Drilling and development are on collision course in northeastern Colorado

The clash between growing communities and oil and gas production in northeastern Colorado, heightened by a deadly home explosion last spring, will only intensify in coming years, a Denver Post analysis of drilling permits suggests.

The Post analyzed pending and approved drilling permits in and around the sprawling Wattenberg Field in Weld, Larimer, Boulder, Adams and Broomfield counties, and found that permits are being taken out in and near towns and other populated areas twice as often as in more remote rural areas.

Eight of the 10 fastest-growing towns and cities in the state and the two fastest-growing counties, Broomfield and Weld, are in the direct path of drilling. Larimer, Adams and Arapahoe — among the state’s fastest-growing counties — have permits pending and drilling rigs at work.

“We are trying to get to a place where everybody can co-exist. That is the purpose and the goal,” said Debbie Chummy, town manager of Keenesburg. The town has 67 permits approved or pending in the surrounding area and is protesting one driller’s permit over concerns about increased noise, dust and truck traffic.

The Wattenberg, the primary field in the larger Denver-Julesberg Basin, represents a crossroads of geology and geography and of drilling activity and housing development — a crossroads unlike any other in the country, experts say. Although drilling in or near urban areas is not unprecedented — it has happened in Los Angeles and Dallas, for example — Weld and neighboring counties are unique in terms of the current level of both oil and gas activity and rates of population growth and housing development.

The D-J Basin covers the notheastern quarter of Colorado. But most of the activity is in one field, the Wattenberg.
Platts RigData
The Denver-Julesburg Basin covers the northeastern quarter of Colorado. Most of the activity concentrates on one field, the Wattenberg, which is centered in Weld County, but reaches into Larimer, Broomfield and Adams counties.

As a result, Colorado has seen rising concerns over safety and health and debate over how close drilling operations may be placed to homes and schools. Local governments have battled against the state for the right to regulate or ban drilling outright in their communities. The conflicts have flowed into every level of politics, including the statehouse and the contest for governor.

Permitting data show that the forces of drilling and development are likely to bump against each other even more in the future.

The Post’s analysis covered permits across 100 townships, each measuring 36 square miles. Of those townships, 55 were rural with few inhabitants and 45 contained incorporated areas. The number of permits in rural regions, however, was about half of those in the more populated areas.

The Colorado Oil and Gas Conservation Commission had approved or received around 3,400 drilling permits in those townships as of mid-July. Not all of those permits will end up as wells, and oil prices will determine what gets completed. But permits show where producers want to go, and much of their activity is centered in Colorado’s prime growth corridor.

Of the 20 Wattenberg townships with half of more of their sections incorporated or developed, producers have recently requested nearly 1,000 drilling permits. Some of the most intense drilling in populated areas includes the Weld County side of Windsor, with 213 permits; areas east of Brighton, with 147; and the township around Dacono, with 116.


Future oil and gas drilling activity

As drilling activity revives in Colorado, much of it is overlapping with areas that are home to the state’s fastest-growing cities and towns. The map shows future oil and gas well activity by township (a 6 square-mile parcel of land). Darker colors mean a higher number of approved and pending drilling permits (from 0 to 257). Click square for details. “Sections incorporated” is the number of sections (a 1 square-mile parcel of land within a township) that are in an incorporated area.

Sources: Colorado State Demography Office, Colorado Oil and Gas Conservation Commission


Communities and unincorporated areas in the path of drilling have added 103,578 people since 2010, which represents a growth rate of 15.8 percent, according to counts provided by the Colorado Demography Office. By contrast, the 291 cities, towns and unincorporated areas more removed from the Wattenberg Field are growing at under half the pace —  7.4 percent since 2010.

Directing traffic

Local governments, faced with a resumption in activity after a two-year lull, are focused on mitigating impacts and influencing the location of drilling pads. Erie trustees last month approved an ordinance that would allow residents to file complaints about odors, including those related to fracking

A panel of Broomfield residents, advising City Council, is proposing a 1,320-foot buffer zone between wells and homes, parks, schools and water sources, much more than the 500-foot buffer the state set in 2013. And Thornton’s City Council is looking at an update to its oil and gas rules that would limit lighting around drilling rigs, hold producers to tighter timelines and apply other restrictions.

Weld County adopted an oil and gas location assessment process last fall that provides closer scrutiny on drilling locations within 1,000 feet of a building. But the county also requires a statement be attached to documents whenever land is split up, say for a housing development.

“These resources are protected property rights and mineral owners should be afforded the opportunity to extract the mineral resource,” the statement informs land buyers.

Weld County planners are trying to funnel urban growth into three development zones: the Interstate 25 corridor; the area north of Colorado 7 between Dacono and Fort Lupton; and the area around Keensburg. All three, however, are targeted for drilling activity.

“Due to the proximity and ownership considerations, centralized planning on a large scale does not work well for oil and gas surface locations and oil and gas development is allowed in all zoned districts,” said Troy Swain, the county’s oil and gas liaison.

Keenesburg has a good working relationship with Noble Energy, the state’s second-largest oil and gas producer, said Chummy, the town manager. Noble is building pipelines to reduce truck traffic in the area and communicating about its plans. But Keenesburg protested permits requested by another less-communicative Dallas-based producer, Verdad Oil & Gas, on grounds the company’s plan will have adverse impacts.

Closer to metro Denver, the E-470 highway, long considered a dividing line that producers wouldn’t cross, looks increasingly breachable. There is a rig active as far south as Arapahoe County near Aurora, and one just outside Colorado 7 to the north.


Competing uses

Colorado’s fastest growing communities are located on the Wattenberg Field. The chart show population growth since 2010 and the drilling permits producers have recently requested in the vicinity.

Sources: Colorado State Demography Office, Colorado Oil and Gas Conservation Commission


William Fleckenstein, an adjunct professor of petroleum engineering at the Colorado School of Mines in Golden, said more work needs to go into memorandums of understanding, or MOUs, or the documents that local governments, producers and state regulators craft to guide drilling and operations in specific areas.

“MOUs are really critical to be able to ensure everyone’s needs are being met,” he said. “It is important for the state and feds to fund research on how to put them together in a way that makes the most sense.”

After the Firestone blast in April that killed two men in a home and was sparked by an improperly maintained Anadarko Petroleum well, Fleckenstein said more maps of oil and gas lines, along with other utility right of ways, are needed, and that the public should have easy access to those maps.

Drilling and density

Large-scale oil and gas production is sometimes associated with sprawling and sparsely populated areas such as the Permian Basin in west Texas and New Mexico and the Bakken Formation in North Dakota and Montana.

But the nation also has several urban oil fields, three of the most notable running beneath Los Angeles, Dallas-Fort Worth and Pittsburgh.

In Los Angeles, dense development on top of a prolific basin killed off new drilling. Existing wells have gone into hiding, taking on building facades or relocating to islands off the coast.

Dallas presents a different scenario, one where weak commodity prices caused formerly robust drilling activity to screech to a halt. Pittsburgh is an example of a metropolitan area that threw up a wall and said no drilling allowed.

About 17 million people live in the Los Angeles basin, including 1.7 million within a mile of an active oil or gas well, according to 2015 estimates from the California Council on Science and Technology.

“Los Angeles has the most prolific basin in the world for hydrocarbons per surface area,” said Fleckenstein, who spent the early part of his petroleum career in California.

If population density, expensive land values and heavy regulation weren’t issues. producers could take a second crack at the basin with modern techniques and extract more oil. But a revival isn’t going to happen.

“They are coasting and managing decline,” said Imre Kugler, associate director with IHS Markit in Houston.

The Barnett Shale, a large natural gas field that underlies a dozen counties in north Texas, including the Dallas-Fort Worth metro area, went from nearly 200 active drilling rigs in 2008 to zero in 2016. The rig count now stands at seven, with only one active within metro boundaries, according to Baker Hughes.

Lower-cost gas coming out of Pennsylvania and Ohio made the field noncompetitive. But the Wattenberg contains the right mix of oil and gas and drilling costs low enough to keep activity going even if oil remains below $50 a barrel, analysts forecast.

“I see a fair amount of upside. The economics are there, production is picking up, and producers are boasting about their positions,” said Taylor Cavey, an energy analyst with S&P Global Platts in Denver.

Although producers have actively drilled the Wattenberg since 1970, analysts said horizontal drilling has given the field a new lease on life that could last for years.

“If you take the whole Wattenberg field, at the current drilling pace, there is a solid 15 years left,” estimates Kugler.

That assumes oil prices in the $50- to $55-a-barrel range. A separate estimate from BTU Analytics estimates seven years of horizontal drilling at prices below $50 a barrel. Estimates get cloudier and time frames shorter if oil dips below $40 a barrel.

Skeptics in the environmental and investment community argue current shale drilling isn’t sustainable, given the steep declines in output wells face after the first year and the need to constantly keep drilling.

Kugler’s research shows that a lower price environment actually favors holdings closer to Fort Collins, Longmont, Brighton and the fast-growing communities along the I-25 corridor, and makes a higher share of holdings in rural central and eastern Weld County uneconomic.

Black areas show the areas most economic at under $50 a barrel, while grey areas show ones where a price above $50 a barrel is needed.
IHS Markit
Black areas show the holdings most economic at under $50 a barrel, while grey areas show ones where a price above $50 a barrel is needed. Source: IHS Markit

Western Pennsylvania offers a third model of how a major metro area dealt with drilling. In November 2010, Pittsburgh City Council banned drilling within city limits.

“Pittsburgh has been off limits from Day 1, the whole metro area. Nobody has tried to drill there, and it is a pain dealing with Pennsylvania,” Kugler said.

Colorado communities have tried to ban drilling within their boundaries, but unsuccessfully. Greeley attempted the first ban in the late 1980s, only to lose on a legal challenge before the Colorado Supreme Court. Longmont and Fort Collins had their efforts to restrict drilling struck down by the state’s top court last year. Boulder County’s ban faces a similar fate.

Where the rigs are

Another way to understand drilling activity is to look at where companies are deploying oil and gas rigs. Baker Hughes counted 37 rigs active in the state at the start of August, up from a low of 15 in May 2016.

Two dozen of those rigs were active in Weld County, including one west of Mead, one west of Windsor, three inside or near Greeley, one near Evans, four around Kersey, two outside of Erie, five south of Fort Lupton, and one west of Lochbuie.

A rig is operating in Adams County, just north of Colorado 7 near the Todd Creek Golf Club, and one is in Arapahoe County to the north of Ridge View Academy. Two are operating in Larimer County between Loveland and Johnstown.

An advantage the Wattenberg Field has versus competitors is its lower drilling costs, around $3.5 million per well versus more than $6 million for wells in the Permian, the country’s most active oil and gas play right now, Cavey said.

Services are readily available and workers don’t have to commute long distances or abandon their families. Chummy said oil and gas workers are buying homes in Keenesburg, which has helped the town revive and start growing again.

In that regard, oil and gas activity is contributing to the region’s population growth, while also competing with it for land and resources.

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