGY PIPELINE 13
PDC PLANS CHANGE PDC Energy abandons west Greeley relocation plans BY SHARON DUNN • SDUNN@ENERGYPIPELINE.COM
PDC Energy has abandoned plans to rehab and move into a long vacant west Greeley building after roughly a year of work to rehab the property. The oil and gas company, one of the largest producers in Weld County behind Anadarko Petroleum and Noble Energy, had been planning since last fall to rehab the old AT&T building, which sits on an 8.84-acre plot just west of 87th Avenue and 20th Street in Greeley. Michael Edwards, senior director of investor relations for the company, confirmed the company is now selling the property. PDC has an existing office in Evans, and it still remains too small for the company’s purposes, Edwards said. “We put a lot of work into the rehab plans which will hopefully benefit a new owner,” Edwards said. “With over 150 employees associated with our Wattenberg operations, the vast majority who live in Weld, we remain very committed to greater Greeley, Evans and the Wattenberg.” The Wattenberg Field is a natural gas rich field in the center of Weld, in which companies have drilled since 1970. It continues to be lucrative for drilling operations. PDC enjoys an asset hold of roughly 96,000 acres in the field. Because of that longevity, Edwards said PDC will remain in the area. He said the company will look for a new home in the area, but he wouldn’t go into detail about the company’s plans. The property had become an eyesore in the past few years, and Greeley officials were excited to see it rehabbed and back on the tax rolls. “It’s kind of discouraging or frustrating that we got it to this point, and they decided to pursue other avenues,” said Paul Whalen, a planner with the city of Greeley who was working on the project. The building was originally developed in 1974 and has seen a number of tenants throughout the years. AT&T moved out about six years ago, leaving the building empty. It has since fallen into disrepair. PDC had to annex the property into the city, then get zoning approval, and then receive special permission from the planning commission for its specified use as a planned unit development. It was quite involved, Whalen said. The company also had extensive remodel plans, including a 1,000-square-foot additional entrance into the building that would be an aesthetic touch off 20th Street. Whalen said company officials may have encountered more issues than they anticipated, which pushed the costs of remodel significantly higher than they had planned. “Once they got into the demolition and got into the building, they realized it would be a bigger bite than they wanted,” Whalen said. The plan now, Whalen said, is to gut the building, seal it up and put it up for sale. 14 ENERGY PIPELINE SEPTEMBER 2016
A view of the old AT&T building from U.S. 34 in west Greeley. PDC Energy had planned for the last year to rehab the building into its new northern Colorado operations center. The company abandoned plans in August.
Edwards said the change in direction for the company — which has not had to lay off any employees in the oil and gas downturn, when other companies have — had nothing to do with the downturn and its effects on the company. Whalen said because of the zoning and prep work on the property, any new user would have to have a similar use. “It will have to be something comparable, something that the neighbors expected and lived with the last 30 years,” Whalen said. “I thought it was going to be a nice rescue of an existing structure that had become dilapidated and kind of a problem, so to see it not come to fruition is rather frustrating.
A view of the old AT&T building from 20th Street in west Greeley. PDC Energy had planned for the last year to rehab the building into its new northern Colorado operations center. The company abandoned plans in August.
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TECH TALK
Converting flared gas to electricity at the tank battery BY GARY BEERS • FOR ENERGY PIPELINE
FLARING GAS IS BURNING MONEY Bright lights dot many oilfields due to the common practice of burning off natural gas during oil/gas drilling and production to release pressure – a process called flaring. An estimated one-third of the natural gas produced during the fracking boom in North Dakota’ Bakken oilfield was flared (Fortune, K. Fehrenbacher, July 13 2016). These flares are essentially burning money. Using a supermaterial, a start-up company called Alphabet Energy has developed a solid-state technology to convert the exhaust heat of an enclosed flare into electricity. A well pad operator can offset thousands of dollars per month that would have been spent on generator fuel, rental and maintenance cost – all while ensuring reliability. Further, the generation of 2.5 kW of electricity with this technology is enough for operators to optimize production and ensure site safety by running a variety of site electronics (i.e., process equipment and SCADA)(M.Pahl, Vice President, Alphabet Energy). The substitution of this new technology will reduce methane emissions and will eliminate diesel and natural-gas powered generators as sources of carbon dioxide and nitrous oxide gases. An initial installation is present in Ohio’s Utica Shale region with follow-on installations at Encana overseas operations
THERMOELECTRIC POWER GENERATION: TETRAHEDRITE To appreciate the above break-through recognition and use of a specific thermoelectric material, the following scientific background is helpful “Thermoelectric materials can turn temperature difference into electricity by exploiting the flow of electrons from a warmer area to a cooler one. Thus, 16 ENERGY PIPELINE SEPTEMBER 2016
they can theoretically turn waste heat into a power source. But an efficient thermoelectric material has to conduct electricity well without conducting heat well, because otherwise the temperature across the material would soon equalize. Most materials that are good electrical conductors are also good thermal conductors, and the few materials that researchers have been able to develop with good thermoelectric properties have been rare, expensive, or toxic.” (Thermoelectric Material to Hit Market Later This Year, S. Jacobs, Technology Review, July 15, 2016) The break-through centers on the use of tetrahededrite, which is an abundant, naturally occurring mineral that is a nontoxic thermoelectric material. This mineral, at $1.81 per pound, is cheaper than other thermoelectric materials, which have to be processed and/or manufactured with a cost of between $10.89 to $66.22 per pound. Also, while other thermoelectric materials have achieved typically about 2.5 efficiency, tetrahedrite can reach 5 percent to 10 percent efficiency. (CEO, Alphabet Energy, July 2016). Further detailed scientific information on tetrahedrite is available (“Naturally occurring mineral for thermoelectric power generation, Journal of Applied Physics, Jan. 28, 2013).
HOW DOES A SOLIDSTATE GENERATOR CAP ON ENCLOSED FLARE GENERATE ELECTRICITY? The Power Generating Combustor (PGC) shown in Figure 1 is a joint effort by two companies, Alphabet Energy and Coyote North. The unit which is about 18 feet tall on a 10 foot long skid consists of a vertical cylinder (enclosed combustor for flare gas), a cap-like housing for the thermoelectric generator, a larger box housing the cooling package, and a
For over 50 years, GARY BEERS, has worked in numerous fields of environmental science as a consultant, regulator and educator. This career included senior management position with major consulting, nonprofit and public organizations. He has founded several successful firms to capture emerging resource management markets. One of his latest ventures, EnviroScienceINFO, provides content for public media.
FIGURE 1
smaller box housing the power electronics panel. The thermoelectric generator has no moving parts and can be visualized as a “solar panel” for converting heat to electricity. High temperature exhaust heat (across a range of fuel inputs and combustion temperatures) is passed across heat exchangers containing tetrahedrite (“PowerModules”) which produce electricity. The requirement for minimum flare gas flow is in the range of 500 to 1,667 cubic feet per hour with a minimum heat output of 1.7 million Btu per hour.
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OTHER APPLICATIONS IN OIL FIELD Obviously, there are many other applications of the platform technology based on tetrahedrite-based heat exchangers. Exchangers can be bolted on diesel or gas powered generators to convert the exhaust to electricity, including truck engines. Exchangers can be wrapped around pipes transporting high-temperature liquids to generate electricity. This solid-state technology is scalable and should have many applications in the oilfield operations, especially in remote settings. Obviously, surplus electricity from flare gas utilization could be supplied to electrical operations on adjacent land uses (i.e., water pumps, electricity for homes/barns, power stations for electric vehicles). Everyone is familiar with the scalable solid-state technology is present in solar panels (i.e., small panels for stand-alone signs or monitoring equipment in remote areas, large arrays of panels in solar farms).
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OIL PRICES
Oil prices will need to climb higher to kick-start stalled drilling in Weld County BY SHARON DUNN • SDUNN@ENERGYPIPELINE.COM
W
hile crude continues to flirt
with $50 a barrel prices this year, oil and gas operators are hesitant to hoist the rigs and start digging en masse. Many oil and gas operators, reeling from a downturn that has forced budget cuts and layoffs, probably won’t put their feet on the pedals until next year — if oil prices can be sustained at higher levels. That’s a big if, industry watchers say. Industry talk for months had centered on $50 as the catalyst to return workers to the
18 ENERGY PIPELINE SEPTEMBER 2016
fields. Now, talk of recovery starts at $60. “The problem is, the companies have just been strained to the limit by their debt. I think we’re going to see a real slow response to $50 oil,” said Pete Stark, senior research director and adviser at IHS in Englewood, a worldwide consulting firm. Al Walker, CEO of Anadarko Petroleum, Weld County’s largest producer, echoed that sentiment in the company’s first-quarter earnings call this year: “Do not expect us to increase our capital spending this year, even if oil exceeds $50,”
Walker warned analysts. “We’ll be very patient as we look beyond 2016 to a sustained higherprice environment to increase capital and return to a growth mode, if warranted.” The industry’s hey day has long since ended after prices plummeted from a peak of $100 per barrel in June 2014, down to a low of $26 this past February, a downfall that pushed even the largest companies to cut budgets and staff. Prices jumped up to $51 in June, but fell again, especially after the so called “Brexit” vote in which United Kingdom residents voted to get out of the European Union. Prices didn’t get much better through August, touching bottom again around $40. It may be another year before prices get to the point where operators are comfortable. “I believe if you got to $60 or just north of that, you’d start to see certainly sustained production, meaning they’d be bringing some rigs back, and above that you’d start to see some growth,” said Adam Bedard, a longtime industry analyst and CEO of ARB Midstream, which is building a crude rail facility in Evans. Though low prices mean cheaper gasoline at the pump, it has meant that traditionally high paying companies have laid off workers. As of July, Colorado had lost 4,100 positions in the mining and logging industries from the previous year, the majority of which work in Weld County, producing 90 percent of the state’s oil. Prices looked to climbing earlier in the
summer, but, as expected, they were shortlived, as industry watchers said they seemed to be based more on temporary disruptions in the international supply — the fires in Canada taking about 1 million barrels a day out of production, plus political turmoil in Nigeria that’s also disrupted supply. “There’s been a lot of exogenous factors that depleted supply temporarily. But Canada will come back and Nigeria will too,” Bedard said. “You’re still faced with a situation where there’s a bit of supply. … It might take more (time) for it to run and stabilize. What’s troublesome is it’s got to be sustained. Banks need to loan money based on future prices of oil and some certainty of payback, so all that volatility in market exacerbates the difficulty in putting rigs to work.” Anadarko is the No. 1 producer in Weld County, followed by Noble Energy. Both companies, which pump out more than 80 percent of Weld County’s oil, are positioned well in this downturn, said Erika Coombs, senior energy analyst with BTU Analytics in Lakewood. Today, the DJ Basin is pumping out 350,000 barrels of oil daily, and that number is expected to slow this year while the market evens itself out, Coombs said. “We have it rebounding and really growing over the next five years, reaching about 550,000 barrels a day by the end of 2021,” Coombs said. There’s a good 1 million-barrel-a-day glut on the global market, pushing prices down. Add to that additions of production from Iran and Saudi Arabia, who show no signs of reduction, and that glut will continue. Stark said United State’s production needs
to get down to 8.5 million barrels a day before the market will re-balance — that’s more than a 1 million less than 9.7 million a day in peak in April 2015. As of May 2016n — the latest numbers available through the Energy Information Administration — that number was slowly etching down, coming in at 8.89 million. That’s a 6 percent drop in production from the same time last year. “There are (several) scenarios depending on what’s going to happen with political decisions around the world,” Stark said. “We could have $45 oil for a while or go up to $80-$90 oil, and it just depends on what those things are going to do.” For many analysts in the industry, 2017 will be slow, with prices ranging in the low $50s, with no accompanied growth. In fact, production of the Denver-Julesburg Basin, which encompasses Weld County, is not projected to grow, though it has some of the best economics in the country. Companies drill based on their economics. If they can’t sell what they drill above their costs, they stop. What they’ve done in the past several months is drill wells, but not complete them, or get them to the point of production. They’re holding off production in hopes of a better pricing environment. Maria Sanchez, manager of energy analysis for Ponderosa Energy in Denver, predicts prices will rise, but slowly. She expects prices to get to $67 — in 2019. The average for 2017 is expected to stay in the low $50s. A small help for companies is that in this downturn, they’ve found efficiencies. They’ve in many cases cut drilling costs down by $1 million per well. When prices return and the
market responds, they’ll be in better shape, even if prices don’t come close to the $100 peak. “We have seen improvement in drilling and completion costs in every quarter,” Sanchez said. “The number I’ve seen on average is about 20 percent improvement or lower costs compared to last year, but we see improvement every time they come out.” Coombs agreed: “Long term, we expect crude to be more in the $60-$70 range. That’s largely due to all of the efficiencies that producers have realized and how much better they’ve gotten here in the U.S.” Even those efficiencies have a way of coming back to the middle. In the downturn, service companies that operators hire to drill and produce the wells, lowered their prices substantially to compete. Prices will go back up, warns Craig Rasmuson, chief operating officer of Synergy Resources, based out of Platteville. “The service companies have done such an admirable job of bringing prices down, they’re going to need to make better margins,” Rasmuson said. “The cost of drilling and completing a well will rise as commodities rise. We’re just going to have to account for that and see what it costs to get a quality well.”
BALANCING ACT U.S. oil production has been grinding slower this year from a peak of 9.7 million barrels of oil per day in April 2015. Analysts say U.S. production will have to drop to 8.5 million barrels per day for the global market glut to balance out. Here’s how the U.S. daily production numbers (in thousands) played out this year: Month May April March Feb. Jan.
2016 8,894 8,947 9,168 9,157 9,192
2015 9,479 9,694 9,648 9,451 9,341
Source: U.S. Energy Information Administration SEPTEMBER 2016 ENERGY PIPELINE 19
MAKING HOLE A look back at the origins of oil and gas BY BRUCE WELLS • AMERICAN OIL & GAS HISTORICAL SOCIETY
First Lone Star discovery After the Civil War, a former Confederate Army captain struck oil in a part of East Texas known for its oil seeps. His 106-foot-deep well in Nacogdoches County was the Lone Star state’s first commercial producer, if only briefly. In December 1859, just four months after Edwin Drake’s celebrated first U.S. oil discovery in Titusville, Pa., a similarly determined wildcatter named Lyne (Lynis) Taliaferro Barret began searching for petroleum in Texas. Indians had long known the “oil springs” area for its seepage and used the oil for its purported medicinal benefit for both themselves and their livestock. A Spanish expedition near the Sabine River in 1543 made the first documented European report of oil in the New World. Barret’s interest in finding the increasingly prized commodity for making kerosene no doubt was prompted by oil selling for $20 a barrel – and his certainty that oil could be found between the Trinity and Sabine rivers in East Texas. Invention of the kerosene-burning lamp had prompted demand for “illuminating oil” and inspired a boom in drilling and speculation. Barret was eager to profit from the new opportunity. He joined the chase for oil - but prudently continued operating his successful mercantile shop in Melrose, Texas. In late 1859, Barret leased 279 acres from Lucy Skillern near Oil Springs, about 13 miles east of Nacogdoches. He began drilling on her land, but the start of the Civil War forced him to postpone his search for oil. Wild fluctuations in oil prices were common during the Civil War. In 1859 Pennsylvania oil sold for $20 dollars a barrel; in 1861 it averaged only 52 cents a barrel. Two years later, oil averaged $8.15 a barrel. Especially in these early years, such fluctuations posed great risk for those drilling for oil. As the Civil War continued, Barret served as a captain in the Confederate States of America’s 20 ENERGY PIPELINE SEPTEMBER 2016
Quartermaster Corps in Texas’ Nacogdoches district. The war ended in 1865 at Appomattox Court House, Va., not far from where Barret had been born in 1832. After the war, Nacogdoches County was occupied by the Union forces and spared much of the lawlessness often seen during the difficult period of Reconstruction. Barret rejoined his partner, Blackstone Hardeman Jr., (returned from the First Texas Infantry Regiment) and they restocked Hardeman & Barret General Merchandise Store.
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.
Lyne Taliaferro Barret in 1859 leased land near Nacogdoches, Texas, in an area known for oil seeps. After the Civil War he drilled the first Texas oil well.
Goods were brought by wagon from New Orleans since railroad service was almost nonexistent in Texas. In October 1865, Barret’s quest for oil was underway again as he secured another drilling contract with the heirs of Lucy Skillern. By December, he and a group of investors had formed the Melrose Petroleum Oil Company. Barret contracted for use of an “Improved Auger for Boring Wells” and a $50 dollar purchase of “two augers, on eight and a half inches in diameter or
Expertise In Permitting Beneficial Uses Of Produced Water thereabouts, and the other six and a half inches in diameter or thereabouts, with a coupling for the set for connecting the augers with the stem or poles for boring.” Barret used an auger fastened to a pipe and rotated by a steam-driven cogwheel. The contract, “guarantees that the augers hereby sold shall well and truly perform the work of boring through earth, but not through hard or solid Although Lyne Barret received little acclaim rock. Should they fail to during his lifetime, a historical marker was do so, he agrees to furnish dedicated at his grave in 1966 and another other good ones or take at his Nacogdoches home in 1981. them back and refund the money.” Throughout the summer of 1866, Melrose Petroleum Oil Company continued drilling and on Sept. 12, 1866, Barret’s tenacity was rewarded. The No. 1 Isaac C. Skillern well found oil at a depth of 106 feet. Barret’s well yielded a modest 10 barrels of oil per day. Meanwhile, oil prices fell to $2.40 a barrel and impatient investors wanted to sell their shares. Limited access to markets led to Melrose Instead of traditional cable-tool percussion drilling, Lyne company’s Barret used an auger fastened rotated by a cogwheel — failure. The the basic principle of rotary drilling. Nacogdoches field lay dormant for nearly two decades – until drilling companies found oil nearby in 1887. “Other wells followed, and Nacogdoches County was the site of Texas’ first commercial oilfield, pipeline and effort to refine crude,” concludes the Texas Historical Association. With its first U.S. settlers arriving as early as 1829, Nacogdoches also can claim the title of “the oldest town in Texas.” “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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News Briefs NEBRASKA WON’T APPEAL DECISION ON FRACKING WATER DISPOSAL LINCOLN, Neb. — The state of Nebraska won’t appeal a judge’s decision to bar a Colorado company from using a Nebraska Panhandle well to dispose of salty groundwater and chemical-laden fracking wastewater that result from oil and gas operations. The judge ruled last month that the Nebraska Oil and Gas Conservation Commission exceeded its authority last year when it approved a request by Terex Energy Corp., of Broomfield, Colorado. The company wanted to dispose of wastewater produced in Colorado and Wyoming and eventually Nebraska. The Nebraska attorney general’s office said in a news release Tuesday that it disagrees with the judge’s decision but also said recent legislation has addressed the judge’s concerns. Signed by the governor in March, the legislation refocuses the agency’s role in promoting health, safety and protection of natural resources. — Associated Press
OIL AND GAS GROUP SAYS FEDS ILLEGALLY CANCELING LEASE SALES BILLINGS, Mont. — A trade group for the energy industry is accusing federal officials of illegally canceling or postponing the sale of more than two dozen oil and gas leases over the past two years. The Western Energy Alliance sued the Obama administration in U.S. District Court on Thursday to force it to hold lease sales four times a year. The group says sales have been called off in Montana, Colorado, New Mexico, North Dakota, Oklahoma, Texas, Utah and Wyoming. U.S. officials say at least some cancellations stem from companies’ limited interest. Of more than 2.2 million federal acres offered for sale last year, just over a half-million acres received bids. The government expects low oil and gas prices will reduce drilling on public lands 22 ENERGY PIPELINE SEPTEMBER 2016
by 40 percent versus historical levels in coming years. — Associated Press
NOBLE ENERGY COMMENCES GULF OF MEXICO PRODUCTION Noble Energy, Inc. this summer commenced production at the company’s Gunflint oil development in the deepwater Gulf of Mexico. The two-well field is ramping up and is anticipated to reach a minimum gross production of 20,000 barrels of oil equivalent per day, with oil representing approximately 75 percent of the volumes produced, according to a news release. Noble officials expect to be at least 5 MBoe/d, with potential for additional volumes dependent upon available capacity at a third-party host facility. The Gunflint development, located at Mississippi Canyon Block 948, is a subsea tie-back to the Gulfstar One facility owned by Williams Partners L.P. and Marubeni Corporation, the release stated. “The Gunflint project marks our fourth successful offshore major project completed within the past nine months, including the start-up of Big Bend and Dantzler in the Gulf of Mexico as well as the non-operated Alba B3 compression platform in Equatorial Guinea, Hodge Walker, Noble Energy’s Vice President, Gulf of Mexico and West Africa,” Hodge Walker, Noble Energy’s vice president, Gulf of Mexico and West Africa, stated in the release. “Our drilling and completions teams delivered impressive technical accomplishments on the Gunflint development, including several innovative first-time techniques for the industry. The coordination of simultaneous operations, including topside modifications at the floating production system and subsea well activities, is an accomplishment for all involved. The project was completed on time and under budget and will provide significant impact to Noble Energy as we progress through the rest of the year and into 2017.” Noble Energy operates the Gunflint field with a 31.14 percent working interest, the release staed. Other working interest owners include Ecopetrol America Inc.
with 31.5 percent, Samson Offshore Mapleleaf, LLC with 19.13 percent, and Marathon Oil Corporation with 18.23 percent, the release stated. — Staff reports
SYNERGY RESOURCES ANNOUNCES MANAGEMENT CHANGES Synergy Resources Corporation this summer announced changes to its management team, the results of its annual meeting held on June 22, and participation in energy specific investor conferences. The company announced that Michael Eberhard has been named Chief Operating Officer-Operations and Nick Spence has been named Chief Operating OfficerDevelopment, with joint responsibility over all facets of the company’s drilling, completion and production operations. At the same time, Craig Rasmuson was named executive vice president of business development. “We are very pleased to announce the promotion of Mike and Nick as co-heads of our technical team where they will assume charge of the company’s growing operational program, said Lynn Peterson, CEO of Synergy. “As both are petroleum engineers with a vast background of knowledge they bring significant credentials to our operations. Craig’s move to business development will allow him to better utilize his skill set as the company continues to grow its footprint in the Wattenberg Field. Also at the annual meeting, the following individuals were elected by the shareholders to serve as directors of the company for the upcoming year: Lynn Peterson, Jack Aydin, Daniel Kelly, Paul Korus, Raymond McElhaney and Rick Wilber. “We welcome Paul Korus to our board along with his extensive financial knowledge and I certainly want to thank the two founders of the company, Ed Holloway and Bill Scaff, as well as outgoing board member Bud Noffsinger for their service as they guided the company through its early years,” Peterson said in the release. — Staff reports
DATA CENTER
The oil and gas industry is a large part of Coloradoâ&#x20AC;&#x2122;s economy. Below, find statistics on energy pricing, drilling production, well permits, spills and rigs.
2016 DRILLING PERMITS COUNTY
RIG COUNT BY STATE State
Aug. 19 July Avg Jun Avg.
Colorado 21 20 16 Louisiana 43 44 45 Oklahoma 62 58 57 North Dakota 27 27 24 Texas 238 209 185 California 5 6 5 Alaska 4 7 9 Ohio 14 12 12 Pennsylvania 17 14 13 Wyoming 8 8 7 Source: Baker Hughes Rig Count. Aug. 19
NO. (% OF STATE TOTAL)
Weld.................................................................................................954 (62%) Garfield...........................................................340 (22%)
May. Avg.
16 45 57 24 182 5 6 10 16 7
2016 GAS PRODUCTION
COUNTY *YTD PRODUCTION (% OF STATE) Weld........................................215,181,875 (35.2%) Garfield...................................193,258,486 (31.6%) La Plata ..................................109,188,827 (17.9%) Las Animas ................................ 28,146,712 (4.6%) Rio Blanco .................................. 19,931,531 (3.3%) Mesa ........................................... 13,187,263 (2.2%) State......................................................610,322,267
La Plata....................85 (5.5%) Jackson ........41 (2.6%) Adams...........39 (2.5%) Rio Blanco...30 (1.9%) State.......................................................1,546 Source: Colorado Oil and Gas Conservation Commission as of Aug 1
2016 OIL
PRODUCTION COUNTY *YTD
US RIG COUNT
The U.S. rig count peaked at 4,530 in 1981 and bottomed at 488 in 1999. Area Aug. 19 July Avg. June Avg. May Avg. U.S. 491 450 417 409 Canada 121 76 63 42 Source: Baker Hughes Rig Count, Aug 5
PRODUCTION (% OF STATE)
Weld 36,235,194 (89.2%) Rio Blanco 1,464,054 (3.6%) Garfield 586,736 (1.4%) Cheyenne 451,204 (1.1%) Larimer 393,538 (0.96%) Arapahoe 335,754 (0.83%) Lincoln 243,369 (0.59%) Adams 241,094 (0.59%) State 40,601,227
Source: Colorado Oil and Gas Conservation Commission as of Aug 24.
Source: Colorado Oil and Gas Conservation Commission as of Aug 24.
COLORADO ACTIVE WELL COUNT
Weld ..........................................................................22,753 Garfield .....................................................................11,100 Yuma ...........................................................................3,879 LaPlata........................................................................3,323
Las Animas .................................................................2,960 Rio Blanco ...................................................................2,895 State .........................................................................53,724 SEPTEMBER 2016 ENERGY PIPELINE 23
Source: Colorado Oil and Gas Conservation Commission as of Aug 1.
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