Drilling permit applications climb

By: 
Wyoming News Exchange

By Heather Richards

Casper Star-Tribune

Via Wyoming News Exchange

 

CASPER — Oil prices hit a 14-month low Monday with Wall Street nervous about oversupply of crude, but the price slide hasn’t yet suppressed the dramatic growth in oil and gas companies seeking permits to drill in Wyoming. 

State regulators were working through 25,700 applications for permits to drill, as of last week, up from the then-record of 10,000 in March. 

The flood of interest is largely centered in one of the most intriguing oil plays in the Rocky Mountain region today: Wyoming’s Powder River Basin. From improvements in crude prices to high performing wells, positive signs of the Powder’s potential have producers rushing to be first in line with a permit. 

“It’s essentially a question of controlling your own destiny” said Bill Miller, senior vice president of energy and land resources for Denver-based Anschutz, one of the most active companies in the Powder race. “The people that have a significant footprint in the basin are putting (applications for permits to drill) in place so they have certainty over what their planning.” 

The flood of APDs started to be a challenge for the Wyoming Oil and Gas Conservation Commission staff early this year. In Wyoming the producer that obtains the permit first becomes the “operator” of that drilling and spacing unity. They get more control over drilling, regardless of their working interest in the area. 

Competition quickly ramped up, with firms like Anadarko Petroleum, EOG Resources and Casper-based Wold Energy filing thousands of applications before the price was above $60 a barrel. The race to be first snowballed and state regulators were looking at a long list of applications — at times for wells that were likely never going to get drilled. 

Supervisor Mark Watson instituted a new policy to control the stream of applications. Producers who were ready to drill would be included in a drilling schedule and their applications would be placed at the top of the list for processing. 

The rest could wait. 

Watson said he assumed the numbers would slow or start to decline eventually. There’s only so much land in Converse and Campbell Counties to be divided up. 

That’s hasn’t been the case, he said. 

Now, in addition to the applications to drill, the commission staff is dealing with a flurry of hearings. Operators want to add wells and subdivide units— dividing the areas of rock formation into subcategories, according to what they believe is optimal for recovery.

“It’s just a new layer in the fight for operatorship,” Watson said. 

Watson had initially developed the permit policy rather than hiring on new staff that may not be needed once the APD rush slowed. But as the pace holds, the additional hearings have placed an added strain on the agency. 

It’s possible that the slowdown in oil prices could slow the activity demanding the agency’s time, he said. It’s also possible that the agency may need more people at some point. 

The Powder River Basin story started before the current rush. A large oil and gas project in Converse County was first proposed in 2014, with five large companies behind it. 

But, oil prices tanked in 2015. The bust gutted Wyoming’s oil and gas workforce and its primary sources of revenue. The price decline also derailed what was a growing interest in horizontal drilling in the layers of rock that make up the Powder River Basin. Excitement waned for the Powder as companies that could do so focused on areas of the country where they could get the best bang for their buck within a depressed price environment. 

The price turned in mid-2017 and Wyoming’s oil patch has seen a gradual improvement in drilling rigs, jobs and dollars since then. Meanwhile, gains have been made on how to drill successfully in some of the layers of the Powder, driving a renewal of activity and long-term commitments in Wyoming’s eastern oil patch. 

It’s been a disappointing autumn for oil prices, with political uncertainty, a potentially overheated economy and oversupply worries dampening the dollar per barrel. 

Phil Flynn, of PRICE Futures Group in Chicago, said in a recent investors note that the market is reacting to the potential of economic decline and political uncertainties, despite a supply and demand picture that remains promising. 

“If you add it all up, the reduction in supply is significant and is very bullish unless you think that somehow the record demand will somehow evaporate,” he wrote as oil budged upwards on Friday. 

By Monday the price had swung back down, with the national benchmark WTI closing at $49.16.

“With trade war fears and a weak stock market it is hard for oil traders to look at the tightening oil market situation with any sense of dread,” Flynn noted Monday. “Instead, it is trading on what may happen if the economy slows down.” 

Prices will certainly affect what happens in the Powder in the months and years to come. Miller of Anschutz, said the price slide hadn’t dampened the company’s program yet. Anschutz has two rigs running in the Powder and one that they are sharing with another firm. 

“Are we concerned about price? Of course,” he said. “Everybody is concerned about the price.”

But whether the current dip will interrupt the interest in securing APDs or carrying out drilling plans in the Powder will depend on the operator, he said. Some will pause, others may hold on.

Anschutz had submitted more than 1,400 applications for permits to drill by late summer, an aggressive approach that still places the company behind Anadarko, EOG Resources and Wold Energy for permits. 

“We have a plan for every one of those APDs, whether I can get to them this year, next year or the year after,” Miller said. 

The Powder has fewer than a dozen operators that are aggressively securing APDs and following that up with drilling. 

Eventually plays like the Powder River Basin are consolidated with a few large players. That has happened to some degree already in the Powder, though more consolidation may be on the way. 

The super majors are not digging into the Powder yet, but they could, Miller noted. 

“I think you’ll see consolidation with new players. People that typically come along about this time in the life of a play, become interested,” he said. 

It’s all speculation at this point, depending on a host of factors, Miller said. 

“It’s speculative business.”

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