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Jonathan Thompson | Oct 17, 2012 01:00 PM

I've written here before about how the natural gas glut has led to low prices which has led to a drilling drought in many Western regions. But even I was surprised when I received the latest numbers from the Colorado Oil & Gas Conservation Commission and saw that drilling in my state had slowed to levels not seen in a decade. The numbers confirm what we've suspected: The boom has busted in a way that goes deeper than mere post-recession blues.

Hoping to find out what more the numbers might tell us, I crunched them into a few graphs and partnered them up with some other statistics. This first one, to me, is the most telling. It compares the number of well starts -- the most accurate reflector of the on-the-ground picture -- with natural gas prices.

PriceVDrilling2

When presented this way, the correlation between natural gas prices and well starts becomes obvious. When the price goes up, drill rigs go up right alongside. When prices crash, as they did when demand plummeted during the Great Recession and then later when a bonanza of drilling in the East glutted the market with too much supply, the drill rigs come down, too. Which makes me really damned glad that I'm not a politician who must convince voters that I'm going to reduce energy prices and increase domestic drilling at the same time. The only way I can think of doing that is with subsidies. Try selling that to voters.

The only reason the well starts aren't down around zero this year in Colorado is because oil prices have been quite high for some time, and some parts of the state have recoverable crude, most notably Weld County.

County well starts

As you can see, Weld County's drill rig decline has been relatively minor, and it makes up the bulk of the state's well starts. Garfield County is also hanging in there. Everyone else is struggling (or celebrating, depending on your perspective). Take La Plata County. Consistent levels of drilling over several decades into the abundant San Juan Basin field has made it one of the top producers of natural gas in Colorado. Now drilling has come to a virtual halt there because the geology hasn't proven itself to be oil producing: Last year La Plata produced just 36,000 barrels of oil, to Garfield's 2.5 million and Weld's 26 million.

And finally, my last and, to be honest, most baffling chart. We know that every new rig that goes up creates a bunch of jobs. So, during drilling boom times, unemployment should decline, and during bust times, it should shoot up. But check out this chart of Garfield County's unemployment rate over the years, graphed against its well starts. Garfield is the biggest energy boom county in the state (Weld County is big, too, but has plenty of other industries to dilute the effect of energy in the economy).

Garfield Cty Unemployment

 

What?! I gotta say, this surprised me enough to prompt me to go back and triple-check the figures. Sure, between 2003 and 2007, unemployment dropped in inverse proportion to well-starts, as one would expect. But other than that, there seems to be no correlation at all (even in 2008, a record drilling year, unemployment climbed). What to make of this? One possibility is that all those rig workers come in from the outside, meaning they don't affect the unemployment rosters until they get laid off and decide to hang out in Garfield County and collect unemployment. The 2003-2007 unemployment dip may be an indirect effect of all these new folks in town, buying beer and gas and cars and maybe houses, too -- the drop correlates with the housing boom.

And you, fair readers? Have you thoughts about the phenomenon illustrated in the final graph? If so, please share.


Jonathan Thompson is a senior editor for
High Country News. His twitter handle is @jonnypeace.

 

Dennis Willis
Dennis Willis Subscriber
Oct 17, 2012 02:31 PM
Low gas prices are part of the reason for the slow down. Another factor is the nature of decline curves on these wells. Production starts very high and declines rapidly to 25% or less of initial production within 2 to 3 years. If you produce one of these wells when the price is low, you will sell most of the production at a low price. Other factors include investors and rigs going to oil which is enjoying high price. Unfortunately the decline curves are similar for oil wells in North Dakota Bakken shale. High intial production that rapidly declines. Everybody sees dollar signs on the initial production and see disappointment as production declines rapidly. This is happening to landowners with royalty agreements in both the Bakken oil and Marcellus gas plays. Another apparent consequence of fracking is high initial production followed by steep decline curves.
Steve Snyder
Steve Snyder
Oct 23, 2012 02:10 PM
Dennis is right on what appears to be the case with fracking ... a strong initial production but relatively rapid decline. This, in tern, as he references Bakken, says that the basic case for Peak Oil is still largely intact. (And may well be for Peak Natural Gas, too.) Also, the NYT had a story a couple of days ago about how many gas drillers, due to fair part to financiers' of their drilling putting a gun to their heads, in places like the Marcellus or elsewhere, would like to pause drilling right now, but can't ... part of the condition of much of their financing was to drill gas, period.
Larry Giglio
Larry Giglio
Oct 31, 2012 06:12 AM
When i was in the oil industry many years ago, we used to call this pilot light gas. The short burst due to frakking would soon reduce to levels that would keep a pilot light on. Yes, the same 250,000 jobs are being used, they move from one hot spot to another. Its not like the 2.5 million that the US Chamber of commerce says are out there. In the boom and bust cycles that are well a sign of price leading production drives, welcome to the new energy prayer. Please God, give us a new boom, we wont screw this one up like the last one!
Jesse Tigner
Jesse Tigner
Oct 31, 2012 12:21 PM
Just to clarify, declining output is not a function of fracking. It's a function of drilling a well to produce hydrocarbon, period. That high initial production is followed by a decline is akin to the principle of blowing bubbles in a glass of milk through a straw (the glass of course represents a reservoir, either a naturally occurring one or one fracked into being; the milk represents the oil or gas). When the glass is full little effort is required to splash the milk all over the place. However, the effort required to splash is inverse to milk remaining – ie, the more hydrocarbon you produce from a well increases the effort required to obtain what remains. Without a change in production specs, production declines (of course even with changing production specs production declines because the amount of available hydrocarbon is finite…). Declining production occurs in essence immediately with the onset of production, however, the rate of that decline is not tied to fracking per se, but to the resources being produced and the nuances of geology from which they are produced.

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