WPX ‘slowing down’ gas operations
While the long-term impact of WPX Energy’s decision this week to halt new natural gas well completions in Garfield County and the greater Piceance Basin is uncertain for now, the immediate economic ripple effects will undoubtedly be felt.
“A lot of people’s livelihoods are at play, and my concern is for the folks who might be losing employment opportunity,” Kirby Wynn, oil and gas liaison for Garfield County, said in reaction to news that WPX plans to suspend the completion of newly drilled wells in northwest Colorado indefinitely due to low natural gas prices.
“It does mean that there is less work to go around,” he said.
The decision, announced Thursday in a company blog post on the WPX Colorado web page at http://wpxcolorado.com, affects about 20 natural gas wells that had already been drilled in Garfield and Rio Blanco counties. Completing those wells means proceeding to the hydraulic fracturing stage, which is now on hold.
“We’re going to wait to complete most of the wells we recently drilled, rather than finishing them now,” according to the blog post. “This means less work for contractors and service companies.”
According to WPX spokesman Jeff Kirtland, more wells could be affected, as eight drill rigs are still being operated by WPX in the region. Five of those are in Garfield County at latest count, according to the industry- and local-government supported Community Counts website.
“We are essentially slowing down in western Colorado for now, because commodity prices are affecting what we are able to do,” Kirtland said.
In the blog post titled “Pausing Our Completions: Here’s Why,” the company points specifically to lower commodity prices for both natural gas and oil as the reason for the decision.
“Both factors are great for consumers filling up a vehicle or paying a heating bill, but not for companies like WPX who produce energy and depend on prices to run our business,” it said.
Earlier last year, the price for natural gas was around $4 per thousand cubic feet of gas.
“Now we’re seeing prices dip below $3,” according to the blog post. “These prices directly impact profitability and revenue. This is an economic reality.”
How that affects decisions going forward remains to be seen, Kirtland said.
“We are still drilling wells at this point, but we need to evaluate the economics and what will prove to be effective with the low commodity pricing,” Kirtland said.
He noted that WPX has yet to announce its capital plan related to drilling in the Piceance Basin for 2015, as the company is still assessing the decline in prices. Last year, WPX invested $400 million into natural gas operations in the region.
In the meantime, the company is talking with its vendors to see if it can get some relief on the cost side for drilling operations.
“Lower costs certainly can help jump start activity,” the company said in its blog post.
At least for now, the latest decision did not result in any direct layoffs by WPX, as some energy companies have had to do in relation to the falling prices, especially in the oil fields of northeastern Colorado and in North Dakota.
WPX currently employs 220 people at its Parachute headquarters.
The decision by WPX did not come as a huge surprise for Rifle Mayor Randy Winkler, who echoed the company’s own explanation related to current oil and gas economics.
“It’s obvious why they’re doing it — it’s just not economically feasible,” Winkler said. “In my opinion, they have to do what they’ve got to do. It’s part of the business and it’s the nature of drilling. Right now, oil is making more than natural gas.
“But they’ll be back,” he said.
WPX is currently the most active oil and gas operator in Garfield County, especially after Encana suspended new drilling operations in the Piceance Basin last year. Both companies combined continue to operate thousands of producing wells in the county and throughout the region.
The economic impact for Garfield County as a whole also remains to be seen. Most of Garfield County government’s tax revenues for oil and gas operations come on the production end, according to county finance officials.
Energy production for 2015 will not be assessed until 2016, and the resultant property tax revenues aren’t collected until 2017, explained Ann Driggers, finance director for the county.
“Therefore, any possible impact of current events would not affect the county budget until 2017,” she said. “The beauty of this is we are able to predict well in advance what our property tax revenues might be.”
According to Garfield County Assessor Jim Yellico, oil and gas property values in 2014 benefitted from the average price being up and production down.
However, when both the price and production are down, property valuations for oil and gas go down, Yellico said.
Since the WPX announcement is coming early in 2015, a lot can happen before valuation time in 2016, “so it’s hard to determine what the announcement will mean regarding property taxes,” he said.
Rifle Citizen Telegram Editor Heidi Rice contributed to this report.
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