Nine big Colorado oil, gas drillers reel in spending, steady production



After a year in which dollars and oil from drilling rigs flowed freely into Colorado, the nine major drillers on the Front Range are slashing 2015 spending by 30 percent, about $2 billion.

The number of rigs running has already dropped by a third in five months to 44 at the end of February, according to the oil field services company Baker Hughes.

The cuts come as the price of U.S. oil on the spot market has plummeted to $49.61 a barrel from $107.26 in June.



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So far, the cutbacks haven't had a severe impact on the state or on Weld County, the heart of Colorado oil country, partly the result of a diversified economy and continued big-dollar commitments by operators -- even after the cuts.

"Hotels and restaurants still look to be full," said Eric Berglund, CEO of Greeley-based Upstate Colorado Economic Development. "Beyond drilling, there is a large oil and gas industry presence here."

There are thousands of existing wells that still need to be serviced, pipelines are being built, and gas processing and water recycling plants need employees, Berglund said.

The cuts in spending are returning the industry to about what it spent in 2013, he said.

"We haven't seen any uptick in unemployment claims in the oil and gas sector," said Bill Thoennes, a spokesman for the Colorado Department of Labor. "This may be something coming down the road, but we haven't seen it yet."

The two largest operators, Houston-based Noble Energy Inc. and Anadarko Petroleum Corp., based in The Woodlands, Texas, say they have no layoff plans.

"We are doing our best to maintain our full workforce so we are well positioned as the market returns," said Robin Olsen, an Anadarko spokeswoman.

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Some of the job losses tied to the decline in rigs will end up in the unemployment reports of the rig companies based in Texas and Oklahoma, Berglund said. A rig employs about 110 people.

"Not going away"

Statewide, the oil and gas sector employs just 1.2 percent of the workforce and losses in that sector may be offset by growth in others, said Mark Vitner, an economist with Wells Fargo Securities.



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"The price of oil isn't going up to $100 anytime soon," Vitner said. "So we'd expect the slowdown to be more pronounced later this year. ... But the industry is not going away."

The nine operators -- which, based on state data, produced at least a million barrels of oil each in 2014 -- are projected to spend up to $4.6 billion in Colorado in 2015, down from $6.6 billion last year.

The spending numbers were compiled by The Denver Post from company U.S. Security Commission filings, investor presentations and interviews.

In addition to the spending cuts, operators are trying to improve their efficiencies -- focusing on drilling in the areas with the best yields and getting better prices for materials and services.



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Most operators hire oil field service companies, such as Baker Hughes and Halliburton, for drilling and hydrofracturing, or fracking, which pumps pressurized fluids into wells to crack rock and release oil.

Baker Hughes and Halliburton, both based in Texas, have announced worldwide layoffs totaling 13,000.

The combination of horizontal drilling and fracking in tight shale formations has enabled Colorado to more than double its oil production in the past four years to about 82 million barrels in 2014.

The activity is centered in the Denver-Julesburg Basin, which stretches from Denver to the Wyoming border, and the Wattenberg field, within the basin.

Materials, services

Operators are now getting lower prices for materials and services, said Craig Rasmuson, chief operating officer of Platteville-based Synergy Resources Corp.

"The services companies are giving better prices and are willing to have smaller margins to keep operating and keep their people employed," Rasmuson said. "We are all sharing the pain."

Synergy is the one company among the nine big drillers planning to increase its capital spending in 2015. Company officials expect to boost spending to $180 million this year from $160 million in 2014.

Anadarko, the largest operator by production, is cutting its Colorado budget by about $600 million, to $1.8 billion.

That 25 percent reduction is less than Anadarko's cut of one-third for its companywide capital budget.

"The Wattenberg continues to be one of the more attractive assets in our portfolio," Chuck Meloy, an Anadarko vice president, said during an investor conference call Tuesday.

In 2104, Anadarko averaged 12 to 14 rigs. The average in 2015 will be nine rigs, spokeswoman Olsen said.

Noble Energy, the second-largest producer, is cutting its budget for 2015 to $900 million, down 40 percent from 2014, the company said.

Noble had 10 rigs running in 2014. The company is projecting four rigs in 2015, and they will be working in northeastern Weld County -- far from residential areas.

Synergy estimates that drilling near homes adds 3 to 5 percent to the cost of wells because of extra noise mitigation and landscaping requirements, Rasmuson said. On the high side, it can add 10 percent to the cost.

In a February conference call with stock analysts, Noble Energy CEO David Stover called those drill sites "our best economic areas."

In addition to focusing on high-yield areas, Stover said the company will increase the length of some of its horizontal wells to as much as 9,000 feet.

The longer wells cost more to drill but yield more oil and a better return on investment.

Synergy, Denver-based Bill Barrett Corp. and Denver-based PDC Energy also are looking to drill longer wells this year, according to the companies.

"The economics on those wells is improving," said Michael Edwards, PDC Energy senior director of investor relations.

PDC Energy said it will cut its spending about 14 percent in 2015 to $435 million.

Delaying completions

Another strategy operators are adopting is drilling wells but not fracking or "completing" them.

Depending on the length of the well and the number of stages needed to complete it, a frack job can cost between $1 million and $1.7 million, according to figures cited by companies in their presentations.

The total cost of a standard well ranged from $3.3 million to about $5 million based on company presentations.

Anadarko said it is delaying completion of 70 wells in Colorado.

Houston-based Carrizo Oil and Gas is cutting activity and deferring some completions, company CEO Sylvester Johnson told stock analysts in a February conference call.

"We're waiting to see how far service costs will decline," Johnson said.

Carrizo is forecasting a 65 percent cut in Colorado spending in 2015 to $37 million, running one rig and one fracking crew.

Calgary-based Encana Corp., the third-largest Colorado operator, plans to spend $170 million to $200 million in 2105, about a third less than last year, said company spokesman Doug Hock.

This year, Encana will run one rig drilling seven to 12 wells, compared with six rigs and up to 60 wells in 2014, Hock said.

Encana went through a companywide restructuring and cut jobs in 2013. No further cuts are expected, Hock said.

Bill Barrett Corp. said it plans to cut its 2015 budget by more than half, to between $240 million and $280 million.

Faced with oil at $50 a barrel, bringing on more production "just doesn't seem to make good business sense," Bill Barrett CEO Scot Woodall told analysts in a February call.

Denver-based Whiting Petroleum Corp. is cutting its Central Rockies budget about a third to $384 million.

Bonanza Creek Energy, based in Denver, is trimming spending by 36 percent overall, with just under $400 million for its Wattenberg operation, according to a company presentation.

Quoting T. Boon Pickens, Bonanza Creek CEO Richard Carty told stock analysts "it has become cheaper to look for oil on the floor of the New York Stock Exchange than in the ground."

Mark Jaffe: 303-954-1912, mjaffe@denverpost.com or twitter.com/bymarkjaffe

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