OPEC+ will likely moderate the price to keep it in the $70-$75/bbl range over the next 2-3 years. Our domestic oil industry has two large segments, public and private companies; public company stocks have been taking a beating for the past several years and they will get stronger but will exercise capital spending discipline and focus on debt reduction and improving dividends. Private companies in the big shale oil plays are dominated by PE (private equity) backed firms that have for the most part either lost money or have very poor returns, so the PE’s won’t be providing any more capital to drill more wells until they can recover and finally capture good returns on their earlier investments — there are some exceptions to this in the Permian Basin, but places like the Denver-Julesburg Basin likely won’t see development.
Democrats almost always do things that cause oil and gas prices to rise, and Biden is already doing things like restricting oil and gas leasing of federal minerals, stopping pipelines, etc. They are planning a bill to raise the mineral royalty on federal oil and gas leases by 50%, from 12.5% to 18.75%. Biden will likely ban fracking on federal lands, too. It costs about $200,000 per well to get a permit to drill a well on federal minerals, and about two years for the permit to issue. Every affected federal agency reviews the permit, and NEPA requires either an EA (Environmental Assessment) or and EIS (Environmental Impact Statement) approval to issue permits to drill. The process requires several public hearings, and public notices, that attract all types of environmental groups and leftist activists that don’t have a clue about energy, but hate oil and gas.
SB 181, and the COGCC having been turned into an environmental group by Governor Polis, have made the Colorado oil and gas industry radioactive for private equity investors. They won’t invest here, and those that did several years ago are stuck with underperforming assets. We’ve seen consolidations, like HighPoint and Bonanza Creek, two publicly traded companies; others go into bankruptcy, like Extraction; and some private company mergers.
There is not much new drilling activity, and where it has occurred is in Weld County. None of the other DJ Basin counties are friendly to oil and gas – Boulder, Adams, Jefferson, Larimer, Broomfield, even Arapahoe. This isn’t going to change. The oil industry had several opportunities to get legislation passed to prohibit surface development from encroaching on oil and gas production, but didn’t. Now they are stuck with a regulatory agency that wants to shut them down by regulating them to death and slowing or stopping the permitting of new wells; and public sentiment based on poor understanding of the inherent value of oil and gas minerals and impacts on their development. The 2,500-foot setback rule that COGCC recently passed is a good example, and it is going to prevent a lot of oil and gas from being developed. The Colorado oil and gas industry, API and COGA failed to lobby for an amendment to that setback, to prevent surface development within 2500 feet of an existing oil or gas well, when they had the opportunity.
About the only thing that might slow down the continual addition of more and more regulations preventing development is mineral owners suing governments for illegal taking. John and Valerie Wells, represented by the Public Trust Institute, are suing the city of Boulder for taking their minerals by continually slapping moratorium after moratorium on oil and gas well permitting (Scott Weiser, Complete Colorado 2/13/2021) If other mineral owners would join them in a class action suit, and perhaps expand the suit to include Boulder County, who has been doing the same thing, they might help responsible oil and gas development to occur.
However, the leftists that control our state and county, and some city governments, as well as ignorant people who don’t understand oil and gas or other forms of energy, will use their government control and social media pressure to keep oil and gas development to a minimum, and the companies that are here will continue to have an increasingly difficult time. Those companies that have acreage in less populated areas of Weld County may fare better, but those having leases in other counties are going to have a hard time. If Weld County could leave Colorado to join Wyoming, it would make a huge difference to oil and gas development, as Wyoming supports and encourages responsible minerals development. Wyoming would benefit immensely, not only from oil and gas but also from agriculture; people forget Weld County leads Colorado in agriculture, too. Wyoming has no state income tax, so Weld County citizens would benefit from lower taxes, and a state government that is friendly to minerals and agriculture development.
Robert Downey is the CEO of Shale Ingenuity.
Read More: An update on the oil and gas industry in Colorado and beyond – The Fort Morgan Times