DUG Rockies: Plenty Of Promise, Despite The Politics

ceo_energemsier · May 15, 2019

DUG Rockies: Plenty Of Promise, Despite The Politics

Technology has upended the conventional wisdom on well completions, and the passage of SB 181 in Colorado may turn out to be a blessing in disguise for the oil and gas industry.

DENVER—The ever-evolving Bakken Shale set a new production record in January and is poised for decades of drilling, the opening keynote speaker at DUG Rockies said on May 15.

It’s a capital-efficient play, said Brad Holly, president and CEO of Whiting Petroleum Corp. (NYSE: WLL). He attributed the upswing to cycle-time improvements and right-sized completions.

In January, Bakken production reached 1.46 million barrels of oil per day (bbl/d), Holly said, with production per well continuing to grow. Customization is key. Whiting plans to complete 130 wells this year, relying on data science to tailor each job for the optimum frac.

In the Sanish formation where Whiting operates, all completions using new technologies have had a positive impact on the parent well, he said.

“This is quite remarkable and counter to accepted wisdom,” Holly said. “The play has strong economics and hefty inventory—there are decades of drilling ahead.”

That’s because, while earlier Bakken completions resulted in recovery of 10% to 12% of original oil in place (OOIP), completions today are recovering close to 20%.

During a panel on how Wall Street sees the situation in the Rockies, Trisha Curtis of PetroNerds LLC said the shale model has inspired broader changes in the oil market. U.S. shale has become a necessary piece of a global asset portfolio, said the president and co-founder of the Denver-based energy analytics firm, and clients are attracted to its short-cycle investment and quick production response.

But with well-spacing issues raising anxiety levels, Curtis addressed the question: Are well spacing issues killing the boom? Short answer: No.

“Operators are evolving their approaches and making changes in inventory and changes in spacing,” she said. “Completion design modifications continue and year-over-year well productivity is improving.”

Colorado politics have definitely hurt valuations of companies operating in the Denver-Julesberg Basin, said Mike Kelly of Seaport Global Securities, who joined Curtis on the panel. An investor pumping $1,000 into the typical D-J company on Jan. 1, 2016, would, on average, have stock worth $421 today.

“This is in spite of the fact that the D-J has competitive [finding and development costs], margins and returns,” said Kelly, who is managing director and senior analyst.

A positive, Kelly said, is that SB 181, passed the state Senate on May 13, could provide stability for investors because it asserts local control and Weld County, Colo., loves the oil and gas business. He noted that the issue is now settled and more restrictive legislation or ballot initiatives in the future are unlikely.

“It’s time for Wall Street to take a new look at D-J players,” Kelly said.

ceo_energemsier · May 15, 2019

New Colorado environmental law stalls oil investment

New environmental regulations in Colorado have chilled investment in the state’s oil and gas fields as companies grapple with how local officials will respond to a law giving them more power to restrict energy production.

Colorado now ranks fifth among U.S. states in oil production at about 500,000 barrels per day (bpd), up from just 90,000 barrels in 2010.

That boom, however, has come just as state politics has shifted to the left with an influx of urbanites who tend to oppose fossil-fuel development.

The Colorado law is one sign of pushback to the oil boom in the United States, which last year became the world’s leading producer, overtaking Saudi Arabia.

New Mexico, the state ranked third in production volume, has also sought to rein in energy development with new rules targeting emissions from hydraulic fracturing. California, another top producer, is considering legislation that would sharply curb oil drilling. Many states have opposed Trump administration efforts to expand offshore drilling near their coastlines, and environmentalists nationally have blocked or slowed new pipelines with protests and lawsuits.

Colorado is “ground zero for a combination of oil and gas production, environmental stewardship and urban sprawl housing development,” said Jack Hamlin, a board member for the Rocky Mountain Pipeliners Club, which is made up of about 3,000 energy industry workers in the region. All three interest groups, he said, are “fighting for the same space.”

(Graphic: Oil production and population growth grow in Colorado link: tmsnrt.rs/2DL6Q7i).

Colorado’s new law will allow counties and municipalities to make rules governing the distance oil wells can be from homes and schools and to regulate drilling impacts such as noise, traffic and pollution.

Previously, local officials relied on the state and federal governments to regulate energy.

The resulting uncertainty over how local authorities will use their newfound power has nearly halted energy deal activity, including acreage purchases. There were only five land transactions of negligible value in the Denver-Julesburg Basin in the nine months ended Mar. 31, down from nine deals worth $2 billion in the same period of 2016-17, according to consultancy Drillinginfo.

ConocoPhillips tried to sell its Colorado acreage for more than $1 billion late last year but failed to find a buyer, according to three sources familiar with the deal.

Conoco-Phillips declined to comment.

Adams County in northeast Colorado, where drillers produced 3.6 million barrels of oil last year, has already launched an effort to examine “health and safety and welfare” from the local energy industry.

The county “will need to look at air and water quality, preventing explosions and accidents, spills and truck traffic,” said Steve O’Dorisio, a commissioner for Adams County, northeast of Denver.

DODGED BULLET

While some oil firms are fretting over the new law, others are relieved that another, more restrictive ballot initiative failed to pass in November.

That proposal would have effectively put most of the state’s land off limits for oil production by imposing bigger buffer zones between energy development and most occupied buildings.

Companies engaged in Colorado energy production expressed a range of opinions about whether and how much the new law would impact their businesses.

Hamlin, a Colorado native who owns an energy engineering company, opened a Wyoming office to guard against an exodus of energy companies from Colorado. More than 90 percent of his business has been done outside of the state in the months before and after the legislation’s passage, he said.

Oil firms “have no idea what impact it’s going to have,” Hamlin said of the law. “Businesses, they just don’t invest in uncertainty.”

Extraction Oil & Gas Inc plans to remove acreage in Boulder County from its inventory of anticipated drilling sites because of the regulatory uncertainty, said acting CEO Matthew Owens on the firm’s first-quarter earnings call. Owens stressed, however, that the firm could keep up its drilling pace by tapping fields in three other Colorado counties.

SRC Energy, a Denver-based oil producer that produces about 45,000 barrels of oil equivalent per day, offered cautious optimism in its first-quarter earnings call. While the firm “does not support all parts of the bill,” and acknowledges regulatory risks, the company plans to move forward with current operations, said Chairman and Chief Executive Lynn Peterson.

Chevron Corp and Occidental Petroleum Corp are currently competing to acquire Anadarko Petroleum Corp, which holds more than 400,000 acres in Colorado. Executives from both firms have said they do not expect the new law to pose an obstacle.

“We have no worries about what’s happening in Colorado,” Vicki Hollub, Occidental’s chief executive, said on an analyst call announcing her firm’s bid for Anadarko.

Notably, Weld County, which produced more than 157 million barrels in 2018 - more than every other Colorado county, combined - said it would not adopt stricter rules. But that doesn’t bar municipalities in the county from creating their own regulations.

UNCERTAIN PATH AHEAD

The next steps for the Colorado Oil and Gas Conservation Commission, the state oil regulator, involve amending its own rules to align with the increased focus on health and safety required in the new law. That process, which producers fear could curtail their drilling, should be completed by July 2020, said Chris Arend, a spokesman for the Colorado Department of Natural Resources.

The commission will also be amending criteria for flagging permit applications for additional review when they raise specific concerns, such as a location near a school or a flood plain.

The process will be applied to the 6,400 energy permit applications now in the pipeline as of February, many of which were filed by companies rushing to get ahead of the expected tightening of regulations. That compares with 2,600 pending permits in the same month the previous year.

Cities and counties have no set timeline for enacting new rules that might curb drilling. Some, such as Adams County, slapped a temporary moratorium on new permits while they decide what to do. Broomfield, a city northwest of Denver, will likely vote on its own moratorium later this month, said Broomfield City Councilman Kevin Kreeger.

Colorado Oil and Gas Association President Dan Haley called the new law “the beginning, not the end” of a new process for regulating the industry.

ceo_energemsier · May 15, 2019

DUG Rockies: Bullish On The Bakken; San Juan Reinvigorated

Whiting Petroleum, and Hess Corp. espoused optimism about the Bakken, while others talked about the reinvented San Juan. Meanwhile, Extraction Oil & Gas is ready to deal with SB-181.

DENVER—The politics in the Colorado Senate and House of Representatives around the passage of Senate Bill 181 “were horrible,” said Colorado Senator John Cooke (R-13), while speaking at Hart Energy’s DUG Rockies conference and exhibition on Wednesday. “It’s still a bad bill, but it does give the industry some certainty.”

SB-181 was signed into law by Colorado Governor Jared Polis after being swiftly moved through a Democrat-controlled General Assembly. It gives land usage authority for oil and gas exploration and production to local authorities. A little more than a month in, questions about a de facto moratorium on drilling have been examined as regulators determine the particulars of the law.

Adams County, where drillers produced 3.6 million barrels of oil last year, has already halted new licenses for six-months. Meanwhile, commissioners in Weld County, the state’s more productive county for drilling with more than 157 million barrels produced in 2018, said the county will not adopt stricter rules. But Cooke isn’t so sure there won’t be an affect on the county.

“I will still hurt Weld County,” he told the audience at the Colorado Convention Center.

Colorado politics have definitely hurt valuations of companies operating in the Denver-Julesberg (D-J) Basin, said Mike Kelly of Seaport Global Securities, who joined Curtis on the panel. An investor pumping $1,000 into the typical D-J company on Jan. 1, 2016, would, on average, have stock worth $421 today.

“This is in spite of the fact that the D-J has competitive [finding and development costs], margins and returns,” said Kelly, who is managing director and senior analyst.

A positive, Kelly said, is that SB -181 could provide stability for investors because it asserts local control and Weld County, Colo., loves the oil and gas business. He noted that the issue is now settled and more restrictive legislation or ballot initiatives in the future are unlikely.

“It’s time for Wall Street to take a new look at D-J players,” Kelly said.

Eric Jacobsen, senior vice president at Extraction Oil and Gas said the company, tagged by many as on the companies in the region most likely to be affected by SB 181 due to its acreage in Boulder, said the company already operates within the spirit of SB-181 in several aspects. He believes it has a competitive edge in working with the new regulations.

Bullish On The Bakken
The ever-evolving Bakken Shale set a new production record in January and is poised for decades of drilling, the opening keynote speaker, said Brad Holly, president and CEO of Whiting Petroleum Corp., said earlier in the day.

He attributed the upswing to cycle-time improvements and right-sized completions.

In January, Bakken production reached 1.46 million barrels of oil per day (bbl/d), Holly said, with production per well continuing to grow. Customization is key. Whiting plans to complete 130 wells this year, relying on data science to tailor each job for the optimum frac.

In the Sanish formation where Whiting operates, all completions using new technologies have had a positive impact on the parent well, he said.

“This is quite remarkable and counter to accepted wisdom,” Holly said. “The play has strong economics and hefty inventory—there are decades of drilling ahead.”

That’s because, while earlier Bakken completions resulted in recovery of 10% to 12% of original oil in place (OOIP), completions today are recovering close to 20%.

Hess Corp.’s vice president of onshore Barry Biggs said the Bakken is competitive among global projects because of breakeven prices. He added that development costs in the Bakken have been reduced by 60% since 2010.

Hess has 3,000 high-quality locations, according to Biggs. He also said the company expects to spin off significant cash flow in the coming years.

Back To the San Juan
Along with other operators, DJR Energy is bringing activity back into the San Juan Basin, said Jack Rosenthal, vice president of geoscience for DJR. The company has 350,000 net acres in the basin that it acquired from Elm Ridge and Encana.

“We have the capacity and geologic potential to expand the Mancos core area,” he told the audience.

The company is targeting the Mancos in the San Juan, which is the early stages of development. DJR will bring on one rig in the second half of 2019, Rosenthal said.

Meanwhile, San Juan Resources’ Jerry McHugh Jr. said the basin has 24,000 active wells and is being revitalized by new entrants.

“The basin is always reinventing itself, with new zones and new technologies” McHugh said. “It’s the gift that keeps on giving.”

Wall Street Watch
During a panel on how Wall Street sees the situation in the Rockies, Trisha Curtis of PetroNerds LLC said the shale model has inspired broader changes in the oil market. U.S. shale has become a necessary piece of a global asset portfolio, said the president and co-founder of the Denver-based energy analytics firm, and clients are attracted to its short-cycle investment and quick production response.

But with well-spacing issues raising anxiety levels, Curtis addressed the question: Are well spacing issues killing the boom? Short answer: No.

“Operators are evolving their approaches and making changes in inventory and changes in spacing,” she said. “Completion design modifications continue and year-over-year well productivity is improving.”

Old-Ruffneck · May 15, 2019

1 hour ago, ceo_energemsier said:

Adams County, where drillers produced 3.6 million barrels of oil last year, has already halted new licenses for six-months. Meanwhile, commissioners in Weld County, the state’s more productive county for drilling with more than 157 million barrels produced in 2018, said the county will not adopt stricter rules. But Cooke isn’t so sure there won’t be an affect on the county.

“I will still hurt Weld County,” he told the audience at the Colorado Convention Center.

Colorado politics have definitely hurt valuations of companies operating in the Denver-Julesberg (D-J) Basin, said Mike Kelly of Seaport Global Securities, who joined Curtis on the panel. An investor pumping $1,000 into the typical D-J company on Jan. 1, 2016, would, on average, have stock worth $421 toda

I can see why the acreage is now worthless. Killed the Gold Goose. I say suck the wells dry and no more drilling. Wanna be so liberal a state, see how hard it is to find fuel after pipelines are killed. I have no mercy for a government like that. The multi-millions they receive from the barrels pumped, sure not logical thinking.

ceo_energemsier · May 15, 2019

2 minutes ago, Old-Ruffneck said:

I can see why the acreage is now worthless. Killed the Gold Goose. I say suck the wells dry and no more drilling. Wanna be so liberal a state, see how hard it is to find fuel after pipelines are killed. I have no mercy for a government like that. The multi-millions they receive from the barrels pumped, sure not logical thinking.

CO has turned into a terrible place in terms of politics and regulatory space. The Gov, in CO is also mandating renewable energy. They want to leave the oil and gas and coal in the ground. All west coast and east coast mindset have moved into the beautiful amazing state.

The voters voted down all the anti oil and gas ballot initiatives, yet the new admin in CO went around the voters decision and passed these new laws.

I already know of many companies who are relocating their employees from CO to TX for now and also planning to scale back their drilling and investment operations due to these new laws.

CO is turning into CRAPPIRADO like CRAPPIFORNIA.

All you smell is urine and MJ smoke !!! that is good but OG& is bad. The lies about the black market not existing and crime going down and revenues up etc all a sham. Crime has increased , homelessness has increased, I am guessing for every legal MJ operation there are a 100 illegal backed by the drug cartels. You hear it on the news every week, how many illegal grows got busted.

Denver has become a real cesspool as are other cities along the front range.

Douglas Buckland · May 16, 2019

The counties in Colorado need to instigate a system similar to the Electoral College.

The Front Range counties, where the majority of the population resides, force their will on the rest of the , mostly rural, counties.

The influx of liberal minded people due to legal marijuana, furthered by an openly gay governor, is forcing their agenda on people who do not reside on the Front Range.

If you discount the liberal counties of the Front Range, the State is actually, and historically, conservative.

Old-Ruffneck · May 16, 2019

9 minutes ago, Douglas Buckland said:

The counties in Colorado need to instigate a system similar to the Electoral College.

The Front Range counties, where the majority of the population resides, force their will on the rest of the , mostly rural, counties.

The influx of liberal minded people due to legal marijuana, furthered by an openly gay governor, is forcing their agenda on people who do not reside on the Front Range.

If you discount the liberal counties of the Front Range, the State is actually, and historically, conservative.

Actually yer pretty much correct in that. Sorta like Illinois, the 3 counties around Chicago dominate the rest.....

ceo_energemsier · May 16, 2019

12 hours ago, Douglas Buckland said:

The counties in Colorado need to instigate a system similar to the Electoral College.

The Front Range counties, where the majority of the population resides, force their will on the rest of the , mostly rural, counties.

The influx of liberal minded people due to legal marijuana, furthered by an openly gay governor, is forcing their agenda on people who do not reside on the Front Range.

If you discount the liberal counties of the Front Range, the State is actually, and historically, conservative.

I have lived in CO and have a long family history in CO for several decades going back to the 30s in ranching, farming, mining and oil and gas. The political landscape and the mentality due to the influx of the liberal minded folks coming from the east and the west mainly has been dramatic. The irony is that the oil and gas industry and the shale boom created a very good economy and a jobs market and people came in droves for good high paying jobs in engineering, construction, related and service industries, IT etc and now oil and gas is facing massive threats to its existence as we know it.

The slippery slope of degradation started with the legalization of medical MJ, which turned out to be such a hoax , followed by the legalization of recreational marijuana.

The front range cities and counties like Denver, Boulder and a few handful of others try to dictate what the rest of the people in the State should do and how they should live like.

Over 2 dozen oil and gas companies that I am involved with have had their hq or regional hq's based in Denver and nearby areas and several companies moved their hq's from Houston to Denver after Harvey to protect their highly prized data and work force, now they are moving back. I had a very nice place downtown Denver kept as an exec. residence with amazing views of the Rockies, close to all the related offices but decided sell not only that but also move the offices further south out of Denver to avoid all the garbage created because of the rampant MJ use and other drug use and problems that stemmed from the homelessness and transient situation created because of it.

Lot of people started to relocate to CO in the late 2000s and that has continued and has changed and is changing the demographics.

https://www.coloradovirtuallibrary.org/resource-sharing/state-pubs-blog/whos-moving-into-and-out-of-colorado/

https://www.ft.com/content/1a27a524-7496-11e8-aa31-31da4279a601

https://www.kansascityfed.org/publications/research/rme/articles/2018/rme-3q-2018

https://www.denverpost.com/2017/12/20/colorado-population-2017/

How is CO going to deal with all these new people? There has been a drought for several years on and off . Water is a very precious resource. How will all the new growth be sustained? Yet there were extreme protests in CO from 2010-2015 against fracturing and oil and gas drilling with all kinds of lies being promoted by the left leaning and left wing groups along the front range. It was a crazy circus just about everyday. It was also proven that these anti oil and gas groups and protests were secretly funded by Russia's Gazprom through lobbying firms in DC (not only in CO but across the US and in EU). Talk about Russian interference and collusion.!!!!

https://www.nytimes.com/2014/12/01/world/russian-money-suspected-behind-fracking-protests.html

https://www.newsweek.com/putin-funding-green-groups-discredit-natural-gas-fracking-635052

https://www.newsweek.com/intelligence-putin-funding-anti-fracking-campaign-547873

https://www.irishtimes.com/news/world/europe/russians-accused-of-funding-shale-gas-protests-1.2021908

We had a Democratic Gov. for 8 years who was atleast able to use common sense and science to make some decisions and govern by those. Now it is the magic carpet crowd.

BP moved their onshore operations HQ over to Denver about a year ago.

https://www.houstonchronicle.com/business/energy/article/Why-BP-decided-to-move-Houston-HQ-200-jobs-to-10796111.php

https://www.denverpost.com/2018/09/12/bp-opens-new-era-in-denver/

I had JV partners, execs , equity partners and others visiting from overseas and they started to notice and make comments about the drastic negative changes. People dont want to deal with the constant harassment and other issues related with it if they dont have to. They prefer to fly in and out of Houston. Denver is a very good international airport as well.

You cant go to any of the city parks along the front range and not get an overpowering and overwhelming stench of stinking skunk hanging around like a toxic cloud. People dont respect the laws, if you want to smoke then go into your own private space as allowed by the law and do it there. You will see transient camps pop up along the creeks and parks creating health hazards and risks and fire danger which is very high in CO. Illegal MJ grows are popping up in state parks and forests and green belts and along major watersheds and creeks running along the front range and elsewhere. You can see all the toxic chems being dumped right into the waters of the creeks and streams and reservoirs. terrible. LE do major illegal MJ busts just about every week. You see people coming to CO from all over the country and the world mainly (Cuba, Honduras, Guatemala, Mexico, Haiti etc) to be engaged in the illegal grows and distribution.

https://www.thedenverchannel.com/news/see-the-62-people-indicted-in-a-massive-colorado-illegal-pot-bust

https://www.thedenverchannel.com/news/crime/police-raid-more-suspected-black-market-marijuana-grows-following-investigations-in-denver-metro

https://denver.cbslocal.com/2018/10/11/dea-raid-homes-bust-illegal-marijuana-grows-aurora/

https://www.coloradoan.com/story/news/2018/12/20/colorado-recreational-marijuana-black-market-cannabis/2369154002/

We have had several devastating fires in CO in the last 8 years. It is a terrible feeling to watch your own house go up in flames while you are evacuated , and watching it on a live national news coverage ... saying to yourself hey that looks like my house!!!

CO is a beautiful State with a lot of natural resources that can be managed and developed and utilized in a very safe and efficient manner but it looks like it will be "leave it all in the ground" and energy costs will go sky rocketing!!!

Where else can you have a frigid morning and a freeze, and warm up to clear blue skies, while looking at beautiful snow capped peaks and be in the 80s in the afternoon , enjoy a dip in the pool and a grill out, enjoy watching elk and deer , family of bobcats and a mountain lion stroll through and enjoy watching a mama bear and her cubs playing around right outside in the yard, then have an amazing lightning show followed by massive hail and rain , all in one day!!!!

ceo_energemsier · May 16, 2019

it is happening ALREADY!!!!

Broomfield takes first step to enact six-month oil and gas moratorium

https://www.broomfieldenterprise.com/2019/05/14/broomfield-approves-six-month-oil-and-gas-moratorium/

ceo_energemsier · May 16, 2019

Uncertainty still surrounds Colorado producers following oil, gas overhaul bill

Highlights

Governor declares end to 'oil and gas wars'

State activists still pursue fracking ban

Denver — Although Colorado passed a sweeping overhaul of the oil and natural gas permitting process for drilling new wells in the state, and Democratic Governor Jared Polis declared an end to the "oil and gas wars," legislators worry activists might draw up new ballot propositions.

As the state starts to turn Senate Bill 181 -- the new law giving greater power to local governments over oil and gas drilling projects -- into flesh following the end of the legislative session, communities are re-establishing moratoriums.

"I do believe the work conducted by the legislature under Senate Bill 181 does take important issues that constituents from the state were bringing forward and addresses those issues," said Alec Garnett, the Democratic state House majority leader, during a forum the Colorado Oil and Gas Association hosted. "It creates a little bit of nervousness and uncertainty, but it will take a while to implement the rulemaking for some of the technical issues in Senate Bill 181 to be worked out. It puts us on a wait-and-see course to avoid costly, not well thought out, ballot measures the public puts forward because they don't feel like the General Assembly is doing enough."

"I'm hopeful that it takes a stab at limiting ballot issues," said Rachel Zenzinger, a Democratic state senator from Arvada. "But I've heard from a lot of people that the legislation didn't go far enough. A lot of them were disappointed because their end goal was to ban all fracking. And because this legislation didn't do that, they feel like we were a major disappointment."

She added, "we do have a unique structure in Colorado where people can get things on the ballot. We try to get ahead of them, but it's hard to predict where people might take things in the future."

The city of Lafayette, located in the Denver-Julesburg Basin, added another six months to its moratorium on drilling in the city immediately following the passage of SB 181 last month. Next week, the city council of Broomfield will discuss temporarily banning new oil and gas wells while it mulls new rules on the industry.

Also, Larimer County, located on the northern end of the DJ Basin, is launching an Oil and Gas Regulations Task Force to meet over the spring and summer to come up with recommendations on how county leaders can move forward imposing limits on drilling activity.

Still, despite any long-term concerns over the future of oil and gas production in the state, operators currently hold about 6,500 drilling permits in hand, allowing for growing production from the DJ Basin. For example, Noble Energy, one of the most prolific producers in the basin, just set a company record during first-quarter 2019 at 285 MMcf/d of natural gas, 30,000 b/d of NGL and 67,000 b/d of oil produced. Noble has about 600 drilling locations already permitted, allowing for five years of creating new wells at its current pace.

"The war might be over, but plenty of skirmishes will continue at the local level because control has been shifted to the local folks," said Republican state senator Dennis Hisey from El Paso County. "Oil and gas isn't going to slow down, but at city council and county commissioner meetings, locals are going to show up en masse to stop drilling in a location they don't like. It will be turmoil in the short term."

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