A capital boom? After years of talk, Cheyenne may be poised for a surge in oil production

2014-08-10T00:15:00Z A capital boom? After years of talk, Cheyenne may be poised for a surge in oil productionBy BENJAMIN STORROW Casper Star-Tribune The Billings Gazette
August 10, 2014 12:15 am  • 

CHEYENNE, Wyo. -- On a recent afternoon, Alex Bowler sat in a coffee shop here and held up a copy of the local newspaper. On display were two full pages of legal announcements notifying the public of companies' plans to drill oil wells in the area.

"No one reads this type of thing except idiots like me," said Bowler, who heads a local landowners group. "But what's going to happen is it's going to show up and people are going to panic."

Laramie County has long been talked about as the site of the next big oil boom. At the beginning of the decade, companies like Noble Energy, Rex Energy and SM Energy flooded the region in hopes of scoring big in the Niobrara shale formation.

Production did grow. Between 2008 and 2013, Laramie County's oil output increased by 1 million barrels, from 474,063 barrels to 1.4 million barrels, according to the Wyoming Oil and Gas Conservation Commission.

But a full-scale boom never materialized.

“It’s just slow going down there,” a somewhat glum Tom Doll, then Wyoming oil and gas supervisor, told the Star-Tribune in 2011.

Today, Noble, Rex and SM Energy have disappeared from the golden prairie around Cheyenne, but the long-rumored increase in production appears poised for takeoff.

Telltale signs of a boom are apparent. Two new hotels recently opened in Cheyenne, and a third is under construction. Apartment vacancies are at their lowest levels in almost 20 years.

Those developments aren't solely related to increasing oil development. Microsoft and the gun-maker Magpul are among the firms to recently move into Wyoming's capital city.

Still, state statistics confirm that energy production here is on the rise. In May, a record 132 drilling applications in Laramie County were filed with the state. The next highest total was 104 applications, submitted the month before.

Production is also increasing. Through Friday, oil production in Laramie County was 1.3 million barrels, just shy of the 1.4 million barrels produced there last year.

"We think there are 750 to 1,000 jobs we can attribute to oil and gas development," said Dale Steenbergen, president and CEO of the Greater Cheyenne Area Chamber of Commerce. "Certainly businesses are starting to base some of their planning around the energy industry."

EOG Resources is the company spearheading the drilling charge, with reported production in the county of 507,289 barrels through Friday. The Houston-based oil and gas firm dedicated much of its first quarter earnings presentation to its growing output in Laramie County and the Powder River Basin.

EOG touted the success of three wells drilled in the Codell sandstone formation. The trio sported initial production rates of 1,325 barrels of oil per day, 1,400 Bopd and 1,165 Bopd.

Those figures pale in comparison with production levels in the Eagle Ford formation in south Texas, where EOG reported wells' with output exceeding 5,000 Bopd.

But it represents a significant increase over the 200 and 500 Bopd reported by many producers when interest in the DJ Basin in southern Wyoming took off after 2010.

"The DJ Basin historically has been very variable, so there are sweet spots that really kind of set up by the basin architecture, and it varies," EOG CEO William Thomas told financial analysts in May. "We really believe with our good results that we’ve had from the drilling in this area and with our geologic mapping that that we have a spot, (a) sweet spot that will give us very consistent results."

The company estimated that it could recover the equivalent of 400 million barrels of oil from the Codell and Niobrara around Cheyenne and from the Parkman and Turner formations in the Powder River Basin.

State Rep. James Byrd, D-Cheyenne, has worked more than three decades in the oil and gas industry as an exploration geophysicist, or as he likes to put it, "basically figuring out where you put the stake in the ground."

He cautioned against predictions of a coming boom. The richest reserves in the DJ Basin are farther south in Colorado, he said. Development in Wyoming will likely increase when reserves in the Centennial State have been developed.

Byrd said drilling in Wyoming is unlikely to reach the level seen by its southern neighbor.

The production figures being reported by EOG likely signal a period of steady growth but are a far cry from what is being seen in North Dakota's Bakken formation, he said.

"That’s a good thing because we can control the growth," Byrd said. "We can get the infrastructure in place."

Laramie County has already felt some of the impacts of development. There is a man camp in Pine Bluffs, and several county roads are in poor shape, unable to sustain the steady flow of truck traffic servicing drilling rigs in the area, Byrd said.

Still, he said, local officials are in frequent contact with oil companies and appear well-equipped to handle the uptick in production.

Buck Holmes, a Laramie County commissioner, agreed. EOG paid for a significant portion of the repairs to Campstool Road southeast of Cheyenne, where much of its drilling is now concentrated.

The county is trying to expedite the permitting process for apartment complexes to help accommodate the increase in workers. And a study is underway to determine how many new people the county can accommodate before its services are overtaxed, he said.

"I think we are as well-prepared as we could be," Holmes said. "One of the things is the oil companies have played nice in the sandbox so far. That makes a lot of difference in how you cope with the development of minerals."

Conflicts have nonetheless emerged. In May, Wyoming Oil and Gas Supervisor Mark Watson met a group of landowners at Triple Crown Estates, northeast of Cheyenne, to discuss EOG's drilling plans near their homes. The company submitted an application to drill up to 32 wells 700 feet away from some residences.

A well takes between one and two months to drill and complete, meaning Triple Crown residents faced up to three years of continuous drilling near their homes, Watson said.

Wyoming law allows companies to drill within 350 feet of a residence, but it also gives the oil and gas supervisor discretion to move a well closer to or farther from a home.

Watson, who is expected to release a proposal to reform the state's setback law next month, asked EOG to move its drilling location farther away from the development. The company has yet to submit a new plan.

"I just told them there are just too many other options," Watson said, noting the open space nearby and EOG's ability to drill almost two miles horizontally. "Three years of continuous drilling could be a bit much to take in front of someone’s house."

Bowler, president of the Cheyenne Area Landowner's Coalition, said his group is not opposed to the oil and gas drilling around the city today.

Many coalition members are split estate property owners. That is, people who own the surface but not the minerals beneath the ground. Bowler joined the group about five years ago after learning of plans for drilling on a parcel near his home.

The coalition's aim is to mitigate the impacts of drilling. The group was one of several to advocate for a baseline water testing rule that went into effect this year. It is now focusing on increasing the state's minimum setback requirement.

Many people in Cheyenne appear to be unaware of the coming increase in development, Bowler said. The landowners' coalition has, on several occasions, received waves of frantic phone calls after companies staked land near residents' homes or sent land men by to talk about their proposals.

He questioned whether the county was prepared for the development, noting that the county commission no longer holds the bimonthly meetings where oil development was discussed.

"Do we want to see happen to Cheyenne what happened to Greeley, Colorado; Douglas, Wyoming; or, heaven forbid, North Dakota? I don't think so," Bowler said. "We're all sitting out there with no mineral interest, and all of this stuff is happening."

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