Natural gas prices rising in La Plata County

Thursday, July 27, 2017 12:22 PM
Crew members with Anadarko Petroleum Corp., work on a drilling platform on a Weld County farm near Mead, in the northeastern part of the state. Oil and gas drilling across the state is expected to pick up this year, including in La Plata County.

The natural gas industry in La Plata County has reason to hope for a recovery with prices rising and plenty of approved drilling permits.

The slowdown in the industry is at least partially responsible for a slowdown in the area's economy earlier this year, said Roger Zalneraitis, executive director of the La Plata County Economic Development Alliance.

In January and February, the economy slowed more than expected with job openings, tourism indicators and permits for new construction falling.

In Farmington, the crash in gas prices led to a population decline of 11.5 percent over seven years, according the U.S. Census Bureau. The regional population loss also holds La Plata County back, Zalneraitis said in an email.

During the first seven months of 2017 in the San Juan Basin, the average natural gas price was $2.78 per thousand cubic feet. That is up from 2016 when the average price was $2.60 and up from 2015 when the average price was $1.90, according to data provided by the La Plata County Energy Council.

"That's just unbelievable for a nice bounce, so there is hope," said Christi Zeller, executive director of the Energy Council.

However, since prices are much lower than they were 10 years ago, the economic impact won't be as strong, Zalneraitis said.

Oil and gas operators across the state expect higher revenues, profits, wages and employment over the next months, according to a June economic outlook from the Governor's Office of State Planning and Budgeting.

Higher demand and flat production levels have helped drive the increase in prices, said Maria Sanchez, an analyst with DrillingInfo.

Despite the increase in prices, production for the first five months of the year was lower than the same period last year.

Production dropped because companies abandoned or shut in wells in recent years while prices have been depressed, and they have not been replaced by new wells.

More than 60 wells have been shut in so far this year, likely because their production declined, Zeller said in an email. There were 3,319 active wells in La Plata County as of June 1.

In the near future, the production declines in La Plata County are likely to continue until prices increase, Sanchez said.

Previously, experts said a natural gas price of $4 per thousand cubic feet was needed to trigger more drilling in the basin. But better technology and lower prices for equipment means companies can drill wells when prices are below that benchmark, Zeller said.

"It depends where you are drilling, what existing infrastructure is in place and service providers expenses," Zeller said an email.

High numbers of drilling permits approved in 2015 and 2016 may bode well for the county because companies can wait two years before using a permit, and they can apply for an extension, she said.

In 2015, 106 drilling permits were approved, and in 2016, 96 permits approved.

"Many companies are poised and ready to go depending on capital budgets and price," Zeller said.

There are two rigs drilling wells in La Plata County and five more on the New Mexico side of the San Juan Basin, she said.

In August 2016, no rigs were drilling new wells across the entire basin.

BP, the largest gas producer in La Plata County, was one of the few companies drilling last year in Durango, and it recently brought in a second drilling rig at the end of June.

After a nearly five year hiatus, BP started drilling new coalbed methane wells in the San Juan Basin in 2015, Brett Clanton, a spokesman for BP America, said in an email.

"During 2015 and 2016, BP executed multiple drilling campaigns with a single rig, which was often the only rig running in the entire basin and certainly in La Plata County," he wrote. "Successful results, coupled with permit approvals that stem from long permitting time frames, has enabled us to bring on a second rig."

One BP rig is drilling in southeast La Plata County, where the company has been approved for 13 permits in the last 12 months and has 15 more permits pending, according to the Colorado Oil and Gas Conservation Commission.

In an area near Tiffany that includes 9,000 acres, BP has 62 active or permitted wells, said Julie Murphy, assistant director of the Colorado Department of Natural Resources. The drilling area crosses into Archuleta County.

"A major part of BP's success has been transitioning from traditional directionally drilled wells to multilateral horizontal wells, where two or more horizontal wellbores (laterals) are drilled from a single vertical wellbore," Clanton said. "Beyond the economic benefits, these multilateral wells enable BP to minimize surface disturbance."