Northern Colorado drilling falling behind due to community opposition, producers say

Northern Colorado drilling falling behind due to community opposition, producers say

Citing mounting public opposition to oil and gas drilling in the state, a growing number of producers in the Denver-Julesburg Basin are favoring Wyoming, North Dakota, and Texas as they look to take advantage of rising oil prices.

Or in the case of HighPoint Resources, a firm that is going all in on the D-J Basin, they are targeting rural areas in Weld County, hoping to avoid the backlash that companies like Crestone Peak Resources and Extraction Oil & Gas have faced as they seek to drill wells in Boulder and Broomfield counties.

“We are contemplating trying to exit the D-J Basin and focusing on the Bakken (in North Dakota),” Brad Holly, president and CEO of the Denver-based producer, said this week at DUG Rockies, a regional oil and gas conference presented by Hart Energy.

Holly, who used to head the operations of Anadarko Petroleum, the largest operator in the state, cited Colorado’s regulatory environment as the reason for Whiting putting a “For Sale” sign on its Redtail holdings in Weld County. His comments came the day after a Colorado District Court judge dismissed a case by Thornton to put in local rules stricter than what the state has in place, including 750-foot buffer between wells and buildings.

Denver-based HighPoint Resources, by contrast, remains committed to the D-J Basin, but is taking a rural strategy where it can drill in peace, Scot Woodall, the company’s CEO and president, told the crowd gathered at the Colorado Convention Center.

HighPoint formed in March after Bill Barrett Corp. merged with privately-held Fifth Creek Energy. HighPoint has 151,000 net acres and 2,865 undeveloped drilling locations in two big blocks, one on the northern edge of Weld County along the Wyoming border and the other in northeast Weld County abutting Morgan County.

“The Rockies haven’t see the surge in the rig count as the Permian has,” Trisha Curtis, president of PetroNerds, a Denver-based energy consulting firm, said at the conference.

U.S. oil production this year is on track to beat the record high set back in 1970, but much of the new supply is coming out of the Permian Basin in southwest Texas and eastern New Mexico. And even North Dakota and Wyoming, home to the “hot” Powder River Basin, are seeing more investment.

Colorado had 29 drilling rigs running last week, 29 running the same week in April 2017, and 17 in April 2016, according to Baker Hughes. North Dakota’s rig count is at 54, up from 44 a year earlier, and 26 in April 2016. Wyoming now matches Colorado at 29 rigs, up from 20 in April 2017 and only 8 in April 2016.

But the biggest investment surge is going into the Permian Basin. The part of Texas that includes the basin had 312 rigs running last week, up from 222 a year ago and 87 in April 2016.

Producers in the D-J Basin are boosting production to take advantage of higher oil prices, but besides growing public opposition, they also face capacity constraints in processing and transporting the natural gas produced alongside the more valuable oil.

Inadequate takeaway capacity on the Wattenberg Field’s gas pipelines caused pressures to spike last year. That elevated pressure acts similar to a police barricade on a highway ramp, in that it prevents weaker and older wells from merging into the flow.

“We have a number of well shut-ins due to line pressures,” Scott Reasoner, chief operating officer at Denver-based PDC Energy, said at the conference.

DCP Midstream Partners is building a new gas processing plant that should boost capacity starting in the third quarter, he said. Reasoner said if lines pressures can be lowered, PDC could produce more petroleum. But that raises the next question — how long before the infrastructure gets clogged again?

Another area catching the eye of Colorado producers, like Peak Exploration & Production, is the Powder River Basin in Wyoming, which some are comparing to a smaller version of the Permian Basin of Texas in terms of its potential.

Wyoming this year could see a five-fold jump in drilling permits compared to two years ago.

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