AURORA | After years of historic increases, oil and gas production plummeted in the Aurora region during the first four months of 2020, according to state government numbers.
Analysts say international market forcers and, to a lesser extent, COVID-19 are to blame for a regional production crash hitting Arapahoe and Adams counties from January through April, which is the most recent month with complete data from the Colorado Oil and Gas Conservation Commission.
In Adams County, oil production more than halved from about 814,000 barrels in January to 404,000 barrels in April. Arapahoe County oil production dropped by more than 80 percent, according to state reports.
Gas production also sharply declined in the two counties home to Aurora. Arapahoe County saw the largest decline from about 735,000 barrel-equivalents in January to just above 90,000 in April.
The trend isn’t limited the Aurora region’s share of the the Denver-Julesburg Basin, the shale formation underneath Colorado’s Front Range. Baker Hughes Co., an oilfield technology provider, counted just four active drilling rigs in the Denver-Julesburg Basin on July 10. That’s compared to 27 in mid-July last year.
Nationwide, companies are keeping oil and gas from market because of an international supply glut driving down prices, while demand dropped because of pandemic restrictions and less travel, said Tyler Hoge, a market analyst with with Denver-based firm Enverus.
The price of oil hovered about $60 a barrel in early January but landed after the initial shock of the pandemic at near $40 in June and July.
“Not a lot of producers are making money at $40 oil,” Hoge said, adding, “I hate to say the word unprecedented, but it is definitely unprecedented times.”
Tom Tobiassen, a member of Aurora’s Oil and Gas Advisory Committee, called the production trend a “crash” and expected the decline to show in data beyond April.
“That’s kind of expected,” he said of the trend. “Any time the oil gets below $60 a barrel, it becomes not very cost-effective to produce locally.”
As a result, Colorado-based oil and gas operators including PetroShare Corporation have filed for bankruptcy and laid off workers.
Susan Fakharzadeh, a spokesperson for Great Western Petroleum, said the company experienced “some production declines” because of the price drop and pandemic, but she added “we have actually been able to maintain and adjust accordingly to the market conditions.” That company generally draws oil and gas from Adams County and Weld County.
ConocoPhillips, which operates wells in Aurora, did not return requests for comment. After publication, Crestone Peak Resources said it had acquired ConocoPhillips’ regional assets in Adams and Arapahoe counties in March.
It’s not uncommon for local oil production levels to fluctuate wildly over a couple of months. However, the current production cliff represents several months of steep declines in production after a years-long uptick.
In Adams County, oil production hovered largely between 30,000 and 70,000 barrels per month from 2010 through 2017 but spiked to a peak of 927,000 barrels in May 2019.
Hoge said it’s hard to tell if the current crash is worse than the cyclical busts that characterize the fossil fuel industry. Regardless, he expects a years-long climb back to peak production levels in the Denver-Julesburg unless oil and gas prices rise.
Adams County Commissioner Eva Henry stressed that the local production decline wasn’t the result of more stringent regulations on oil and gas industry operators.
That county was the first in the state to develop stricter rules after the passage of Senate Bill 181, Henry said, which gave power to cities and counties to write their own regulations. The new rules include stricter bonding for so-called orphaned wells left unplugged on the plains when oil and gas operators leave the region or file for bankruptcy.
Oil and gas trade groups cried foul over SB-181, arguing that stricter rules would decimate the industry and Colorado’s greater economy.
Even before the new rules, Adams County approved few new drilling projects. Spokesperson Jim Siedlecki said the county covering north Aurora, Thornton and beyond had only issued 20 new oil and gas permits to drill in the last five years.
Members of the public can weigh in now on the City of Aurora’s new regulation plans. Those rules will govern all new companies pulling fossil fuels from within city limits but will go into effect alongside existing contracts between specific companies and the City until they expire.
The City recently extended its public input deadline on the new rules to August 23.
So far, the regional production drop hasn’t impacted city or county coffers yet because taxation lags behind production trends.
The City of Aurora pulled in almost $111,000 in severance tax revenues derived from oil and gas activity so far in 2020, compared with about $82,000 in 2019.
Adams County largely derives its oil and gas revenues from traffic impact fees. Those fees contributed $3.3 million in 2019 and $1.7 million so far in 2020.
From a mixture of taxes on oil and gas lease sites, federal dollars and severance taxes, Arapahoe County brought in $921,917 during 2019 and $1,555,860 so far this year.
Editor’s note: This article was corrected to note that the City of Aurora’s new oil and gas regulations will not replace existing operator agreements between specific companies. The rules will govern new companies, but existing operator agreements will be honored until they expire. This article was also updated to reflect that Crestone Peak Resources has acquired ConocoPhillips’ assets in the region.