Garfield County will see most of the new natural gas drilling activity planned by WPX Energy this year, with the company adding two more drilling rigs for a total of nine in the Piceance Basin.
The company recently announced plans to drill 285 natural gas wells in the basin in 2014, compared to 250 wells drilled last year, company spokesman Kelly Swan said. Most of those wells are planned in Garfield County, he added.
The Piceance Basin is a geological formation that covers much of Northwestern Colorado.
As a rule of thumb, Swan said, it’s estimated that one drilling rig creates 50 jobs, split about evenly between rig workers and support personnel, in areas such as water management, hydraulic fracturing and welding.
While the plans are “very positive” news to the area economy for Rifle Area Chamber of Commerce President and CEO Frank Ladd, the exact local impact is a little up in the air.
“We don’t know how close these wells will be drilled to Rifle,” Ladd said. “Will the workers be local residents or the transient workers we saw several years ago?”
However, Ladd noted local small businesses, such as hardware stores, gas stations, grocery stores, restaurants and others will all likely see some of the economic benefits from the planned activity.
“Encana (USA) decided to lay down all their rigs locally this year,” Ladd pointed out. “Shell is shutting down [their Mahogany oil shale research and demonstration project in Rio Blanco County]. So if they bring in 100 jobs or however many, that’s great.”
Encana announced in December it was idling its rigs this year, and in November laid off a handful of employees at its Parachute office, according to reports, as part of a larger company-wide cutback. Encana drilled close to 100 wells last year in the basin, mostly in Garfield County, and the move left WPX as the only area operator with more than one or two drilling rigs with plans to drill more than just a few wells this year.
That fact tempers the expectations of City of Rifle Finance Director Charles Kelty, who monitors how much the industry contributes to the city’s sales and use tax revenues, along with all other businesses.
“I think a lot will depend on if they hire local workers or bring them in,” Kelty said. “Any worker will still do some shopping in Rifle and may live here, though.”
Another unknown is where WPX might buy their materials, he added.
“That could mean an increase in our use tax revenue,” Kelty said.
Davey Graham owns Gonzo, a 6-year-old water management company that counts WPX as its largest customer.
“They’ve been a savior to this area and all the people we employ, with all the pull outs by the other companies,” Graham said.
Gonzo provides water hauling, injection and hydraulic fracturing support, among other services, he added.
“I really think the local people with WPX are pushing for them to stay around for the long term,” Graham stated. “And it says something that the corporate people are agreeing.”
WPX committed to gas
Swan noted this year’s increase in rigs and planned wells is the first jump the company has made in the last three years.
WPX plans to spend from $475 million to $495 million in the Piceance this year, including all aspects of gas development, Swan said.
The plan to increase gas activity in the basin comes after the December announcement of the departure of president, chief executive officer and board member Ralph Hill. WPX has said Hill will remain with the company through the end of March. James Bender was named interim president, CEO and board member. He has been WPX’s senior vice president and general counsel.
Included in the increased well activity, WPX plans to double its Niobrara formation drilling in 2014 by up to 10 wells, the company said in a news release. The Niobrara formation is deeper than the common target for most gas development in the basin, the Williams Fork formation. Initial test wells in the Niobrara formation resulted in much higher initial gas production rates than wells drilled in the Williams Fork formation. However, production levels dropped over time. WPX’s 2014 plan includes approximately $75 million for Niobrara activity.
WPX continues to have more natural gas activity than other oil and gas producers, Swan said, despite the current higher prices for oil compared to gas.
“The Piceance is extremely integral to WPX because 60 percent of our daily oil and gas production is there,” he stated. “We can’t ignore that asset. We’ve also seen a recent uptick in gas prices [due to the unusually cold winter most of the country has experienced], and our long range outlook is for prices to be relatively flat” over the next three to five years.
WPX has around 80 percent of its activity in natural gas fields, compared to 20 percent in oil and liquid natural gas, Swan said.
“But we are investing about half our development dollars in oil basins,” he added, including around $1.4 billion in North Dakota and New Mexico oil fields.
Swan said WPX needs to drill more wells to ensure cash flow from producing more product and called the Piceance “such a big part of WPX and critical to our future.”
“I really think the local people with WPX are pushing for them to stay around for the long term. And it says something that the corporate people are agreeing.”
Owner of Gonzo, a water management company