Production up, but so are challenges

Colorado Crucial to Converging Dynamics

Five years ago, oil and gas were essentially dead in Colorado. The state's old vertical wells tapped as many reservoirs as technologically possible, and operators all but abandoned the Centennial State for more lucrative frontiers.

These days, Colorado is making a comeback by breaking 50-year records in oil production.

More than 64 million barrels of oil were produced last year, with numbers climbing higher as we speak, according to the Colorado Oil and Gas Conservation Commission (COGCC), which regulates the state's oil and gas industry.

Technological advances in horizontal drilling and multi-stage hydraulic fracturing have enabled operators such as Anadarko Petroleum Corp. and Noble Energy Corp. to return to the Niobrara Shale in northeast Colorado and to the Piceance Basin in west Colorado to recover tight oil and natural gas that once were practically impossible to extract. The boom added nearly $30 billion to the state's economy last year, including $1.6 billion in tax revenue, according to the Colorado Oil and Gas Association (COGA).

But all that could soon come to an end.

End of An Era?

As more than 52,000 wells have been pumping more than 175,000 barrels of oil a day from the ground, environmental and community activists have been pumping the public's ears with pleas to ban drilling and hydraulic fracturing – activities they claim are harming the state's pristine landscape and contaminating groundwater.

Heavily funded groups such as Coloradoans for Local Control, backed by the infamous U.S. Rep. Jared Polis – who reportedly became outraged when a drilling rig went up next to his home in Weld County – have received so much public support they are likely to have several initiatives on the November ballot that could ultimately ban drilling, hydraulic fracturing and other industry-related activities in the state, said Doug Flanders, director of Policy and External Affairs for COGA.

If passed, the initiatives could strip the state's authority to regulate the energy industry – and other industries for that matter – and hand that power to cities and counties. Five communities in Colorado already have voted to ban hydraulic fracturing for five years in their city limits – an action that landed two of the cities in court, sued by Colorado Gov. John Hickenlooper Clash of the Titans

Countless commercials, tweets and posts from anti-fracing groups are running rampant through social channels, forcing industry leaders and the politicians who support them – including Hickenlooper, a Democrat, former AAPG member geologist and industry supporter – to quickly set the record straight before the state's highly-publicized election in November.

"The energy industry has made huge investments of billions of dollars here, and it could all go away with one vote," said AAPG member Catherine Campbell, a geologist for Robert L. Bayless, Producer and AAPG Rocky Mountain Section secretary/treasurer. 

Catherine Campbell

"That's beyond scary for the state of Colorado," she continued. "Some of the ballot initiatives affect not only oil and gas but so much more as well. A lot of industry is in Colorado. The beef industry is in northern Colorado and the Coors brewery is in Golden. There are smoke stacks there and a consistent smell, but that's part of Golden."

State leaders, oil and gas operators and the community at large are scurrying to understand new proposed legislation before the November vote that may change state regulations about drilling. The legislation seeks to define a balance between the need for developing Colorado's hydrocarbon resources and community safety and environmental sensitivities. If successful, Colorado could become a bellwether state for others struggling with similar issues, said AAPG Honorary member R. Randy Ray, a consulting geologist/geophysicist of Denver-based R3 Exploration. 

Randy Ray

"Colorado has been at the forefront of the energy debate. The balance of energy and environment comes to a head here," Ray said. "We have such a beautiful state that we want to protect but we also have energy. All of us want to strike the right balance."

The Power of Public Perception

At the heart of the controversy lies a great misconception about hydraulic fracturing. Many point to a 2010 film called "Gasland," which has circled the globe numerous times depicting a Colorado rancher lighting water on fire as it flowed from his kitchen sink's tap.

Although it was later proven that the natural gas found in the tap water did not come from a gas well, the dangers of "fracking" left an indelible mark on the minds of many.

"There is a huge amount of misinformation going through the airways," said AAPG Honorary member Pete Stark, senior research director and adviser at IHS. "Unfortunately, it's the term ‘fracking' that has been used to convey all of the evils and problems of the oil and gas industry." 

Pete Stark

Stark noted that AAPG President Lee Krystinik cited a survey during his address at the Annual Convention and Exhibition in April that showed the majority of Americans polled said they were against "fracking" but supported "hydraulic fracturing." This underscores the fact that many people don't understand what hydraulic fracturing is or how it might impact the environment, Stark said.

Often speaking to friends and family about her work as a petroleum geologist, Campbell explained, "I believe that most people don't understand how we get oil out of the ground. They are fearful of hydraulic fracturing because of these terrible news stories about groundwater contamination that simply aren't true."

Is ‘Frac' Really a Four-Letter Word?

Industry and government websites galore explain that hydraulic fracturing – which typically lasts just three to five days during the development process – has been performed safely more than 1.2 million times in the United States since 1947.

More than 90 percent of oil and gas wells undergo hydraulic fracturing at some point, according to statistics from Coloradoans for Responsible Energy Development (CRED). Furthermore, neither the Environmental Protection Agency nor the COGCC has "ever" found a connection to chemicals entering the state's groundwater as a result of the widely used technique, according to CRED.

Oil and gas development generally affects relatively small areas averaging roughly two acres per well, and compared to other forms of land use, such as rural residential development, oil and gas development is relatively benign in its impact to wildlife and agriculture, reports the COGCC.

The fact that hydraulic fracturing is characterized as dangerous by anti-oil and gas spokespersons and as controversial in general press coverage has triggered a two-pronged opposition to fracturing and drilling in Colorado, Stark said. He underscored that only a small amount of drilling acreage in the Niobrara Shale impinges upon urban areas.

"It's not a statewide problem," he said.

Ironically, much of the opposition to hydraulic fracturing is occurring in Boulder, Colo., the location of the state's first oil well that produced for more than 100 years. While many residents may say they are opposed to fracing and drilling, some in the industry speculate that they are actually opposed to traffic from tanker trucks, gravel trucks, flatbeds and dump trucks, water disposal issues, the laying of pipelines and setback regulations.

Cascading Consequences

If drilling were to completely cease in Colorado, it would be an understatement to say the state's economy would take a nosedive. A state-wide drilling ban – if one ever occurred – would undermine Colorado's hugely important economic recovery, which has been driven by the surge in oil and gas production from the Niobrara formation.

Approximately 110,000 jobs in the state are supported by the energy industry as well, according to COGA. Niobrara oil production more than doubled from 2009 through 2013 and was a major contributor to the $1.8 billion increase in the 2013 Colorado General Fund, Stark said. Some wells in the Niobrara Shale – particularly in Weld County – produce more than 800 barrels of oil a day.

In addition, with the state's surplus of natural gas, it can rely less on coal for cleaner energy.

"The overall benefit for the state is just phenomenal," Stark said.

Colorado plays an important part in the nation's domestic energy supply as well, exporting natural gas through the 1,697-mile Rockies Express Pipeline all the way to Ohio.

Like other states that are finally able to tap into their unconventional resources, Colorado joins Texas and North Dakota in helping the United States achieve greater energy security. If technology such as hydraulic fracturing were banned nationwide, every citizen would feel it with natural gas bills two to three times higher than they are today, Stark said.

On a national level, the unconventional oil and gas industry supports nearly two million jobs and roughly $62 billion in annual federal, state and local tax receipts, Stark said. It also has paved the way for a renaissance in manufacturing as a result of the liquids produced from natural gas. More than $120 million is targeted for investment in U.S. chemical, plastics and energy intensive manufacturing plants, Stark said.

A May 2014 report released by Bloomberg announced that new technology – namely horizontal drilling and multi-stage hydraulic fracturing – has allowed the United States to surpass Saudi Arabia and Russia as the world's largest producer of oil and natural gas, based on estimates by the U.S. Energy Information Administration.

If the United States were to ban hydraulic fracturing, most of the forecasted $5.1 billion in capital expenditures for unconventional oil and gas development through 2035 would disappear, Stark said. Without the continuing growth of U.S. unconventional oil, global supplies would tighten and gasoline prices might soon revisit the $5 per gallon levels last seen during 2009, he said.

"Supply and demand and the shale revolution are changing the whole energy dynamic in the United States," said AAPG member John Robinson, geologist and owner of North Ranch Resources in Denver. "We spend a billion dollars a day buying oil overseas from OPEC. Many countries that are members don't like us. If OPEC decided not to send us oil, our economy would be devastated."

John Robinson

Industry Speaks Up

As November ticks closer, oil and gas companies in Colorado are taking on an aggressive public relations campaign to inform the public about the need for fossil fuels, the advantages of an energy independent nation, the myths and facts about hydraulic fracturing, and the strict regulations that protect the state that boasts an envious quality of life.

"Our industry needs to be held accountable for fixing its negative image, which is not something the industry has been readily willing to do. If the public asks questions, we need to take efforts to respond," Campbell said, echoing the critiques of many that industry has indeed been slow to respond. "We need to help public perception instead of ignoring it."

Noble Energy and Anadarko Petroleum created CRED with one simple mission: to "get the facts on fracing first before you make a decision."

"Even though the oil and natural gas industry has utilized fracing safely for over 60 years, most Coloradans admit to not knowing or understanding what it involves. We're here to change that," reads the CRED website.

On the site are relatable answers to questions such as "Is fracking safe?" and "Where does fracking occur?"

In addition, more than 480 energy-related companies have joined the Western Energy Alliance, a nonprofit trade association engaged in all aspects of environmentally responsible exploration and production of oil and natural gas in the West.

"Anyone who will listen to us we will talk to," said Kathleen Sgamma, vice president of Government and Public Affairs. "The industry has woken up and is trying to empower its employees to talk to friends and neighbors about what we do."

Sgamma reminds the public that the energy industry has been in the state since the early 1900s. In fact, the site reclaimed from Boulder's first well gives the city some of its open space – demonstrating that land bounces back even before modern reclamation requirements, such as reseeding and replanting.

While oil production is increasing in Colorado, the number of wells is declining. One horizontal well can replace eight to 10 vertical wells, and some companies are getting up to 60 wells per one well pad, Sgamma said. In other words, the industry is able to produce more oil and gas while reducing its footprint.

"One thing that gets lost is how much our modern lifestyle depends on oil and gas. People don't realize that the reality is there is no alternative that is viable for mobility, for transportation. A major part of our electricity comes from natural gas. You can't put in hundreds of wind turbines and then the gas goes away. Renewable energy is intermittent, and gas is a back-up," Sgamma said.

Carbon-based resources are used to make a plethora of plastics, chemicals, operating room equipment and pharmaceuticals – all of which are essential to the operation of homes, hospitals and more, she reminded.

"When we think of all that oil and gas does to keep people safe and warm – it gets them to work, it powers their computers, their iPads, iPods – everything our modern society enjoys is fundamentally based in oil and gas," Sgamma said.

Flanders noted that Colorado is the first state in the nation to adopt methane regulations as well as require a hydraulic fracturing disclosure and baseline water testing. Setbacks have been increased from 350 feet to 1,000 feet.

"We have regulations from the minute you get a permit to the minute you reclaim that final bit of land," he said. "We are stepping up and not only achieving those regulations but exceeding those regulations many times."

In fact, some companies in the industry have helped draft stricter emission regulations.

"The reason we can work with the state so well is because the operators are willing to have those kinds of challenges," Flanders said.

Plays and Players

Colorado came back on the oil and gas map in 2008 when EOG Resources Inc. made a discovery in the North Park Basin, situated in north Colorado between the DJ Basin and Green River Basin in the northeast part of the state, according to online reports.

Often compared to the Bakken Basin, the Niobrara Shale in Colorado's DJ Basin, which includes the Wattenberg Gas Field, is the "King Kong" of plays at the moment, Stark said. Initially using new technology to extract natural gas, operators learned that that same technology can recover tight oil in the same shale deposits.

Current operators there include Anadarko, Noble, EOG, Chesapeake Energy, Whiting Petroleum, Quicksilver Resources, MDU Resources and Bill Barrett Corp.

Other areas attracting exploration and development include the Piceance Basin on the state's Western Slope, which contains the thickest and richest oil shale deposits in the world, according to some.

It is currently being developed by WPX. The Green River formation, which juts into Utah and Wyoming, is said to carry the largest deposit of oil shale in the world.

Fine the Way It Is

As the plays attract more players, communities are finding two things: Cities are growing into areas where oil and gas development is taking place and oil and gas development is growing into areas of urban development, Robinson said.

In Colorado, ballot initiatives will not be disclosed until Aug. 4, ensuring that "fracing wars" will endure for at least another two months. As newsrooms stock up on energy reporters, Coloradoans no doubt will get their fill – if they haven't already – of the issues at hand.

The state has long been a center for energy education for geologists, geophysicists and engineers, Ray said, referring to the Colorado School of Mines and the University of Colorado whose graduates take their expertise all over the world.

"It's interesting that this energy debate should come together here. My hope is that the scientific community will speak out about the facts and the public will have a balanced perspective when they go to vote," he said.

What hasn't been touted in the media are the quiet discussions successfully taking place between operators and local communities, Stark pointed out.

"Several negotiations have resulted in agreements with local communities on issues such as the setback of well locations from buildings that can be regulated by the COGCC. These have been going on underneath the media radar screen and it has allowed projects to move forward without a contentious ballot referendum," he said.

What Colorado has been doing for the past 100 years is working, Flanders said. While the state has authority to regulate all downhole and "inside the fence" activities, local communities have the power to govern transportation and emergency response, and work with the state on issues regarding noise and lighting. The way the government is structured, the state and local communities must negotiate at the same table already, he said.

"People move to Colorado because it's pristine, but oil and gas have been here for more than 100 years. People argue that they want a pristine state, but it's already there – even with industry going on all this time," Flanders said. "While we are ‘in an oil or gas boom,' we really are not. We have fewer wells with more production. The well count is going down because we are more efficient. We leave less of a footprint and we are more pristine."

When asked how he thought the November vote on the ballot initiatives might go, Ray refrained from guessing: "I believe that scientific truth, once it is explained and understood, always helps people make the right decisions."

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Emphasis: Rocky Mountain Roundup