Big oil companies are boosting their natural gas operations in Colorado, digging into the reserves that have driven the state’s energy boom and have been largely explored and developed thus far by smaller independent firms.
Over the past three years, drilling permits issued to major producers such as Chevron and Exxon Mobil have skyrocketed as the growth of those issued to independents such as EnCana and Williams Energy have slowed.
Chevron received 71 drilling permits in the fiscal year ended June 30, up from 40 in fiscal 2006, according to data from the Colorado Oil and Gas Conservation Commission. The company is in the early stages of a $7.3 billion, decades-long project in western Colorado that could hit up to 3,000 wells, employ 500 people and produce enough natural gas to supply 2.4 million homes annually.
Exxon Mobil was granted 202 permits last year, more than triple the company’s permits from 2006. BP’s permits increased to 122 from 58 during the same years.
ConocoPhillips’ growth has been even more dramatic. The company received just 1 permit in 2006. This past year, it was approved for 118.
Industry experts attribute the surging interest from Big Oil to the rise in natural gas prices and heightened international political risks. When independents began ramping up natural gas exploration and production in the state in 2003, prices hovered around $3 per million British thermal units on the New York Mercantile Exchange. The price shot up to more than $13 last year but has since dipped to around $8.
“The majors had been going the other way early on in this process. They were exiting the U.S. and looking for larger, particularly oil, reserves outside of the U.S. in the international arena,” said Pete Stark, vice president of industry relations for IHS, an energy consulting firm. “(They) have shown a lot more interest in re-establishing foundations back in North America, where the prices have been good and the economics are sound.”
Independent operators still garner far more drilling permits in Colorado than the majors, with EnCana getting 550 in fiscal 2008 and Williams 860.
“The independents were the pioneers,” Stark said. “They were the operators that came in, took the risk, acquired the leases, developed and pushed the technologies to be able to drill and produce effectively the giant unconventional resources here in the Rockies.”
But the majors are moving in, and firms such as Halliburton that provide oil-field services to producers have noticed the shift.
“The nature of our business is shifting from independent operators to large major corporations,” Halliburton district manager Larry Kent said in June.
ConocoPhillips, which is building an alternative energy research hub in Louisville, jumped into the state’s natural gas fold in 2006 after purchasing an 8,400-acre development from EnCana in the energy-rich Piceance Basin, north of Grand Junction.
“That acreage we acquired was the first production for ConocoPhillips in that area,” said spokesman Jim Lowry. “We’ve projected that we’ll drill as many as 815 wells.”
The development currently employs about 25 people.
BP announced in 2007 that it would spend $2.4 billion over 13 years on natural gas recovery from the San Juan Basin in southwestern Colorado.
Exxon Mobil’s drilling operations in Colorado are part of a 29,680-acre development in the Piceance Basin that began in April 2007. The project is expected to include up to 180 wells, a gas processing plant, new pipelines and other infrastructure.
Shell, the fifth of the world’s five Big Oil firms, hasn’t submitted a drilling permit application in a “long time,” according to oil and gas commission information manager Marc Fine.
In Colorado, Shell is conducting field tests in the Piceance Basin on technology to extract oil from shale, research the company has worked on since the 1980s.
The growth in natural gas operations from the other major oil firms has come amid a contentious fight between industry and state officials over an update of drilling rules aimed at protecting the environment, public health and wildlife.
“This just underscores what we’ve been saying all along, which is, contrary to industry threats, oil-and-gas companies are investing heavily in Colorado,” said Elise Jones, executive director of the Colorado Environmental Coalition. “Updating common-sense rules to provide greater protections for our drinking water and for public health and wildlife isn’t going to change that.”
The industry, however, has repeatedly said that if the rules are too restrictive, their operations in the state will shrink. A proposed change that has drawn widespread criticism from the industry could force operators to close shop in wildlife-breeding areas for 90 days each year if they don’t work with the Division of Wildlife on a comprehensive mitigation plan.
“The proposed rules, if adopted, will negatively impact Chevron’s investment in Colorado,” said company spokeswoman Kristi Pollard.
New rules are being considered to comply with two bills passed by the legislature last year requiring the oil and gas commission to consider public health and wildlife in its permitting process. The commission is expected to begin final deliberations on the proposed rules this week.
Stark, the industry consultant, said 50 percent of the gas produced and consumed today comes from wells drilled in the past 40 months. However, the state must take a balanced approach in its rule-making process to keep the industry growing, he said.
“Right now, everything looks rosy,” he said. “But we’ve gone from $13 gas down to $8 gas, and that begins to take the bloom off the rose in a hurry.”
Andy Vuong: 303-954-1209 or avuong@denverpost.com
