A US oil drilling recovery is taking off far beyond Texas and shale country
- Colorado’s oil production is ticking back up this year after falling last year for the first time since 2001. It hit 9.4 million barrels a month in April.
- The recovery is being driven by established producers who know how to drill the state’s rock for oil and gas.
- A recent deadly explosion raises concerns about new regulations that could eat into drillers’ profits.
Oil workers on a rig platform in Colorado.
Colorado is not the cheapest place to produce crude oil in the country, but the state is proving resilient in the face of a protracted price slump and challenges to the fossil fuel industry.
A U.S. drilling recovery is under way following a modest rebound in oil prices from 12-year lows last year. This has improved the prospects for U.S. shale drillers, who must pummel underground rock formations with water, minerals and chemicals to free oil and gas.
The Centennial State offers a view into how the recovery is playing out beyond the Permian Basin, the Texas and New Mexico region where drillers have flocked to take advantage of the nation’s lowest-cost shale output.
In Colorado it’s not a flood of new shale players that are underwriting the rebound, but a group of entrenched oil-and-gas exploration and production companies, such as Noble Energy, Anadarko Petroleum, PDC Energy and SRC Energy, that specialize in drilling the state’s rock.
These drillers are devoting funds to their best acreage, leveraging the know-how they’ve cultivated over years of operating in Colorado to drive down the cost of producing oil and gas in a tough price environment.
PDC Energy, for example, has focused on its prime holdings in Colorado’s Wattenberg and continued to refine its methods, said Brian Velie, an equity analyst at Capital One Securities. The driller asserts it can now grow oil production by about 20 percent a year even with oil prices at $40 a barrel, less than half their 2014 peak. That’s without growing its debt load too far beyond earnings before certain expenses — a key measure of financial health in the oil industry.