Colorado is edging closer than ever to surpassing an almost 60-year-old oil production record, while natural gas production has slowed somewhat.
Production numbers are slowly trickling in with not quite all of December accounted for, but the state already is at 57.88 million barrels of oil produced for 2013 — just shy of the 58.6 million-barrel record set in 1956.
Many had predicted the record would be hit this year — not last year.
“It is inevitable. The Niobrara, the DJ, it’s certainly outperforming, every time I look at production the forecast goes up,” said Adam Bedard , senior director of strategic planning for High Sierra Energy in Denver, and a 20-year market analyst. “When I look at all the plays in North America, some plays tend to just meet expectations. But in plays like the Bakken (in North Dakota) and the DJ, I’m seeing it get better and better, and that surprises me on how much.”
The numbers are ratcheted up every day, as producers log in their totals. Final and reliable tallies likely won’t be available until later this month.
Add to the mix that 2,650 wells were shut in for a couple of months due to flooding — with only 82 percent back online today, and shattering that state record is even more surprising, said Pete Stark , vice president, Industry Relations for IHS in Englewood.
“The Niobrara play has been surprising on the upside, but we knew it was approaching (the record),” Stark said. “The Niobrara has recovered handsomely from the floods. Even with the hit in shut-in production from the floods, if the record is broken this year that is the surprise, because you had that unexpected event. That would be the surprise element to me.”
Weld County’s production numbers so far are 26 percent higher than 2012, while the state’s crude production grew 17.4 percent in that time .
Bedard attributes the continued uptick in production — even with the floods — to the elasticity of the shale wells, meaning that producers can turn them off and on without shaking their productivity.
“There’s a methodology called soaking a well. You drill it, produce it and let it set in and it enhances performance. With a conventional well, that’s a no-no.
“These shale wells can be fairly responsive to supply-demand dynamics. So producers can look at their wells … and turn it on when they need it.”
Ed Holloway, co-CEO of Synergy Resources in Platteville, one of the only Weld County-based producers, said production isn’t incredibly surprising — today.
“If you asked that four years ago, I’d say, ‘No way.’ Even five years ago. It’s a surprise from that standpoint. It’s also a surprise that Colorado was producing that much crude in the ’50s,” Holloway said. “It’s taken that many years to get back to that point in time, and that’s pretty dramatic.”
On the gas side, the picture’s not so rosy. The state’s production has fallen 12 percent to 1.5 billion cubic feet.
Weld, so far, has seen a slight rise in production of 1.9 percent to 276.9 mcf, but that’s chiefly because of the increased crude drilling activity. Wattenberg and northern Weld wells produce a mix of crude, natural gas and natural gas liquids.
Drilling on the Western Slope, which has long been seen as the state’s top producer of dry gas, has all but dried up. Even with plans by WPX Energy to pump $75 million into its drilling program there this year, the focus of drilling in Colorado has shifted to oil.
It’s all about economics. Gas prices have plunged and continue to be well below $5 a British thermal unit, the price at which producers feel they can justify drilling.
PDC Energy last year sold all of its gas assets on the Western Slope in favor of crude drilling in Weld. Encana Oil and Gas announced in December it would not drill any more wells in the Piceance Basin on the Western Slope this year, while maintaining its 3,000 active wells there.
“Our strategy has shifted,” said Doug Hock , spokesman for Encana. “Seventy-five percent of our capital is going to five areas where we’re producing oil and liquids, one of them being the DJ.
“We’re really taking a break in terms of dry gas drilling,” Hock said. “Given where prices are and our strategy, we felt it warranted taking a hiatus.”
Even with the colder-than-average-winter, and natural gas reserves being depleted, the market may not pick up, Bedard said.
“In general, Colorado gas production stays flat. There’s not a lot of incentive to drill for gas,” Bedard said. “Yeah, supply is down. Like oil, gas shale plays are similar in that they can be fairly responsive to market conditions. And a big spike in gas demand was in most people’s opinions fairly short-lived. If you look at gas prices in the future, they’re still below $5.”
Bedard said drilling in the Marcellus play in Pennsylvania continues to command the gas market.
“Rockies production is disadvantaged to Marcellus production, which will continue to grow,” Bedard said. “The economics there are much better than Colorado dry gas plays. I don’t think there will be a big shift.”