Companies scale back drilling plans for Garfield County’s Piceance Basin
GLENWOOD SPRINGS, Colorado The upward surge in drilling in Garfield County may be heading for a plateau.Largely because of lower natural gas prices, problems affecting the financial markets, limited pipeline capacity and the possibility of new state oil and gas rules, several natural gas companies in the area are looking at their drilling plans in the Piceance Basin with concern.Some natural gas operators have decided to pull rigs out of the area and to reduce their capital investments in the Piceance Basin, representatives with companies operating in the area have said.Those moves come at a time when the Colorado Oil and Gas Conservation Commission has issued 2,527 drilling permits for wells in Garfield County as of early November only 23 permits short of setting a record.Ed Green, Garfield County manager, said even if drilling activity in the area flattens, the local government will be in good shape for the next couple of years. The county currently receives about two-thirds of its property taxes from natural gas operations in the area.After a while, there definitely could be an effect on our revenue streams, Green said of a downturn in drilling. That is one reason we have been building fund balances for the last five years. We always recognize the fact that this (drilling boom) could eventually end or decrease, and that we need to be in a position to deal with that when it happens.The countys projected fund balance at the end of 2009 is expected to be around $60 million, Green said. Here is an outlook for several companies drilling plans in the Piceance Basin for the next year: Chevron is not planning to ramp up production in the Piceance Basin next year, largely because of falling natural gas prices and the economic slowdown affecting the country, said Kristi Pollard, a spokeswoman for the company. The company has drilled about 120 wells since July 2007.She added that the company is not anticipating any decrease in staff and that no layoffs are currently planned.The company had planned to have four rigs operating in the Piceance Basin next year. Instead, it will maintain the two rigs it has operating in the area, she said. Chevrons initial long-term plan for the area called for six rigs.We are still here, we still have commitment to develop the resource, but it is going to take place at a slower pace, Pollard said.The company, which plans its operations three-years in advance, is expected to keep its investment level in the area at its 2008 level from 2009 to 2011, Pollard said. Bill Barrett Corp. is currently operating four rigs in the Piceance Basin, down from five rigs in October, said Jennifer Martin, director of investor relations for the company. The company plans to have two rigs operating in the Piceance Basin next year, she said.We are cutting back our capital expenditures in total for 2009, she said of the companys plans for the Piceance Basin. Williams Production RMT, the largest natural gas producer in Garfield County, is planning to have an average of about 20 rigs in the Piceance Basin over all of next year, said Susan Alvillar, a spokeswoman for the company. This year, the company had 26 rigs operating in the area.But even with fewer rigs, the company expects to drill 450 to 500 wells a level of drilling activity that will be close to what the company is expected to complete this year, Alvillar said. 2008 for us was just this unbelievable banner year where we spent over a billion dollars in capital expenditures, she said. We were able to drill, probably, closer to 550 wells. The jury is still out because we still have a month and a half left to go.Alvillar said Williams is not looking to borrow money to finance drilling operations.We are going to operate on our cash flow, she said. With that being the case, you have to be prudent. Oil and gas prices have seen significant declines as of late, and we are just taking a very, very disciplined approach.Donna Gray, another spokeswoman for Williams, said the company knows the states proposed rules may cost them some money. But since the rules havent been approved, company officials cant say how it would specifically affect its operations next year, she said. EnCana Oil & Gas (USA) is in the middle of what is called scenario planning for its 2009 budget, which the company doesnt expect to finish until mid-December, said Doug Hock, a spokesman for the company. He said the company is going to have a strong position in Colorado, but its activity for next year remains to be seen.Given the current economic conditions we are approaching our 2009 capital investment in a very prudent and conservative manner, Hock said. The Piceance is the most economically sensitive basin in which we operate, primarily due to the topography.Hock said those conditions, along with the current rules for the oil and gas industry and that there arent enough pipelines to take gas to market, makes it very challenging in terms of returns on investments. He said the proposed rules will put uncertainty into the mix.EnCana, as a company, has a strong balance sheet, he said. The other advantage that we have is that we are (in a good situation) in terms of land position. We have a lot of choices. We operate in a lot of different basins.The company had 12 rigs operating in the Piceance Basin during the summer, but now the company is running 10, Hock said. Those two rigs were released because of performance issues, he said. Berry Petroleum plans to reduce drilling activity from 12 rigs to 4 rigs by the end of 2008, with one of those rigs operating in the Piceance Basin, according to the companys third quarter filing with the SEC. It had four rigs operating in the area earlier this year, according to a report from the Grand Junction Daily Sentinel.The companys SEC filing said the company is anticipating a 2009 capital budget of about $200 million. That money will focus on other projects, and in California and east Texas. Delta Petroleum, which operates in eastern Mesa County, had four drilling rigs operating in eastern Mesa County, but plans to reduce that total to two rigs, said Brian Macke, Delta Petroleums regulatory compliance manager.That is largely because of low natural gas prices and the tight financial situation affecting American markets, he said. But Macke, the former COGCC director, added that those problems compound the effect of regulatory uncertainty from the states proposed oil and gas rules, which could have the potential for significantly increased costs. Marathon Oil Co. is currently reviewing its 2009 budget for exploration and development in the Piceance Basin, said Paul Weeditz, a spokesman for the company. Factors that will influence the companys activities in the area in 2009 are the current economic conditions, the exploratory costs in the Piceance Basin, the low prices of natural gas and the regulatory uncertainty in Colorado, he said.If you roll those up in total, they are going to influence our decision, Weeditz said.Contact Phillip Yates: email@example.comPost Independent, Glenwood Springs, Colorado CO
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