Boulder County extends moratorium on oil and gas drilling through year's end

Denver — Boulder County Commissioners voted to extend a moratorium on new oil and gas wells through the end of 2020 as local legislation has prevented drilling in the county on the northwestern edge of the Denver-Julesburg Basin for eight years.

The county's board of commissioners unanimously approved a moratorium on July 15, which prohibits new oil and gas well sites and seismic testing conducted for exploration purposes through December 31. No operator has drilled a new well in Boulder County since 2012, according to data by the Colorado Oil and Gas Conservation Commission.

"While local governments have the authority to regulate natural gas and oil development, they do not have the authority to completely prohibit it," said Lynn Granger, executive director of the Colorado Petroleum Council, a division of the American Petroleum Institute. "By chaining together a seemingly endless series of moratoriums, Boulder County appears to have no serious intent to reopen the county to our industry."

Boulder County is in the process of drafting new rules regulating oil and gas production while the COGCC rewrites state rules to comply with legal oil and gas reforms in 2019's Senate Bill 181. The COGCC is changing the mission of the state regulatory agency to prioritize public safety and environmental protection and give local governments more authority in approving drilling locations. It is expected to be completed by year's end following public hearings scheduled for August and October.

"It's critical we extend the oil and gas moratorium to make sure we have the most protective rules possible for people and the environment," said Boulder County Commissioner Matt Jones.

Boulder's elected officials have kept the DJ's drilling boon over the last decade outside county lines. However, the spring crash of global oil prices combined with demand destruction related to the coronavirus pandemic has dramatically drawn down drilling activity all across the DJ as well as other oil-rich basins, such as the Williston and Permian.

As of July 10, the active rig count in the DJ was at four, according to data compiled by Enverus. As recently as March, the basin averaged 25.5 active rigs throughout the month. It is averaging 3.5 active rigs through the first two weeks of July. All four active rigs are located in Weld County, which accounts for nearly 90% of the basin's oil and gas production.

One of those active rigs belongs to Extraction Oil and Gas and is located right on the border of Boulder County. Extraction planned on developing well sites in Boulder County, but the continued moratorium dashed any hopes of drilling. The company, which focused on suburban drilling in the DJ, filed for Chapter 11 bankruptcy last month. Extraction currently makes up 13% of the DJ's crude production from horizontal wells. Extraction's crude output has a potential to enter a decline phase, losing 65% to 70% of production over a 12-month period, according to S&P Global Platts Analytics.

After averaging 500,000 b/d in April, May production fell to average 326,000 b/d before rebounding to 464,000 b/d in June, according to Platts Analytics. Associated natural gas production in the DJ remained stout during the downturn, dipping from 2.84 Bcf/d in April to 2.27 Bcf/d in June. It is forecast to reach 2.54 Bcf/d in August.

Outflows from the DJ Basin on Rockies Express Pipeline have picked up recently. Cheyenne Connector pipeline volumes have steadily risen since first flows began on June 26 following FERC approval, boosting Rockies to Midwest outflows along REX and providing DJ basin producers additional optionality to move supply out of the region.

Flows along Cheyenne Connector have averaged 241 MMcf/d since June 26, rising to as high as 338 MMcf/d on July 12, according to Platts Analytics. Consequently, REX outflows have picked up, driven by incremental deliveries from the new pipeline. REX outflows have averaged 841 MMcf/d month-to-date, an increase of approximately 220 MMcf/d over June levels.