Standing in the middle of the next oil and gas boom
July 27, 2007
Since fuzzy dice first dangled from a Cadillac’s rearview mirror, Frank Cooley has been asked when the next oil boom would occur.
He’s never had much luck with his predictions.
“I have given the same answer for 50 years – that the boom would occur next Wednesday,” Cooley said. “And I’ve been wrong every time.”
Cooley, 84, has practiced oil and gas law in Meeker for more than half a century. A former fuel geologist with the United States Geological Survey, Cooley has drilled in the Gulf of Mexico for Marathon and worked on Wall Street for what was then Exxon-Mobil. He moved to Western Colorado permanently in the mid-1950s, and set up shop working for property owners and exploration companies including EnCana Oil and Gas.
Throughout the decades, Cooley has seen all the blessings and horrors of energy development – “My wife and I were in Denmark the night Chernobyl went, and we admired the sunset,” he said – while watching energy markets ebb and flow.
But finally, Cooley’s prediction is right.
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The next boom is now.
New technologies in natural gas and oil exploration – such as “directional drilling,” or drilling at an angle rather than straight down – are allowing energy companies to extract previously untouched resources, fueling a surge in development that is transforming economies, changing lifestyles and spurring land battles in Western Slope regions such as the Roan Plateau and Vermillion Basin.
“No one thought I would live to see another boom,” Cooley mused on a recent morning in Meeker. “But there is as much oil in the fields that we have abandoned, as we originally took out.”
A new kind of boom
The scope of potential natural gas and oil development is larger than a short-term rush.
“It’s a different boom this time,” said Fred Julander, founder of Julander Energy Co. in Moffat County. “It’s not really a boom, it’s exploding long-term demand.”
Brian Macke, director of the Colorado Oil and Gas Conservation Commission, or COGCC, said permits will be issued for about 6,200 new wells across the state this year. By the end of 2007, Colorado will be home to about 34,000 active wells. The amount of rigs drilling those wells has doubled statewide in the past four years, Macke said.
“There is no comparison for the amount of oil and gas drilling that is occurring across the state,” he added. “This is remarkable growth.”
Gov. Bill Ritter – an advocate for a cautious approach to energy exploration – said on June 8 that the Bureau of Land Management, or BLM, has plans for about 40,000 more wells on federal land in Northwest Colorado during the next 15 years.
And it’s not just about Moffat, Rio Blanco, Garfield and Mesa counties.
Routt County is home to the Tow Creek Anticline, a sprawling oil deposit in the Mount Harris area near Milner. Australia-based exploration company Comet Ridge Limited is already re-opening old wells in the area, which Comet Ridge Managing Director Andy Lydyard said could hold nearly 200 million barrels of oil – enough to meet the United States’ demand for about 10 days.
“It’s a very large anticline, cut through the middle by the Yampa River,” Lydyard said. “When you drive from Steamboat Springs to Hayden, you go right through the middle of an oil field.”
Piece of the Piceance
But 200 million barrels of oil is small potatoes compared to what’s going on in the Piceance Basin, the heart of energy development in Western Colorado.
The Piceance – pronounced “pee-awnce” – covers 6,000 square miles in five counties, straddling the Colorado River and Interstate 70 corridors. The amount of natural gas potentially buried in the basin has industry executives salivating, with conservative estimates forecasting enough gas to power Colorado for nearly 100 years.
Colorado Geological Survey Director Vince Matthews estimates that during the next 20 years, 20,000 new wells will be drilled in the White River area, the northern section of the Piceance.
“This is really the center of the universe for natural gas in this country,” said Greg Schnacke, executive vice president of the Colorado Oil and Gas Association.
West of downtown Meeker, Colorado Highway 64 winds northwest through canyons and sagebrush before intersecting with Rio Blanco County Road 5, a narrow, hilly route that for years has been known as the Piceance Creek Road.
The road’s new name could be “Energy Alley.”
Storage tanks and production facilities for several energy companies dot the sparse, isolated landscape between Meeker and Rifle. Trucks fill County Road 5, carrying loads as ordinary as steel pipes and as unsettling as carbon dioxide. The road provides the sole access for facilities including the new Meeker Gas Plant, under construction by EnCana and Houston-based Enterprise Products Partners, and a testing facility that is part of Shell’s Mahogany Research Project, a massive oil shale testing program.
“When you talk about oil shale resources in the United States, you’re talking about Colorado,” Matthews said.
The amount of land, resources, labor and – ironically – electricity needed to generate more oil and natural gas power has environmental advocates and state officials struggling to plan, or even forecast, the future.
“We cannot look at the development of natural gas and the development of oil shale as distinct activities,” said Mike King of the Colorado Department of Natural Resources. “The impact to communities will be cumulative.”
Nowhere to ride
In downtown Rifle on a June afternoon, business was bustling at the Base Camp Cafe on Third Street. Nearing the end of a shift that started early that morning, server Kristi DiMarco, 45, was not about to take any flak from a regular customer who teased her about women depending on men for income.
“Some of us make our own money, honey,” she said, leaning over the counter to snap her fingers in the man’s face.
DiMarco has lived in Rifle since 1977, and has the demeanor of someone who doesn’t take much flak from anybody. She quickly rattled off development projects spurred by natural gas exploration in Rifle’s backyard.
“We got the new Wal-Mart, new hospital, new restaurant : everything out there is brand new,” DiMarco said, waving a hand at the other side of town. “There’s a lot of new people coming to town, too – and it’s all in the last five years. Everybody who comes in here is in trucking.”
Although there have been more customers in the cafe lately, DiMarco said the extra tips don’t outweigh the costs of energy development.
“I used to ride horses up on the mesa, but they’ve fenced everything off,” she said. “There’s a lot of people in this town who don’t like what’s happening.”
But Rifle residents are also seeing benefits from energy-related growth.
The Art Dague Pool and Slide is a few blocks north on Railroad Avenue, Rifle’s main drag. The city of Rifle acquired ownership of the pool last year, and is funding the facility through a citywide, half-cent sales tax – an increasingly strong source of revenue.
“It’s been good for my business,” said Rifle resident Chris Krelovich, lounging poolside while his wife and young child played in the water. Krelovich graduated from Rifle High School in 1992 and owns Creekside Laundry on Railroad Avenue.
“It’s been a positive for our home prices, too,” he said of natural gas jobs. “Houses that were going for 250 (thousand) a year or two ago are now going for 400.”
Ryan May, who has lived in Rifle for 17 years and owns two taverns in nearby towns, also relaxed while his wife and child swam.
May said in his opinion, the stretch of Highway 13 between Rifle and Meeker could soon sprout subdivisions.
“If oil shale takes off, then we’re talking about another 90,000 people around,” he said. “It would be insane down here.”
That idea drew a sigh from Rifle resident Lyn Sinclair.
“Growth is better than stagnation, I guess,” she said.
Shale it work?
Like May’s estimate of population growth, forecasts about oil shale are still largely speculative.
How to extract oil from rock is a technologically mind-bending process that requires vast amounts of water, manpower and electricity. But industry giants such as Shell are betting oil shale extraction will be not just feasible, but profitable.
And there is no doubt the oil is there.
“We have the richest and thickest reserves anywhere in the world,” said Vince Matthews of the Colorado Geological Survey, citing Colorado oil shale seams that are up to a quarter-mile thick. “It’s a tremendous, tremendous resource.”
Extracting that resource, according to methods Shell is exploring in the Piceance, requires heating the shale rock formation to about 700 degrees Fahrenheit for an extended period of time – “a few years,” according to the environmental advocacy group Western Colorado Congress – while the rock remains 1,000 to 2,000 feet underground.
The RAND Corp., a nonprofit public policy institute, estimates a commercial-scale oil shale plant would require 1,200 megawatts of power to produce 100,000 barrels of oil. Producing that power would require the equivalent of nearly three plants the size of Hayden Station.
“Oil shale seems absolutely ludicrous right now,” Routt County Commissioner Doug Monger said. “It just seems crazy. : We’re spending a lot of political capital on this oil shale, and I just can’t see it in the commercial arena yet. Especially with the coal reserves we’re sitting on.”
Frank Cooley argued the size of the Green River Formation, the single largest deposit of oil shale in the United States, cannot be ignored.
“The quantities of water, electricity and people are such that they shock anyone who hears them,” Cooley said. “But oil shale has to work, given the size of the resource.”
Commercial oil shale production in Northwest Colorado could be only a matter of time.
Matthews, who has “always been a skeptic on oil shale,” said he has recently heard Shell officials say oil shale production could be economically viable, at $30 per barrel.
“That’s a sea change,” Matthews said of the optimism. “That’s never happened before.”
Drilling for dollars
The impacts of natural gas are far from speculative.
Larry McCown has been a Garfield County commissioner since 1996. At a May energy conference at the Holiday Inn in Craig, McCown said energy development has done more than just keep the county financially solvent.
It has nearly quadrupled the county’s budget in less than a decade.
In the late 1990s, McCown said, Garfield County had a budget of about $25 million and was struggling to meet a federal mandate to build a new jail.
“We didn’t have the money to do it,” he said.
“There were very little reserve funds back in those days,” agreed Al Maggard, a part-time employee at the Garfield County Sheriff’s Office and former chairman of the Jail Advisory Committee. “We had no money.”
But the county secured funding with a long-term lease, and the $15.2 million Garfield County Detention Center in Glenwood Springs was completed in 2001.
These days, Garfield County pays for most things up front.
Finance Director Patsy Hernandez said the county’s 2007 budget includes $96 million in revenues, $100 million in expenses and a balance of more than $43 million at the end of the year.
“If you were to look at a year-to-year (budget comparison), from 10 years ago until now, you would see big, big changes,” Hernandez said.
In May, the county opened a $1.75 million community corrections facility to help inmates prepare for civilian life.
“We used cash,” Hernandez said of the facility’s funding. “Garfield County has no debt.”
The county can thank energy development for its surging cash flow. Seventy cents of every dollar of assessed value in Garfield County, McCown said, is from oil and gas industries.
Energy exploration is also raising the area’s population.
“We’re building new schools in Rifle, and they are full as soon as they come on-line,” McCown said, mentioning a 3-year-old school that is already using modular classrooms. “We all talk about economic development, but we’ve got zero vacancy in Rifle – zero. Can’t build houses fast enough.”
Hernandez said the county is increasing funding for its Road and Bridge, Sheriff, and Human Services departments.
“The biggest impact we see from the gas industry is to our roads,” McCown said, citing public complaints and the county’s struggle to balance infrastructure improvements with energy growth. “We build new roads, but the trade-off is that people have rigs in their area.”
1 week, $1 million
On a sparsely vegetated patch of sagebrush known as the Rulison Field, less than a mile north of I-70 between Rifle and Parachute, a drilling rig stretches its web of metal scaffolding, stairs, machinery and pipes more than 100 feet into the sky.
Louisiana native Curt Ainsworth is the rig manager, or “toolpusher,” responsible for overseeing the five-man crew that operates the rig for the Williams energy company.
Ainsworth said 12 wells will be dug on the site. On the morning of July 13, several wells were producing natural gas while others were not yet drilled.
“We’re already selling gas out of those wells,” said Ainsworth, pointing to holes more than 7,000-feet deep.
Selling gas quickly is vital for Williams, which leases rigs on a daily rate from rig manufacturer Helmerich & Payne.
Williams leases 26 rigs in the Piceance Basin, where it extracts natural gas from 1,800 wells – a number that will grow to 3,300 in the next three years.
Ten of the drilling rigs are new, high-capacity “flex” rigs, which can drill more wells much faster than older, conventional rigs. Williams spokeswoman Susan Alvillar said the flex rigs are leased for $20,000 per day, including the crews.
That’s $1 million per week in leasing costs, for 10 of the 26 rigs. Three more flex rigs will soon come on-line, Alvillar said.
“That’s why it’s important for us to drill fast,” she said. “And that’s just the tip of the iceberg for what we’re spending out here.”
Alvillar estimated that in 2006, Williams spent $900 million in capital costs in the area.
“We’re the largest gas producer in the Piceance,” she said. Williams is based in Tulsa, Okla., and operates energy facilities across the United States.
Alvillar said Williams produces about 650 million cubic feet of natural gas per day in the Piceance, enough to power 2.2 million homes.
In the Rulison Field, industrial uses abound. A water treatment plant, oil shale test facility and Garfield County landfill are all visible from Williams’ gas operations. Alvillar said the media often portrays all the industries in the field as resulting from natural gas.
“This is the field they usually show (in aerial photographs),” she said. “But it’s absolutely not true – nothing else would look just like what you see today.”
But Williams acknowledges the vast environmental impacts of natural gas exploration. The company has cut a deal with the Colorado Division of Wildlife and Bureau of Land Management to waive land use restrictions in the winter months, a sensitive time for mule deer, in exchange for preserving mule deer habitat in other areas. Williams is currently funding a three-year BLM study of mule deer, to monitor the animals’ ability to survive the changing landscape.
On June 8, BLM officials released the first of two records regarding future management of the Roan Plateau.
“This first Record of Decision covers about 70 percent of the 73,602 acres in the Roan Plateau planning area. The Record of Decision provides critical protections for fish and wildlife habitat, plants, special places, viewsheds, and traditional recreation and other uses of the plateau,” reads a statement from the BLM. “The Decision also allows for very restricted and limited energy development that would require using the latest directional drilling techniques.”
But July 12, U.S. Sen. Ken Salazar, a Democrat from the San Luis Valley, questioned the BLM’s commitment to conserving wildlife habitat and preserving the Roan’s environment.
“We must ensure that the Roan Plateau Resource Management Plan does not rush to develop this natural gas resource, and that it ensures the protection of elk and mule deer habitats, the protection of recreational resources and the protection of the Roan’s unique features that make it a popular destination site,” Salazar said. “I am concerned about the (Bush) administration’s rush to lease as much acreage as possible for oil and gas exploration and development. It is this rush to lease that leads me to believe that there is a fundamental problem with how the BLM is doing business in Colorado and the West.”
A good run
At the Craig energy conference, an audience member asked McCown about the future of Garfield County.
The longtime commissioner paused before answering.
Maybe he was thinking about all the new jobs, and all the good salaries. About the real estate market. About the overflowing schools. About the rigs. About the roads and the noise. About the wildlife. About the county’s revenue, expanded services and new possibilities.
About his home.
“I feel good about where Garfield County is now,” McCown said, letting out a breath. “The problem is, we have to be careful not to become addicted to that money.”
The commissioner paused again. Then he compared the natural gas boom to a good run at a craps table in Las Vegas.
“You need to stick some of that money in your pocket, or they’ll end up with it before the night’s over,” McCown said. “We are living the dream. But five years from now, 10 years from now : I don’t know.”
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