Colorado oil and natural gas activity increase, but employment remains 15-year low

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Colorado’s overall employment is expected to return to pre-pandemic levels by 2022, but the state’s natural gas and oil sector will likely lag behind other industries in finding jobs, new report says from the University of Colorado Boulder (CU Boulder).

“Improving prices is clearly what is driving more drilling and increased production,” Richard Wobbekind, associate dean of the Leeds School of Business at CU Boulder, told NGI. “It’s in a positive direction.”

Wobbekind added, however, that CU Boulder’s study – the annual Colorado Business Economic Outlook (CBEO) – shows that the level of employment in the state’s oil and gas sector is at its lowest in 15 years. year.

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Brian Lewandowski, executive director of the college’s business research division, told NGI that oil and gas companies have reversed an earlier trend of establishing regional headquarters in the Denver area.

“The point is, we’ve lost some of these regional headquarters,” Lewandowski said, adding that some jobs in the oil and gas industry just won’t come back to Colorado.

Whiting Petroleum Corp., which divested its Denver-Julesburg Basin (DJ) assets this summer, is a company that focuses its attention outside of Colorado.

An uneven recovery

An analysis that covers 10 industries statewide, the latest CBEO installment estimates Colorado will regain 73,900 jobs in 2021. Although the 2.7% per year increase would effectively recoup the total number jobs lost to the state during the pandemic-triggered recession, the recovery will be uneven, the report’s authors warned. For example, they don’t expect particularly affected sectors like leisure and hospitality to fully recover until 2023 or 2024.

The natural resources and mining industry, another economic sector that suffered heavy job losses during the recession, is expected to regain net job growth for the first time in two years with a gain of 600 jobs in 2022, predicts CBEO. The report says natural resources and mining shed 7,000 jobs in 2020, or 24.3 percent per year, and are expected to end 2021 down by 1,900 total jobs.

For the purposes of the CBEO, the classification of natural and mineral resources includes oil and gas, minerals and uranium, renewable energy, wind energy, solar energy, hydroelectric power and geothermal energy. The Colorado Oil and Gas Association (COGA) told NGI that the state’s oil and gas industry lost about 9,000 jobs in the first year of the pandemic.

The CU Boulder report shows signs of a recovery in Colorado’s oil and gas industry.

In the case of natural gas, he projects state-wide gas production of 2 Tcf, valued at $ 8 billion, by 2022. Just before the pandemic, in 2019, the state produced nearly 2.06 Tcf of gas valued at $ 5.3 billion, according to CBEO. Colorado’s gas production in 2020 slightly exceeded 2.06 Tcf, and the state will likely produce more than 1.93 Tcf in 2021, according to the report.

For crude oil, the report predicts Colorado will produce 160 million barrels next year, down 17% from the state-produced record 192.4 million barrels in 2019. On a value basis, The CU Boulder study projects crude production of $ 9.6 billion in 2022 – 4% lower than the figure of nearly $ 10.2 billion for 2019. It notes that Colorado produced 171.5 million barrels of oil in 2020 and is on track to 147.6 million barrels this year.

The “combination of additional production and higher prices will drive production values ​​to record highs in terms of dollar value,” Wobbekind said.

He attributed increases in oil and gas production, despite the industry’s labor force shrinking since 2019, to improvements in well efficiency and lower well costs per barrel over the course of of the last price cycle – and, of course, of rising commodity prices.

“I think it’s still profitable enough at this price point for what they come out of the ground, but the problem is how many holes they can punch,” he said, referring to the recent changes. made to Colorado’s oil and gas regulatory system.

A new mandate

In 2019, Colorado’s Democratic-controlled legislative and executive branches enacted Senate Bill 19-181 to revise the regulation of the state’s oil and gas industry. The CU Boulder report says the new system, which went into effect in January, changes the Colorado Oil and Gas Conservation Commission (COGCC) mandate from “promoting” to “regulating” the oil and gas industry.

The overhaul reflects the continuing discord between Colorado’s energy and environmental interests, which Wobbekind said is “possibly the most controversial issue in the whole state.” The Biden administration’s plans to curtail drilling on federal leases have also contributed, as one CEO said earlier this year, to “a lot of acrimony and angst.”

The CBEO stresses that the new state regulatory system gives local governments greater regulatory oversight over the industry, restructures the composition of the COGCC, establishes larger setbacks, collects information on cumulative impacts and allows revisions to allow to focus more closely on operator planning and environmental and wildlife protection measures. .

In addition to the COGCC, the Colorado Department of Public Health and Environment this year began collecting data on methane emissions through aerial surveys of oil and gas wells in the DJ Basin.

Wobbekind noted that, barring the new regulatory system, the CBEO researchers who prepared the oil and gas section of the report would likely have predicted higher production levels in 2022. The models “had shown a very strong correlation. high between higher prices and higher production, higher prices leading to increased production, “but activity could be higher without the new restrictions, he said.

Lewandowski told NGI that the reduction linked to the pandemic “was almost entirely economic in nature” but, “with the rebound, we see that the new regulations are holding back some things.”

Dan Haley, CEO of COGA, told NGI that state regulatory changes “have added more than $ 200 million to the cost of doing business in Colorado, and that number continues to rise as the rules continue. “.

Haley said Colorado’s oil rig count “remains below pre-pandemic levels” as other US oil and gas basins recover.

On December 10, Baker Hughes Co. reported 12 rotary rigs operating in Colorado, an increase of five units per year. In the corresponding week in 2019, however, 23 platforms were operating in the state, according to NGI’s review of Baker Hughes’ historical platform data. From a broader perspective, Baker Hughes’ latest weekly drilling rig tally shows a 73% per year increase in land rigs for the entire United States.

The point is, Colorado operators produce some of the cleanest energy molecules on the planet and we can play an important role in our global energy solution, but unnecessary red tape and constant rule-making are hampering this progress. “said Haley. “At one point we had more rule making in downtown Denver than we had platforms operating in the state. ”

Haley added, however, that state operators “have identified a way to get permits for new developments, and we expect this to only increase as we forget about this new reality.” .

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