Speakers Discuss Reinventing Colorado's Denver-Julesburg Basin

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Oil & Gas companies are reinventing Colorado's Denver-Julesburg (D-J) Basin using advanced technology to produce more hydrocarbons at lower cost with fewer emissions and a smaller surface footprint, executives told the 28th annual Rocky Mountain Energy Summit (RMES) in Denver in late August. And officials who spoke at the conference, organized by the Colorado Oil & Gas Association (COGA) (Denver, Colorado), shared a belief that, despite today's relatively low price for crude oil and natural gas, the D-J is a good story that will get better over time.

The Centennial State had an average of 21 rigs operating in August, less than one-third of the 70-plus rigs that were operating there two years ago, according to Baker Hughes Incorporated (NYSE:BHI) (Houston, Texas). But several speakers told the COGA conference today's rigs are twice as efficient as rigs were two years ago. "Today, two rigs can drill the same number of wells as four rigs used to drill a few years ago," Dave Stover, chairman, president and chief executive at Noble Energy Incorporated (NYSE:NBL) (Houston, Texas), said August 25. "We've seen tremendous efficiency gains over the last few years."

"We hope to drill more in Colorado next year, but that requires crude oil prices of at least $50 per barrel that we can count on," he added.

Despite a 70% reduction in rigs and a 50% reduction in crude-oil prices over the last two years, crude-oil production today in Colorado is about what it was two years ago, when West Texas Intermediate (WTI) sold for over $100 per barrel, according to data compiled by the U.S. Energy Information Administration (EIA) (Washington, D.C.).

Click on the icon at right to see crude-oil production in Colorado's Niobrara Shale from 2007 to 2016.

Jim Volker, chairman, president and chief executive of Whiting Petroleum Corporation (NYSE:WLL) (Denver, Colorado), told conference attendees his company's drilling costs have declined 57% since 2012, to about $4 million per well today. "For us, the economics are good even at today's prices." He predicted further efficiency gains.

Whiting has reduced truck traffic by about 75,000 trips per year by installing surface systems to gather crude oil, fresh water and produced water. "We're doing green completions at our well sites and we're using natural gas, not diesel, to fuel our rigs," he added. "We're trying to be a good environmental steward by reducing our truck traffic, having fewer surface disturbances, reducing our dust and cutting our air emissions."

Noble's Stover said his company's surface footprint is about 10% of what it was two years ago while its laterals have increased to 10,000 feet from 2,000 feet. Multi-pad drilling was one reason for the reduced surface footprint. But other factors also contributed. "Our facilities are more scalable and modular than they were previously. Today, the majority of facilities can be built offsite and transported to the wellsite. Having self-contained surface facilities will be the biggest factor driving a reinvention of drilling in the D-J Basin," he said. "Our recovery rate is about 10% today, and I would be shocked if it wasn't 15% in 10 years or less."

Now that producers seem to have figured out the D-J's geology, the next challenge is managing issues above ground, meaning operational excellences, community relations and legislative and regulatory engagement, the executives agreed. Environmental and community groups tried to put two initiatives on the November ballot that would have sharply restricted drilling and hydraulic fracturing in Colorado. The explosion of drilling in Weld County triggered drilling concerns among some Coloradans, but organizers did not submit enough valid signatures to get those initiatives on the ballot. For more on that, see September 2, 2016, article -- Oil & Gas Industry Urged to Continue Personal Outreach After Measures to Restrict Drilling in Colorado Fail to Make the Ballot.

Having regulatory certainty and stability are important factors contributing to a reinvention of the D-J Basin, the Noble chief executive continued. That certainty and stability depends, in large part, on winning -- and keeping -- the public's confidence.

"We changed our mindset about 10 years ago," Stover told the COGA conference. "We decided we couldn't sit on the sideline. We needed to become much more engaged with the community. We had to listen. We had to understand how the public saw these issues. We decided we needed to seek solutions."

As part of Colorado's tightened regulations on methane emissions, Stover said Noble inspected 18 million pieces of equipment in Colorado and found a "very low" leakage rate of one-one hundredth of a percent (0.01%). "We were able to fix almost all leaks in one day," he added. For more on Colorado's regulation of methane emissions, see December 5, 2013, article -- Oil & Gas Companies Collaborate with Environmental Group to Draft Tough New Air Quality Regulations in Colorado.

"Being a good operator is the first step in being a good neighbor," Whiting's Volker told the COGA conference. "Be good to your people, including your employees, your contractors and your mineral-rights owners. It will pay off in the end."

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