President (To Win Colorado)
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(D) Kamala Harris
(R) Donald Trump
80%↑
20%
CO-01 (Denver)
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(D) Diana DeGette*
(R) V. Archuleta
98%
2%
CO-02 (Boulder-ish)
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(D) Joe Neguse*
(R) Marshall Dawson
95%
5%
CO-03 (West & Southern CO)
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(R) Jeff Hurd
(D) Adam Frisch
50%
50%
CO-04 (Northeast-ish Colorado)
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(R) Lauren Boebert
(D) Trisha Calvarese
90%
10%
CO-05 (Colorado Springs)
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(R) Jeff Crank
(D) River Gassen
80%
20%
CO-06 (Aurora)
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(D) Jason Crow*
(R) John Fabbricatore
90%
10%
CO-07 (Jefferson County)
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(D) B. Pettersen
(R) Sergei Matveyuk
90%
10%
CO-08 (Northern Colo.)
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(D) Yadira Caraveo
(R) Gabe Evans
52%↑
48%↓
State Senate Majority
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DEMOCRATS
REPUBLICANS
80%
20%
State House Majority
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DEMOCRATS
REPUBLICANS
95%
5%
January 06, 2010 07:42 PM UTC
5 Comments
In order to assume a direct correlation between the oil and gas regulations and rig count in CO v. rig count nationwide during whatever period, one would have to isolate the regulations as the only differing factor.
That is unadulterated silliness, and one would hope that someone running as the savvy businessman would get this.
Here are some of the factors that Mr. Maes would have to account for, and neutralize, in order to make his tidy little comparison:
Other plays–their size, availability, accessibility and infrastructure; specific return per tcf of other plays v. the Piceance.
World commodity prices–NatGas is glutted on the market, especially in North America.
Recession–Credit is hard to come by, especially for development that lacks the pipelines and other infrastructures, that have further to go to market, etc.
How about a little education on severance taxes?
I have seen claims that CO is high, net-net, but the numbers I have located show that we are in line or low in the Rocky Mountain region. Way lower than Alaska.
And just what portion of this can be attributed to the new CO rules?
Short answers: many things contribute to rig count, but supply, demand, market price, and the “Colorado basis differential” dominate. Rules and regs not so much.
Longer answers:
The new rules in Colorado started going into effect on April 1, 2009 (note, on federal lands, the rules went into effect on July 1 and several other rules were scheduled to go into effect in September and some in 2010 and some were deferred indefinitely).
Operators STILL have approved permits for drilling that are grandfathered under the old rules. If the new rules were a significant deterrent, then drilling should be taking place at a breakneck pace in Colorado, at least through June of 2010. The fact that this is not true is telling evidence that OTHER factors are much more important than the new rules.
Look at the timing of the decline in rig counts. The peak rig count numbers were reached in Nov 2008 (according to Baker Hughes Rig Counts), 20 weeks before the majority of rules went into effect on April 1, 2009. During this period, rig counts dropped from 124 to 55. This is a rate of nearly -3.5 rigs per week.
During the 20 weeks after the rules went into effect, the rig count dropped from 55 to 44. This is a rate of -0.55 per week.
During the next 19 weeks (through Dec 31, 2009, the latest data published by Baker Hughes) rig counts dropped from 44 to 41. This is a rate of -0.16 per week.
Thus, if one want to look at rig counts in isolation, it is more reasonable to conclude that the new Colorado rules arrested the decline in drilling activity. Before the new rules went into effect, rig counts in Colorado were dropping 6-20 times faster than the rates they’ve been declining since the new rules went into effect. And recall that at least some of this more recent decline can also be attributed to basic economics of supply and demand.
Of course, this “explanation” is simplistic, unreasonable, deceptive and damn close to disingenuous. Be that as it is, this explanation is at least based on some form of actual evidence. This is much more than can be said about the completely outrageous claims of Penry and his boys of blunder.
I don’t have time at the moment to go into the roles of the other components of gas activity in Colorado, but there is ample evidence that basic economics of supply and demand are THE driving forces for the international slow down in drilling activity.
would it be correct to assume that if you were going to have time to explain further it would explain the “Colorado basis differential”?
and in this case it was Maes, though I think Penry, McInnis and others have and will over simplified the math to make a political argument.
This is, essentially, the difference in the sale price of gas that is exported from Colorado compared to the “Henry Hub” price. The Henry Hub price is what is reported on NYMEX.
Over the last decade, the price of gas in CO has averaged about 30% below the Henry Hub price, has frequently been 50% below this price and at times has been “worth” only a few pennies on the dollar compared to the market price out of Henry Hub. (this is all based on my faulty memory, I don’t have any of my spreadsheets handy now)
The price differential is largely a result of the lack of pipeline capacity to get CO gas to the major markets. In other words, CO gas producers have been over-producing gas and selling at great discounts. Now that new pipelines are coming on line, this basis differential should shrink.
BUT, this sell off of local gas at discounts affects all of us. Severance taxes and royalty payments, etc., are based on the sale price of gas. If you get royalty payments, you’ve been screwed out of money. If you depend on services funded by severance taxes, you’ve been screwed too. And this gas is gone forever. It’s as if the gas producers in CO have been giving away a third of our gas for free. (Over the last decade about $10 Billion has been taken from the state’s economy because supply from CO far exceeds the demand/pipeline capacity.)