Drilling into the data

 

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.

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.

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).

 

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.

 

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