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April 30, 2009 — Government officials on the Western Slope are bracing for a drop-off in natural gas drilling of up to 80 percent this summer — and a corresponding plunge in tax revenues. While some politicians attribute the slowdown to the drop in energy prices and the global recession, others blame Colorado’s stricter drilling regulations.
Rifle Mayor Keith Lambert says it isn’t a bust yet, and people should have seen it coming.
“If you’ve got 40 to 60 percent slow-down, that means you’ve still got 40 to 60 percent of the companies that are continuing to drill, so it is a slow-down and it is not a bust,” said Lambert, whose town for the last several years has been at the epicenter of the state’s most recent natural gas boom.
Garfield County Commissioner John Martin, however, is more pessimistic.
“It’s going to be a tough one to get through, and if you’ve been living high on the hog on this oil and gas money, you’re going to starve to death now,” Martin said.
The judge rejected the argument of the Aurora-based Colorado League of Taxpayers that its lack of experience and limited resources led to the oversight, which the group confessed to earlier this month in the wake of a Colorado Ethics Watch complaint filed in February.
Ethics Watch successfully argued the group has been fined for similar “oversights” in Weld County, another hot-bed of natural gas production. Carter in part was running on a platform of more responsible natural-gas drilling in the resource-rich Western Slope county, advocating for more stringent environmental controls.
Shires, a GOP operative with a long history of questionable campaign tactics, is listed as an officer of the Colorado League of Taxpayers.
He said he was pushing for a general fund reserve of $100 million to weather the inevitable downturn in the market, but managed only $80 million. Given the region’s energy boom-and-bust past, he hopes it’s enough.
“We learned a lot from the ’80s when the oil shale came and everyone thought it was never going to end. We knew oil and gas was going to have its ups and downs, and we prepared for it.”
Specific numbers on the Western Slope drilling slow-down are unavailable, but according to the Independent Petroleum Association of Mountain States (IPAMS), Colorado as a whole is down more than 50 percent since last April, from a weekly average of 123 active rotary rigs in 2008 to just 52 this month.
That parallels the national slow-down in active rotary rigs, which either drill new oil and gas wells or sidetrack existing ones. According to the Baker Hughes Rig Count, which tracks industry drilling statistics, there were 955 active rotary rigs nationwide the week of April 24, down from 1,842 at the same time last year.
Martin said Colorado will suffer a severe severance tax hit in the next few years, and energy companies will move rigs to states with less stringent environmental regulations like the new Colorado Oil and Gas Conservation Commission rules that were signed into law by Gov. Ritter last week.
“[Drilling is down] 40 to 80 percent, and it reflects the revenues, and it also reflects the political reality of working relationships and the economy around the globe,” Martin said. “It’s many things; it’s not just one thing.”
But according to Baker Hughes, Colorado still has the most active rigs in the IPAMS region, which also includes Utah, North Dakota, Wyoming, Montana and New Mexico. The next highest number of active rigs last week was in North Dakota with 43, followed by Wyoming with 36.
Lambert said it’s wrong to single out the new drilling regs, implemented to put greater emphasis on wildlife habitat, air and water quality and public safety.
“There’s a thought process on the part of some people who want to believe that it’s solely due to the regulations, when in fact if you look at the price of the commodity right now, it doesn’t support continued exploration anywhere in the United States because they can’t break even,” Lambert said.
Natural gas has plummeted from a high last July of nearly $14 per MMBtu (Million British Thermal Units) to below $4 per MMBtu this month. Last April it was trading between $9 and $11 per MMBtu.
Martin said the financial crunch is already being felt but will be even more acute in the coming years. He said all of last year there were 124 foreclosures in the largely rural county, but there have already been 84 in the first quarter of this year.
“Now that stuff is going to start happening more and more everywhere, and also you’re going to start seeing more folks out of work,” Martin said. “They can’t find jobs, and we used to have three jobs for every human.”
But Lambert puts the onus for the slow-down on the overall economic collapse. He disputes the notion that the oil and gas industry is pulling up stakes in the county.
“Everything I’ve heard and derived from what’s taking place is that there’s an anticipation on the part of the industry that this will come back, maybe not to the same degree that it was a year ago, but it will come back to some degree above what it is presently, because they’re not moving these rigs anywhere,” Lambert said.
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