[ 2012 OIL & GAS INSERT ]

cobizmag.com

A WiesnerMedia Publication June 2012 // SPECIAL INSERT //

THE OUtLOOK FOR WEStERN ENERGY, P. 2 COLORADOS UNLIKELY FIRSt GUSHER, P. 6 FUEL FOR DOwNtOwN REAL EStAtE, P. 8 A CLOSER LOOK At SUBSIDIES, P. 10 FROM RENEwABLES tO FOSSIL FUELS: A JOB RECRUItERS JOURNEY, P. 12 HYDRAULIC FRACtURING IN A tHIRStY StAtE, P. 14
Photo by: Kurt D. Brown, www.kurtdbrownphoto.com.

BACK TO THE FUTURE

Technological advancements are redening the oil and gas industry and its enormous role in Colorados economy
COLORADO BIZ OiL & GAS: BACK To THE FUTURE

[1]

OILFIELD ADVANCEMENTS BOLSTER WESTERN ENERGY OUTLOOK

Photo by: Kurt D. Brown, www.kurtdbrownphoto.com.

Brace yourself for impact, Colorado. Somethings coming, and you might not be ready. You might not be used to it. You might even have forgotten what it is. Its called prosperity. Even with our ongoing sluggish economy, mediocre employment growth and flabby real estate markets, Colorado is already seeing the effect of powerful new developments in oil and gas exploration and production. These impacts are arising because of the application of new technology, mainly hydraulic fracturing
[2]
COLORADO BIZ OiL & GAS: BACK To THE FUTURE

and horizontal drilling, in the Niobrara formation in Weld and Yuma counties and elsewhere. The center of the early waves of Niobrara exploration and production are being felt most keenly in Greeley, a longtime center of oil activity in Colorado. Weve been a center of oil and gas development for several decades because weve got the Wattenberg field that initiated much of the drilling decades ago in the mid-1980s we really saw a bump, says Assistant City Manager Becky

Safarik. This latest one, the Niobrara, has been substantial. We feel like were the epicenter of oil and gas development in Colorado. Hotel rooms are at a premium in Greeley, office space is filling up, and oil, gas and dollars are flowing. Nor is Greeley the only beneficiary of oil industry growth in Colorado. It seems easy to forget that the state is a major player in the petroleum exploration and production business, but Colorado is the nations sixth biggest natural gas producer

Theres tremendous running room; theres tremendous opportunity here, We plan to spend $1 billion in Colorado, more or less in the Wattenberg, this year, 2012. That is a lot of money. Brian Cain, Anadarko Petroleum Corp.
and 12th biggest crude oil producer. And, thanks to the Niobrara and some other oil and natural gas liquids plays around the state, that latter number appears likely to rise sharply. Right now, Colorado is pretty important, says Doug Hock, spokesman for Calgary-based EnCana Corp. This year we think well have a total of around 18 drill rigs in the U.S.; nine of those will be in Colorado. All those rigs directly translate into overall economic activity. Deeper Niobrara wells cost an average of about $7 million to drill. Companies that have found an exploration sweet spot plan to invest heavily in the state. The Denver-Julesburg Basin a huge geological structure ranging from Denver to Wyoming without a doubt is one of the hottest basins in the country right now, says Ensign US Drilling spokesman Will Matthews. The Bakken Shale in North Dakota is No. 1; the Niobrara is No. 2 because of the presence of liquids, namely crude oil and natural gas condensate. The Woodlands, Texas-based Anadarko Petroleum Corp. has leases on about 900,000 net acres in the D-J Basin and extensive holdings in the D-J Basins giant Wattenberg Field. The company has plans for the area calling for billions of dollars in investment. Anadarko invested about $1.5 billion in Colorado from 2007 to 2010, and $800 million in 2010. And that aint all, folks. Theres tremendous running room; theres tremendous opportunity here, says Anadarko spokesman Brian Cain. We plan to spend $1 billion in Colorado, more or less in the Wattenberg, this year, 2012. That is a lot of money. That capital investment includes a highly skilled workforce of about 1,000
[4]
COLORADO BIZ OiL & GAS: BACK To THE FUTURE

people in Colorado. And, Cain notes, In that same timeframe, those five years or so, we have paid more than $450 million in taxes, royalties and salaries. Wattenberg Field wells, relatively shallow, cost about $4.7 million to drill and complete, according to Ted Brown, Houston-based Noble Energy Inc.s senior vice president-northern region. Were very early in the Wattenberg drilling program right now, Brown says. We have less than 100 wells producing now. Over the next five years, Noble plans to spend ready? about $8 billion in the Wattenberg Field and Northern Colorado. Weve got a tremendous investment opportunity over the next several years, Brown says. This is our biggest onshore play. This year well probably spend about

$1.2 billion. Its about one-third of our capital program for the company. Yet oil and gas exploration and production are inherently risky ventures. As they say, past performance is not a guarantee of future profits. This is a very, very complicated business. The idea that there is some magical lake of oil down there and all you have to do is put a straw into it and suck it up obviously is a myth, says John Dill, director of corporate development and government relations for Oklahoma Citybased Chesapeake Energy Corp. Niobrara exploration in Colorado has disappointed Chesapeake, which has shifted focus to similar prospects in Wyoming. The Niobrara is a very complex process to try to crack. We have found a very good sweet spot in Wyoming. In light of the fact that this is a 250,000-square-mile area, and in light of the fact that we have only so many rigs, in the face of $2.30 per mcf (thousands of cubic feet) natural gas, its no surprise that when you find a place where you can move from exploratory activities that youre going to concentrate your resources in that area, Dill says. But I would not say that in the D-J that all is lost if you are outside of the great Wattenberg Field. Dill raises a couple of key points. One is that exploring the Niobrara has gained

Photo by: Kurt D. Brown, www.kurtdbrownphoto.com.

COLORADO BIZ OiL & GAS: BACK To THE FUTURE

[5]

BOULDER: UNLIKELY SITE OF COLORADOS FIRST GUSHER

By David Lewis
little more than a century ago, the Peoples Republic of Boulder hosted what was then Colorados biggest oilfield. Today the oilfield looks like nothing so much as a gently rolling field bounded on one end by where the University of Colorados East & Research Park, and the other by Niwot. However, when it was producing, Boulder Field looked like most oilfields of the day: smoky, smelly, dirty and chaotic. Part of the beauty of this story is that, even in Boulder, you have a historic oilfield that provides lessons for the public that oil and gas has always been part of our history, says petroleum geologist Matt Silverman. And oil development is compatible with the Western vistas that we really love, and with the development of the golf courses, recreation areas, beautiful homes and green spaces that now cover the area that was once the scene of a drilling frenzy. Boulder Field also provided Colorado historys first gusher, at a site near what is today Boulders 51st Street near Boulder Reservoir, an event unlikely to be duplicated nowadays. One of the ultimate ironies is that, of all the places in Colorado for the first gusher to have been drilled, it was drilled in green, politically correct Boulder, Silverman says. In the old days they did not know how to control subsurface pressures, so that almost never happens anymore. It would take a detective to find the field today were it not for the efforts of Boulder-based attorney Karl F. Anuta and Silverman, exploration manager at Denver-based Robert L. Bayless, Producer LLC. Thats because Anuta and Silverman teamed to place the fields last producer, the McKenzie Well, on the National Register of Historic Places. Remarkably, the well is located on the site where the fields discovery well was drilled in 1901, yet it produced oil until just a few years ago when it was finally plugged and abandoned. The McKenzies surface equipment is about 50 years old, antiques in themselves, Silverman notes. For the record, venerable Boulder Field hosted 200 drill rigs in its day, most of them dry holes, according to Silvermans research. Production there peaked in about 1909, when the field yielded about 80,000 barrels of oil per year. The field produced about 800,000 barrels of oil in all, Silverman reckons. The McKenzie Well might be an antique, but given modern technology the field could well produce again. That is an ironic note, too, given that the Boulder County commissioners in February decreed a six-month moratorium on oil and gas drilling permits. Another irony is as obvious as the pleasant landscape lying today where not so long ago an oilfield boomed. In those days drilling was done with very little regard for safeguarding the environment, water, and the other things that we now take great pains to safeguard, Silverman says. Even in an era of little regard for water and environment, there is almost no evidence of the activity there today, except for the well that is on the National Register to show people what happened there 110 years ago.
[6]
COLORADO BIZ OiL & GAS: BACK To THE FUTURE

popularity as the price of natural gas has fallen and the price of crude oil has spiked. Natural gas fields in the DenverJulesburg Basin, Colorados San Juan Basin and Piceance Basin not to mention the famously prolific Bakken Formation in North Dakota and Pennsylvanias Marcellus Shale have yielded hitherto unimagined amounts of gas. This has driven prices down dramatically and squeezed gas storage and even gas pipeline capacity. Natural gas prices have fallen 46 percent over the last 12 months, says EnCanas Hock. Natural gas is still essentially a domestic commodity, in other words, the market price is set here in the United States or in North America, whereas oil is an international commodity. Theres a relationship between the two, but in the last couple of years it has really decoupled. The general rule of thumb has been oil was valued about six times greater than gas. Now it is 40 to one. While a great deal for consumers, the natural gas price slump has sent oil and gas producers in search of oil and natural gas liquids. But not all of them. Some producers have hung in with gas. Tulsa, Okla.based WPX Energy, which this year was spun out of Williams Cos., focuses on Colorados Piceance Basin (pronounced pee-ahnc), with productive assets in La Plata County as well. The play is gas born of the coal formation. Its sandstone that is denser than concrete, says spokesperson Susan Alvillar, who is based in Parachute. Over the course of our operation in this basin since 1983, weve come to know that those rocks are laid down in ellipse shapes, like the lenticular clouds you see in the sky, of about 10 acres each. WPX has leased 211,000 net acres in Garfield and Rio Blanco counties, where it has a whopping 4,100 wells wells that today cost an average of $1.4 million each to drill. The company produces 850 million cubic feet of natural gas in the Piceance, and another 14,000 million cubic feet per day in the San Juan Basin of La Plata County. Also of note is that WPX in 2010 paid $18 million in severance tax; $40 million in ad valorem tax to the counties where it

Natural gas electrical generation produces zero mercury emissions, 99 percent fewer sulphur dioxide (SO2) emissions and up to 80 percent fewer nitrogen oxides (NOx ) emissions compared to coal. Plus, it also emits up to 65 percent less carbon dioxide (CO2 ). Thats cleaner, healthier air. We are Encana.

Learn more about natural gas and Encana at www.encana.com

COLORADO BIZ OiL & GAS: BACK To THE FUTURE

[7]

OIL AND GAS FIRMS FUEL DOWNTOWN REAL ESTATE

By David Lewis
merica runs on oil and gas, and the oil and gas industry runs on paperwork. Leasing, permitting, exploring, complying: Just about all aspects of the industry require lots of documents. That means office space, which is why the swiftly growing Colorado oil and gas business today is the leading edge of the commercial real estate market The industrys affinity for financial districts, trophy space, and proximity to like-kind tenants at the center of the regions oil patch results in the oil and gas industry being a major force in Denvers central business district, according to The Oil & Gas Industry: Economic Impact on the Denver CBD Office Market, a December 2011 report by Casey Grosscope, associate director of Denver-based Newmark Knight Frank Frederick Ross. Grosscope calculates that as of the third quarter of 2011, the oil and gas business leased about 3.2 million square feet of downtown Denver office space, or about 15 percent of all the central business districts office space. In addition, Grosscope figures oil and gas sector growth equals almost 1.6 million square feet of additional space absorption, with as much as 300,000 square feet of that happening this year and next. Major players in the industrys office growth include Houston-based Anadarko Petroleum Corp., which recently expanded into 221,000 square feet of downtown space, and EnCana Oil & Gas (USA) Inc., which occupies about 570,000 square feet in the Republic Plaza building. Other oil and gas exploration and production companies expanding their downtown presence include: Newfield Exploration Co., MarkWest Energy Partners LP, EOG Resources Inc., Whiting Petroleum Corp., and Noble Energy Inc. Nor is downtown Denver commercial real estates only beneficiary: Exxon Mobil in March announced it was moving about 700 employees of its XTO Energy subsidiary into a new, 52,000-square-foot western regional headquarters office in Englewood. Exxon Mobil historically has not had a big presence here in the Denver area, Grosscope says. Adding a large office here is saying a lot for what Denver has to offer in terms of quality of life, and the other big oil and gas companies that are here in Denver are also a draw. Nor, for that matter, is the downtown Denver area the only place benefiting from oil and gas company expansion: Noble Energy recently opened a 65,000-square-foot field office in Greeley, while Anadarko Petroleum said it was completing a new 42,000-square-foot office in Evans, Colo., also in Weld County. Another trend consists of Calgary-based oil and gas companies opening Colorado offices. One example is Calgarys Crescent Point Energy Corp., which last August opened a downtown Denver office with 15 employees. We have a little bit higher vacancy rate here than in Calgary, Grosscope says, noting that square footage costs less here than up north. Denver has become more of a national-scale site and in Calgarys case, an international place to say, Heres an option if you cant find space in your own market. The oil and gas industry here is changing the office market to where it is becoming more of a landlord-favored market, where landlords are having the upper hand, where two years ago it was certainly a tenants office market, Grosscope notes.
[8]

operates; $62 million in federal royalties; and $162 million in private royalties. WPX uses a technological predecessor of horizontal drilling called directional drilling to get at its natural gas reserves. Every well that we drill today is directional. No well is below the drilling rig. The wells are drilled in an S shaped curve. The first part of the S starts right as the well starts to drill; the last part of the S is made down above the pay zone and the well then drops right down into the sweet spot into the middle of that 10-acre piece of rock we call the sand lends, Alvillar explains. Alvillar is a geologist as well as a community relations specialist. Since she started out in the late 1980s she has seen huge improvements in technology and know-how. The time to drill the wells has decreased. The surface lands required to drill these wells has decreased. The amount of traffic has decreased. To name one such technology, The simple utilization of telemetry on these wells, which is a system by which a field person can look at a well without physically having to be at that well, has revolutionized the industrys ability to lessen its impact on the environment and the public, Alvillar says. They can not only look at those wells, but they can adjust them from their laptops and shut those wells off if they need to. In the case of, for example, a wildfire, you want to shut those wells in so that theres no gas flowing. They can do it with a keystroke. Advanced technology enhances even tried-and-true petroleum recovery. Pioneer Natural Resources leases more than 200,000 acres in the Raton Basin west of Trinidad. The company has drilled 220 coal bed methane wells there since 2008, with another roughly 2,000 producing wells in its portfolio. Coal bed methane, another term for natural gas, is produced from relatively shallow coal seams about 2,000 feet down. The drilling and fracturing method there is well understood. Pioneer fractures its wells using a combination of water, nitrogen, guar gum, and Dawn dish soap. No kidding. But coal bed methane recovery is water-intensive, and Pioneers high-tech concentrates on water recovery and monitoring. Pioneers award-winning monitoring program eyes the watersheds

COLORADO BIZ OiL & GAS: BACK To THE FUTURE

of the Apishapa and Purgatoire rivers to ensure that water quality meets permit standards and to improve knowledge of coal bed methane discharges. Pioneer also works hard to recapture water used in its drilling and production. The first thing that comes out of the well bore is some water. We take that produced water and reuse it, says spokeswoman Karen Brown. Thats the water we use when we do our light frack. Tim Wigley this year moved from Oregon-based lobbyist PAC/WEST to the presidency of the Denverbased Western Energy Alliance. The 400-member group represents the oil and gas business in 13 states. Looking back over the last five or 10 years, the level of technological leaps in this industry versus other natural resource extraction industries, like mining, like forest management, agriculture not to say they havent had tremendous developments but this industry is full of lots of really innovative people, Wigley says. The industry has re-invested heavily,

and it is paying off. We are the leaders in the world, the apple of the eye of industries around the world. However, technology can be trumped by regulation. And the amount of time and money required to lease on federal lands in particular has increased significantly in the past few years. For oil and gas explorers-producers, the problem is more than anything else the lack of certainty energy companies have from the time they get a lease and start down the permitting process road, Wigley says. Having to do the various environmental assessments air, water and habitat there are layers and layers and layers. There was a time when you could complete those permitting processes in a year or two, but there are plenty of cases now where it is seven or eight or nine years to actually get a permit, Wigley adds. David Banko is principal of the Englewood-based consulting firm Banko Petroleum Management Inc., which specializes in regulatory matters. Banko, like most industry professionals,

has praise for the Colorado Oil and Gas Conservation Commission and Gov. John Hickenlooper, a former petroleum geologistturned-businessman, in particular. The federal government is another matter. While oilfield technology is light years ahead of where it was in the 1980s, the regulatory process is is much more complex, Banko says. The public, and particularly the opposition to oil and gas projects, is weighing in much more heavily on the process. Almost every resource on federal lands takes precedence over energy even solar and wind right now have their detractors. Any effort to produce energy on federal lands is becoming more and more difficult every day. Also, If you look at the history of oil and gas leasing in the last three years, you will find that leases on federal land that were issued back in 2008 were suspended and ultimately denied. The practical effect of these policies is that, Rifle, Meeker and Grand Junction are struggling because of federal policy.

SUCCESS
EXCEPTIONAL TALENT STRATEGIC ASSETS A WINNING INVESTMENT.

QEP Resources is a leading independent natural gas and oil exploration and production company with operations in the Rocky Mountain and Midcontinent regions of the United States. A Proud PastA Bright Future NYSE: QEP www.qepres.com
COLORADO BIZ OiL & GAS: BACK To THE FUTURE

[9]

A cLOSER LOOK AT SUbSIDIES OIL AND GAS tAX BREAKS DONt FIt tHE DEFINItION
By David Lewis
ype Obama and oil subsidies into Google, and you get 6,120,000 results. These include first-Googlepage headlines such as Fossil Fuel Subsidies: Helping the Richest Get Richer, Senate Republicans reject Obama call to end big oil tax breaks, and Obamas day: going after oil subsidies. Take Obama out of the equation and your 17,200,000 results include Google-first-page headlines such as History of U.S. Oil Subsidies Go Back Nearly a Century. Its easy to conclude that, if indeed there is a national debate over oil industry tax breaks, the argument is over and the pro-oil side of the debate lost. But, just for laughs, lets say there is a debate and lets set the terms of that discussion. So let us define our terms: What is a subsidy? What is it the oil industry is getting from the federal government? Among other things (a sum of money formerly granted by the British Parliament to the crown), MerriamWebster defines subsidy as a grant by a government to a private person or company to assist an enterprise deemed advantageous to the public. And a grant is defined as a gift (as of land or money) for a particular purpose. So, is the oil industry receiving subsidies? Not according to the dictionary. What the president is talking about is tax breaks, says Encana Corp. spokesman Doug Hock. We dont get subsidies like some of the renewables where they actually get cash money, and their product is subsidized in the market. We get tax breaks, and a lot of these are tax breaks that have been on the books for almost 100 years, things that are common to manufacturing industries. A subsidy, or gift, is more akin to the $40 billion the Obama stimulus offered to clean energy companies such as Solyndra (Clean and Economical Solar Power from Your Large Rooftop), which received $535 million in loan guarantees and then suspended operations and filed for Chapter 11 bankruptcy. Next, the government paid the companys creditors the $535 million. What the oil and gas exploration and production industry receives thus is not a subsidy at all, but various tax treatments. (For a remarkable discussion of these points, see the Wikipedia entry, Energy subsidies, which cites studies from the World Bank, the World Resource

Adding Value By Maximizing Your Upstream Oil and Natural Gas Assets Your Assets, Our Expertise

Advise & Assist Trusts with Oil & Gas Assets Project & Asset Management Business Strategy & Development Partnering to Make Prospects Drill-Ready Regulatory, Engineering, Consulting
[ 10 ]
COLORADO BIZ OiL & GAS: BACK To THE FUTURE

For our full Statement of Qualifications,

visit: www.banko1.com/SOQ
Contact Ted Chase 303/820-4480 x118

385 Inverness Parkway, Suite 420 Denver, Colorado 80112-5849

Institute, the Environmental Law Institute, the European Environmental Agency, the Union of Concerned Scientists and others to produce a onesided view of the subject.) With so much obfuscation, propaganda and politicking ruling the debate, it can be difficult to know just what is under discussion here. So what are the petroleum industrys so-called subsidies or, if you prefer, tax breaks? Here are the four major ones: Intangible drilling costs have been around since 1913, when the U.S. tax code was originally written. (Mark that 100th anniversary on your calendar, folks!). Typically 65 percent to 80 percent of the cost of drilling, IDCs are deductible in the first year. Intangible drilling costs are not especially intangible, as they include all the preparatory costs of drilling.

We spend all of our revenue on exploration and development drilling, so we put it all back in the ground, says Denver-based Ted Brown, senior vice president-northern region for Noble Energy Inc. So if you told me this year that were going to take away tax deductions and it will impact you X, then we have to re-budget that much less activity. That all trickles down into fewer jobs, fewer tax revenues for the state and the counties. It all comes back. Percentage depletion was designed to increase overall oil and gas production and small petroleum producers. Only independent producers and royalty owners, not major oil companies, can claim it. It is available only to domestic production up to 1,000 barrels of oil or 6,000 mcf (thousand cubic feet) of natural gas, and it is limited to 65 percent of net taxable income.

By allowing for the recovery of capital investment over time, it is essential for meeting the costs of operating marginal wells, according to an American Petroleum Institute report. Geological and Geophysical expense deduction is effectively the equivalent of research and development expensing for manufacturers. While many manufacturers also receive tax credits for R&D, the oil industry does not. Extending the amortization period would remove over $1 billion from efforts to find and develop new American production, according to the Western Energy Alliance. Section 199 deduction was initiated by the JOBS Act of 2004 to make additional capital available to American production and manufacturing jobs. This deduction is available to all other industries.

AFTER STINT IN RENEWAbLES, JOb REcRUITER FINDS NIcHE IN OIL AND GAS
By David Lewis
he mighty U.S. government for some years now has been pushing green jobs as, among other things, the solution to the nations economic stagnation. That might be an appealing idea, but thats all it is: an idea. Just ask Doug Thorner, managing director of Denver-based eforce LLC, an energy industry recruiting and consulting company. Back in 2007, Thorner was a specialist in financial services and accounting businesses. Then the Great Recession hit. There wasnt much of an opportunity anymore to keep recruiting in that industry, for obvious reasons, so I was looking for other opportunities, he says. I saw the energy industry as a great opportunity, and I went to work for a company called EarthStream. Thorner began working with the sustainable energy industries solar, wind, utility companies, green technology companies and private equity firms with as much enthusiasm as the headlines and the government subsidies seemed to deserve. EarthStreams concept was to recruit in energy across the board, in all sectors, he says. What I viewed as the greatest opportunity within the energy industry was definitely the renewable energy industry, based on what I had been reading in the media and what I had been hearing politically, if you will. Thornton joined a throng of about 20,000 professionals at a solar energy conference in California, and the future seemed sunny. Then, as it will, reality set in. I went after it. I went hunting for business both locally and nationally, as well as business and opportunities
Get the free mobile app for your phone http:// gettag.mobi

Scan here to view exclusive video Learn about US energy resources

here in Colorado, he says. In 2007 and 2008 I put an investment in time and money really going after the renewable energy industry. There were a lot of promises we are going to need this, we are going to need that and honestly, spending six or eight months on it, working my butt off, it came to be nothing much. Companies gave us opportunities, and we worked on the opportunities, found people and they hired no one, he says. I had been in bad economies before where it was obvious that nothing was happening, but this was really unusual because it appeared that it was a great opportunity. It was very frustrating and disappointing. Why? In some situations it was that they were waiting for approval for government funding or waiting for the money to come from government or

Western Oil & Natural Gas: Americas Energy Future

By 2020, the western oil and natural gas industry is projected to: Invest $58 billion annually Support over 500,000 well-paying jobs Produce enough energy to dramatically reduce imports from unfriendly nations Unfortunately, unreasonable regulatory policies and bureaucratic red tape are threatening our realization of this enormous potential. Policymakers need to support timely access to western federal lands and the responsible development of Americas energy resources. Learn more at westernenergyalliance.org

Get the free mobile app for your phone Scan with smartphone to http:// gettag.mobi watch the Blueprint for
Western Energy Prosperity

Western Energy Alliance members are dedicated to environmentally responsible exploration and production of oil and natural gas in the West.

Style Sheet by Track The Tag 2012

[ 12 ]

COLORADO BIZ OiL & GAS: BACK To THE FUTURE

private equity, he says. Over time, the answers changed to, Were not doing any of it, or we cant afford to do it, or instead of hiring one executive were going to do it in-house and on our own. So it was very scaled back or nonexistent. Then, in 2009, Thorner formed eforce. He changed his emphasis and his fortunes. I was able to be a little nimble and the natural gas industry was the first thing I looked at, and then getting into oil as well, this time really looking at it more regionally, in the Rocky Mountain area, and realized that there was opportunity from mature companies that were used to paying fees and using recruiting firms. This year, Thornton entered into a joint venture with Denver-based recruiter Petroleum Field Services, enabling him to service field workers

Photo by: Kurt D. Brown, www.kurtdbrownphoto.com.

as well as oil industry technologists and executives. These are very good paying jobs at all levels, he notes. And, Before, so much of the business that I was going after was in other cities San Francisco, Seattle, New York, Chicago whereas today

so much of what were able to do is in the Rocky Mountain states. Its great to see this industry taking off right here in our backyard. The moral of the story? When Thorner started eforce three years ago, he had two employees. Today, he has a dozen.

> Contract Drilling > Directional Drilling > Well Servicing > Rental Equipment > Production Flowback Units

www.ensignenergy.com

Performance Excellence Second to None

COLORADO BIZ OiL & GAS: BACK To THE FUTURE

[ 13 ]

A cLOSER LOOK AT HYDRAULIc FRAcTURING AND WATER USE

By David Lewis
olorado is a thirsty state and, as its population grows and jostles for access to H2O, fears arise. One of those is that oil and water dont mix, or at least the oil industry and the states water supplies wont. Colorado has undergone a semiarid winter, and competition between farmers and frackers for water is growing. So is the fear that farmers will go dry. As with so many of our fears, however, this one tends to evaporate upon close inspection. In early April the Berthoud-based Northern Water Conservancy District held a water auction. Fracking bidders top farmers at water auction, read the headline in the Denver Post. Companies that provide water for hydraulic fracturing at well sites were top bidders on supplies once claimed exclusively by farmers, the story read. Just one problem: Practically none of the data cited by the story were true. The true part was that this years third annual auction featured waterservice companies competing
[ 14 ]
COLORADO BIZ OiL & GAS: BACK To THE FUTURE

with farmers and others, mainly municipalities, for water. As for the rest, 92 percent of the water auctioned off was claimed by farmers. Only one farmer did not bid successfully for water, and that farmer entered the low bid, the base bid of $9.50. (All numbers are per acre-foot.) And, the average successful bid price this year was the lowest of the districts three auctions: the average bid was $28.86 in 2010; $28.71 in 2011; and $25.77 in 2012. The lowest successful bid price was $22.12 in 2010, $20.25 in 2011, and $11.13 this year. The top price paid in 2010 was $44; last year and this year it was $40. The idea that (oil industry water companies) are driving the price up to where farmers cant afford it, were not buying that, says Brian Werner, public information officer for the conservancy district. Yeah, theres more competition, theres no question, and thats probably not a bad thing. We have always evolved what the uses of water are and we will continue to evolve new uses.

It is true, the oil industrys favorite new technology, hydraulic fracturing, relies on pumping water and other liquids deep in the ground. And true, some of that water remains deep underground. But, ladies and gentlemen of the jury, there are important mitigating factors at work here. For one thing, usable energy is never free and often requires water. According to the Department of Energy, hydraulic fracturing requires as little as 0.6 gallons of water and as many as 6 gallons of water for every million BTUs produced. By contrast, ethanol produced from corn requires from 2,510 gallons of water to 29,100 gallons per million BTUs; and biodiesel fuels from soybeans need anywhere from 14,000 gallons per million BTUs to a whopping 75,000 gallons per million BTUs. Heres another way to look at hydraulic fracturings water use: An average Niobrara formation oil well consumes 300,000 gallons to drill and about 4 million gallons to fracture (if a horizontal well). According to John Dill, Denverbased spokesman for Chesapeake Energy Corp., that amount of water is equivalent to watering a golf course in Colorado for 21.5 days; or 26 minutes of water use in the City of Denver; or the amount of water used for 6.5 acres of wheat for one growing season. The idea that drilling and fracking are going to seriously challenge the water supplies of Colorado is just simply not true, Dill says. If 1,000 wells were drilled in Colorados Niobrara formation, they would use about 0.13 percent of the states water, according to the Colorado Oil and Gas Association. Water is a precious resource and nobody wants to see it misused, and nobody wants to be cavalier about it, Dill says. But it is not a challenge that people need to be worried about.

Energy for everyday life.

At WPX Energy, were more than a natural gas exploration and production company were your friends and neighbors, too. The WPX Energy family understands the importance of energy in everyday life, and our team takes great pride in producing clean and abundant natural gas that powers homes, businesses and vehicles across the country and right here in western Colorado. Were determined to be safe and responsible, and to work hard, because were passionate about what we do. Were WPX.

855.WPX.2012 | www.wpxenergy.com

Energizing the World, Bettering Peoples Lives.

Noble Energy combines sophisticated technology with innovative teams of talented, goal-oriented people to achieve best-in-class execution as we discover new energy resources. Recognizing that success depends on the quality of our people, we hire talented professionals who share our commitment to excellence. You only become best in class when you dedicate yourself to everyone that has a stake in youcommunity, policymakers, investors and employees.

[ 16 ]

COLORADO BIZ OiL & GAS: BACK To THE FUTURE