Colorado permits for oil and gas drilling are expected to reach the third-highest level on record in 2010.
Permits issued by the Colorado Oil and Gas Conservation Commission are projected to top 6,000 this year, up at least 16 percent from 5,159 in 2009.
The increase suggests that Gov. Bill Ritter’s tightening last year of regulations governing drilling — hotly contested by the energy industry — have proven manageable for producers.
“Judging by the permit volume, they’ve figured out a way to work with that,” said Thom Kerr, permit and technical services manager for the state energy commission.
Kerr said the Colorado Public Utilities Commission’s recent ruling that natural gas will replace coal in several of the state’s power plants should keep demand for gas strong in coming years. But the increase in 2010 drilling permits did not necessarily equate to a banner year for producers.
Natural-gas prices remain depressed compared with levels from earlier in the decade. Gas production outside the Rockies has left the local market oversupplied.
The number of active wells in western Colorado’s Piceance Basin has fallen from 91 in 2008 to 35 this year, according to Golden-based research firm Bentek Energy LLC.
Bentek chief executive Porter Bennett said new gas discoveries and fast-growing production in Pennsylvania and other areas in the East and Midwest have lessened the demand for Colorado gas.
“All of a sudden you have all this gas in the East, and you don’t need it from the Rockies,” he said. “There’s just no market for it, and as a result, prices are weak.”
Prices for Colorado and Wyoming gas were running Monday near $3.80 per thousand cubic feet, compared with $5.55 last year.
Bennett said drilling permits can be a misleading indicator of market activity because producers don’t always use all of the permits granted.
More than one-third of the Colorado permits issued this year have been in Weld County, where advances in horizontal drilling techniques have created a mini-boom in oil production.
“Oil is in high demand,” Kerr said. “If we can produce it locally, there’s a market for it.”
“We’re seeing an uptick in activity” in both western and eastern Colorado, said EnCana USA spokesman Doug Hock. EnCana recently added a new drilling rig in the Piceance Basin and will bring in an additional two rigs early next year.
Steve Raabe: 303-954-1948 or sraabe@denverpost.com
