Colorado Drilling Could Slow As Coronavirus Spreads | KUNC

Colorado Drilling Could Slow As Coronavirus Spreads

Feb 27, 2020

Colorado oil and gas drillers could slow down some operations as quarantines and flight cancellations due to the coronavirus reduce global demand for oil, analysts warn.

The average price of oil in the U.S. hovered below $50 per barrel on Thursday, its lowest point in a weeklong slide fueled by virus fears. Recent travel restrictions and lower energy demand, especially in China, have knocked about 600,000 barrels per day of oil demand out of the global market, said Bernadette Johnson, vice president of market intelligence with Enverus, an industry forecaster based in Denver.

“Even locally, our production of oil and gas is directly linked to the international market,” Johnson said. “So anything that happens with global demand will impact the producers here in Colorado.”


The grim outlook comes as the United States confirmed its first coronavirus case not linked to foreign travel. So far, no Colorado residents have tested positive for the virus.

It also coincides with a tough few months for producers in the Denver-Julesburg basin. Oil prices had been hovering at a 2-year low even before the outbreak.

As a result, the past few months have seen a declining number of both new permit requests for drilling at the state level and active rigs in the field, said Lynn Granger, executive director of the American Petroleum Institute’s Colorado chapter.

“Colorado’s an interesting state to look in terms of the coronavirus because we have a lot of other factors at play here, both with our regulatory and political environment,” Granger said. “I think (the virus) is just one piece of that.”

 

The U.S. benchmark West Texas Intermediate (WTI) crude fell below $50 per barrel on Thursday, it's lowest price since 2018.
Credit Oilprice.com

Even though tens of thousands of active wells continue to produce oil and gas in Colorado, several local governments have instituted moratoriums (or bans) on processing new well development as they rewrite regulations. Some communities, such as Boulder County, are looking to extend the pause on development well through 2020.

“Right now we’re very focused on coming to the table in our regulatory environment and hoping for regulations at the end of the day that are reasonable,” Granger said.

Several companies have announced layoffs in recent months, including Denver-based Extraction Oil & Gas. The company eliminated about 20 percent of its statewide workforce in February.

While not directly attributed to the spread of the coronavirus and lower oil prices, the reduction was made to “better match (Extraction’s) operational footprint here in Colorado,.” according to spokesman Brian Cain.

Chris Wright, chief executive officer of Liberty Oilfield Services, a Denver-based hydraulic fracturing services company, said he hasn’t needed to lay off any workers despite lower oil prices in recent months. But Wright said the spread of the coronavirus has only increased the company’s need to cut costs and stay competitive in a difficult time for oil and gas.

“It’s another headwind on top of that,” Wright said. “We just don’t know how this is going to play out over the next few months.”