Nine major drilling companies in Colorado plan to cut their 2015 budget by about $2 billion, but the state’s diverse economy will likely keep the state afloat just fine, according to a Denver Post article.
Eric Berglund, CEO of Upstate Colorado Economic Development in Greeley, offered an optimistic perspective for Colorado’s financial well-being:
“Hotels and restaurants still look to be full. Beyond drilling, there is a large oil and gas industry presence here.”
As Colorado hurdles the loss of about a third of its rigs in the past five months, the demand for servicing existing wells, water management and pipeline construction has kept the state’s employment on an even keel, according to Bill Thoennes with the Colorado Department of labor:
“We haven’t seen any uptick in unemployment claims in the oil and gas sector. This may be something to come down the road, but we haven’t seen it yet.”
Oil companies seem to share Thoenne’s confidence. Neither of the state’s largest operators, Noble Energy Inc. and Anadarko Petroleum Corp., plan for jobs cuts.
“We are doing our best to maintain our full workforce so we are all well positioned as the market returns,” said Anadarko representative Robin Olsen.
Wells Fargo economist Mark Vitner suspects that the state’s other sectors will easily supplement job loss from oil and gas, which accounts for only 1.2 percent of the state’s employment. While the state’s nine major operators shrunk their 2015 budget from about $6.6 billion to $4.6 billion, Vitner expects the industry to adequately pull through the slump:
“The price of oil isn’t going up to $100 anytime soon, so we’d expect the slowdown to be more pronounced later this year… But the oil industry is not going away.”
Oil and gas operators also hope to offset the oil slump with lowered material and services costs. Craig Rasmuson, chief operating officer of Synergy Resources Corp. in Platteville, said service companies have obliged:
“The services companies are giving better prices and are willing to have smaller margins to keep operating and keep their people employed. We are all sharing the pain.”
Operators also hope to curb financial loss by postponing well completion, or the the process of hydraulic fracturing (fracking). According to operators’ presentations, fracking tends to eat up between $1 million and $1.7 million of companies’ budgets, with final costs totaling between $3.3 million and $5 million.
“We’re waiting to see how far service costs will decline,” said Carrizo Oil and Gas CEO Sylvester Johnson. Carrizo expects to cut their spending in Colorado by 65 percent, with one rig and one fracking crew.
Other companies plan to follow suit:
Encana Corp: Budget will see a one-third cut, totaling about $170 million to $200 million in 2015
Bill Barrett Corp: Budget will be cut in half, with a 2015 total of $170 million to $200 million
Whiting Petroleum Corp: Budget will be cut in half, totaling $240 million to $290 million
Bonanza Creek Energy: budget will be cut by 36 percent, leaving its budget just under $400 million