December 2017 Exclusive Story
Operators Lock In 2018 Oil Hedges
DENVER–The law doesn’t stop at the county line and geology doesn’t change according to city limits. The same formations that hold oil and gas accumulations in the subsurface far beneath pastures, corn fields and wide-open stretches of countryside also extend below busy airports, bustling city centers and residential neighborhoods.
Drilling, completing and producing horizontal wells in urban areas brings extra operational considerations, and oil and gas companies often go far above and beyond applicable regulatory requirements to ensure reserves are developed in the safest and most environmentally responsible manner possible.
Nowhere are interactions between the industry and citizens more essential than in the Denver-Julesburg Basin. The D-J is certainly no stranger to exploration and production activity. The giant Wattenberg Field in Weld County, Co., was discovered in 1970 and saw its first horizontal well in 2009, after which it quickly emerged as the core area for laterals in the Niobrara and Codell formations. Weld now has 20,000 oil and gas wells, more than any other county in Colorado.
The Weld County seat is Greeley, which the U.S. Census Bureau defines as the fourth fastest-growing metropolitan statistical area in the nation, gaining 3.5 percent population between 2015 and 2016. The region’s population growth, driven in no small part by flourishing drilling activity, has brought houses and businesses into areas where pumpjacks once stood alone.
As operators have mapped the prolific Niobrara and Codell formations, they have recognized that many of the best reserve opportunities are underneath Greeley and other towns along the Front Range. To access those reserves before the surface areas overlying them are lost to urban growth forever, companies must drill, complete and produce wells even as residential and business districts are being constructed around pad sites, and demonstrate to local citizens exactly how oil and gas companies can be good neighbors.
Operating in urban areas requires a delicate touch, due diligence, advanced technologies, a commitment to working with local community leaders–and more often than not–a willingness to take extraordinary measures to reduce operational footprints and minimize inconveniences on local residents. However, it also presents win-win opportunities for all parties; the metrics operators use to measure success, such as well counts and production growth, translate directly into the type of economic statistics city governments use to measure progress, such as new housing counts and job growth.
The official Weld County website says it all: “Horizontal drilling has brought new life to the energy industry in Weld County. The positive economic impact oil and gas has had on the county has been tremendous. Schools, fire districts, libraries as well as county and municipal governments all benefit from this recent oil boom . . . Other benefits of the boom: Weld County has no long-term or short-term debt, no county sales tax, a low mill levy compared to neighboring counties, and is able to pay for long-term projects with cash.”
In Weld County and other areas along the Front Range, independent oil and gas companies, local governments, business leaders and private citizens are proving every day that the buzz and hum of oil and gas development can harmonize seamlessly with the hustle and bustle of urban expansion.
At the heart of Denver-based SRC Energy Inc.’s operations across its 60,000-net acre leasehold in the greater Wattenberg area is an overarching commitment to “community responsibility” to explore, develop and produce oil and natural gas in the safest and most environmentally responsible manner possible, according to Lynn A. Peterson, chairman and chief executive officer.
SRC plans to drill 116 gross horizontal wells in the Wattenberg this year, including 74 “mid-length” laterals with an average effective length of 7,500 feet and 36 “long-length” laterals with an average effective length of 10,000 feet on spacing that potentially allows as many as 24 wells a section. The targeted reservoirs are the Niobrara A, B and C benches, as well as the Codell formation, but Peterson says SRC Energy sees future potential in the Greenhorn, J Sand and other intervals.
“We take great pride in going over and above mandated regulations for the safety and benefit of our employees, our community and our environment,” Peterson says. “We believe our sensitivity to the needs of the communities in which we work forms the foundation for very positive relationships within those cities and towns.”
The effort to address those needs includes air and water quality monitoring, noise and light suppression at drilling and completion sites, operational practices to contain silica dust from proppant and road dust created by well site traffic, and on-site automation technology to remotely monitor the safety of each location 24 hours a day, seven days a week.
“Obviously, we care very deeply about our employees’ health and safety in what potentially can be hazardous environments. With that in mind, we view regulations as minimum requirements to keep our employees, the community and the environment safe,” Peterson relates. “If your goal is to do the minimum to get by, you leave no margin for error, and there is far too much at stake to have such unexceptional goals. We foster the culture of safety at every level within SRC and require the same from our service providers.”
The company launched horizontal drilling operations in 2013 with five horizontal wells on the Renfroe pad. From the start, the focus was on applying advanced technologies and techniques to not only improve efficiencies, reduce cost and maximize production, but also to minimize the impact of drilling, completion and production operations on the landscape and nearby communities–including noise, lights and traffic, which Peterson says are the most frequent complaints from local residents.
SRC Energy’s operations this year focus on its acreage to the northwest of Greeley, a predominantly agricultural area in which the majority of well sites will be 1,000 feet or more from any surface structures. “We strive to maintain the maximum setback distance that we can–at least 500 feet–which often results in drilling from surface locations that lead to more complicated well plans,” Peterson offers.
The first step in limiting operational noise and visual disturbances is erecting temporary, 32-foot sound walls around well locations. “This dramatically reduces noise and light output from our operations. We also work closely with our service providers to integrate noise reduction modifications on drilling rigs as well as pressure pumping equipment,” Peterson explains.
He adds that SRC continually monitors the lights emanating from drilling and completion sites, and modifies lighting to reduce the impact outside the immediate work area while maintaining a safe, well-lit working environment at all times.
To protect local freshwater aquifers, Peterson says surface casing is set to a depth of 1,700 feet and cemented in place to provide an initial barrier. “Furthermore, before any completion operations begin, we cement production casing from the total depth of the well to the surface, creating a second cement and steel barrier across any freshwater aquifers,” Peterson reports.
All water runoff from well sites is guided to sump areas to be cleaned and removed as necessary to eliminate any potential negative consequences to the surface location or neighboring surface environments. “We also design our locations with spill containment in mind. We ensure the containment of any potential spills using ground barriers and berms,” Peterson continues.
Accommodating trucks traveling to and from well sites is a particular challenge in urban areas, especially during times of day when streets are already congested with stop-and-go traffic. To alleviate disruptions, Peterson says SRC Energy takes a multifaceted approach to managing truck routing at all its well locations.
“During the drilling phase, access routes are coordinated with the county and local municipalities to ensure safe travel to and from the location. We also schedule deliveries to avoid high traffic times, busy intersections and night operations as much possible,” he details. “During the completion stage, we deliver water to location by pipeline and use pipelines to transport oil, gas and produced water from the wellsite throughout the life of the well. Together, these measures dramatically reduce truck traffic in our operations.”
SRC Energy expresses plans to complete at least 104 wells by year’s end. To reduce exposure to silica dust generated by handling frac sand, Peterson says the company uses a state-of-the-art, container-based proppant delivery system that does not require pneumatics nor conveyors, and reduces silica dust below the permissible exposure limit defined by U.S. Occupational Safety and Health Administration standards. “The system also reduces noise and the number of engines,” he adds.
Key To Success
The key to SRC Energy’s success in the D-J Basin, according to Peterson, is its dedication to go beyond regulatory compliance to ensure that the company always acts as a good neighbor and a careful environmental steward.
“We have developed and implemented strict in-house safety and environmental standards. These companywide standards are part of our culture and the service providers we use are held to similar standards in order to work for us,” he relates. “We are actively involved in communicating with and providing specific site tours and presentations with first responders and local government officials.”
It all starts with a mindset of being a valuable partner with local communities and building an active, local presence. “Be present and responsive to concerns of the citizens and municipalities that are impacted by your operations,” Peterson advises. “Be as proactive as possible in understanding how your operations will impact an area and make plans to mitigate that impact, or at least open a dialogue and come to some level of agreement in advance.
“We regularly attend community meetings and maintain a strong and active relationship with the local governing bodies,” he continues. “We also have lots of ‘boots on the ground’ with employees that live in and around Greeley and can respond quickly to stakeholder concerns.”
The day-to-day interactions of the SRC Energy employees who live in the communities in which the company operates represent the most crucial interface with local citizens, he emphasizes. “Our employees act as ambassadors for SRC, providing an open dialogue. Our practices of open and active communication with local municipalities, and quickly addressing any community concerns, can only lead to stronger relationships,” Peterson acknowledges. “We feel the doors have been open to SRC Energy and it is up to us to keep them open.
“Therein lies the mutual economic benefits, not only to SRC from continuing to develop our oil and gas interests, but also to the communities in the form of tax and royalty revenues,” he concludes. “SRC and its employees also are actively involved with local charities such as the Poudre Learning Center, the Weld County Food Bank, the Boys & Girls Club of Weld County and many other nonprofit organizations in the area.”
Going The Extra Mile
A pioneer in perfecting the silent science to go the extra mile in producing oil and gas to the greatest benefit of local communities and citizens, as well as to its own employees and shareholders, is Denver-based Extraction Oil & Gas. The company holds 230,000 net acres in the D-J Basin, much of it centered in the Wattenberg Field. By working closely with Colorado cities such as Greeley, Berthoud and Windsor, Extraction increased its production from fewer than 150 barrels of oil equivalent a day in early 2014 to 40,000 boe/d during first quarter 2017.
Co-Founder and President Matt Owens attributes much of the company’s success to a team that is eager to push the technical envelope. “It is important to us that communities not only in Colorado but elsewhere understand how much technology has advanced,” he says. “By using horizontal drilling and pioneering techniques to mitigate our impacts at the surface, we can drill in areas that once would have been inaccessible.”
The company’s efforts to limit its impacts begin with site selection, Owens relates. “We have certain assets that come with legal agreements for drilling in the middle of a city, but even with the best mitigation efforts, we do not think that is feasible,” he says. “We try to move those sites from the city’s interior to the boundaries, where our operations will be less disruptive.”
That generally means drilling lengthy laterals, Owens acknowledges. “We drill intricate wellbores,” he reports. “In fact, we had one well where we drilled a mile to the south to get to the formation we wanted to produce, then drilled west a mile and a half to access it.”
As a rule of thumb, Owens says Extraction considers formations within almost three miles of a pad site to be accessible. “We were planning two and a half mile laterals when many companies in the D-J Basin had not yet drilled a two-mile lateral,” he recalls. “Long, tortuous laterals are harder to drill, complete and produce, but with such limited surface options in certain areas, we knew we would have to make those laterals work. We have one of the best drilling departments in U.S. onshore, and its innovations make it all possible.”
Even with careful site selection, Extraction must at times drill close to peoples’ homes and businesses, Owens notes. He says the company takes steps at every stage of development to mitigate noise, traffic and emissions.
“We were the first company in the D-J Basin to drill with electricity from the power grid,” he says. “The diesel generators normally used to power drilling rigs are easily the loudest pieces of equipment on a drill site. Using electricity not only gets rid of that noise, but also eliminates the emissions that come from burning diesel 24 hours a day.”
Being a good neighbor means addressing completion noise as well, Owens says. Someone 500 feet from a hydraulic fracturing fleet traditionally would hear as much as 80 decibels of noise, the equivalent of standing next to a blender or a vacuum operating at full force. Given how long it can take to complete a well, Extraction considered that level of noise unacceptable and worked with a Denver-based hydraulic fracturing company to invent a solution.
After nearly two years of research and development, much of it spent identifying and quantifying component-level noises from fracturing equipment, Extraction and the service company debuted a diesel-powered fracturing fleet that muffles sound in part by enclosing the engines, transmissions and pumps. This fleet slashed noise levels at 500 feet to 55-60 decibels, Owens indicates, the equivalent of a quiet conversation.
The minimum setback distance between a well and a residence in Colorado is 500 feet, but Owens says Extraction generally tries to be farther away. At 1,000 feet, the noise associated with a completion is only slightly louder than that of a typical urban neighborhood at night, he reports, noting that sound walls can muffle noise even more.
On the site itself, Owens says the quieter equipment is a boon. “Even with 40,000 horsepower running, the pumps are so quiet that they have tested under OSHA’s threshold for hearing protection,” he explains. “The people on site still wear ear protection, but they can have conversations without relying on microphones and headsets to be heard.”
As part of the effort to reduce completion noise, Extraction replaced the long line of pneumatic trailers traditionally used to deliver proppant to the completion site. “The pneumatic pumps these trailers use to pump sand into the sand bins are loud,” Owens says. “Instead, we transport our frac sand in boxes on flatbed trailers. Once they are on site, we take them off the flatbed with a forklift and stack them. When we need the sand, a forklift puts them on a cradle that connects to the blender hopper, where they empty through gravity.”
Taking the boxes off flatbed trailers is much faster than blowing off a trailer with a pneumatic pump, which can require 30-40 minutes, so trucks drive on and off location quicker, reducing traffic congestion at the pad site entrance. However, Owens says, Extraction originally adopted the sand containers primarily for safety. Because the boxes empty by gravity rather than a pneumatic pump, they no longer create clouds of silica dust, a possible health hazard.
Out Of Sight
Even on its quietest pads, Extraction generally installs sound walls. “We were the first to bring these to the D-J Basin,” Owens maintains. “Today, most of the basin’s operators put them around sites during the drilling and completion phases. With electric drilling rigs and quiet completion fleets, the walls are no longer necessary to muffle noise. However, many cities and landowners request them because they keep our operations out of sight.”
Owens stresses that Extraction adjusts its mitigation efforts to ensure they are consistent with surface owners’ and neighbors’ plans. “For example, in Windsor, we worked with the real estate developer who owns most of the land to build berms that would block our operations from view. He helped lay out the berms and told us what we needed to plant on them and how high the foliage would need to be to block the sites from houses he was planning to build during the next several years.
“To the extent we are able, we do what the neighborhood wants us to do for each location,” Owens continues. “On a farm, we might only need to put a fence around our site. In a city, the council may say, ‘We do not care what the site looks like from the west or north sides, but from the south, we want you to plant trees or put up a wall of some sort.’ We listen to their concerns, show them what we can do, and make sure that the solution fully addresses their issues.”
In addition to spending hundreds of thousands of dollars on landscaping, Owens says the company has delayed operations to accommodate events such as backyard weddings.
“When people have a concern, we want them to reach out to us, so we have tried to make that as easy as possible,” he adds. “Much of the feedback we get comes during community meetings. However, we also have an employee who answers calls from the community through two hotlines: one for immediate neighbors, and one for the community as a whole. Through both, we respond to complaints or concerns, and answer questions about our plans or oil and gas in general.”
Noting that a field’s development can span decades, Owens says Extraction views itself as part of the communities where it operates and tries to contribute to their success. In many areas, the cities own enough mineral rights to benefit from lease bonuses and royalties. Owens adds that Extraction buys water and gravel locally when that makes sense as well.
The company also supports local charities. “In making donations, we focus on charities that we know will have an impact on people in the areas where we operate,” Owens says. “We generally donate to local organizations rather than statewide ones. To select those organizations, we talk with city leaders and other stakeholders to understand the problems they face and find organizations that are making a difference.”
As part of its commitment to being a good environmental steward, Owens says Extraction exceeds regulatory requirements to limit its emissions. When sites are close enough to a municipality for Extraction to run power lines to a location, the company uses electric drilling rigs. “On these sites, we can power most of our production equipment with electricity instead of using methane from the well or another type of gas to run a pneumatic device, so the localized emissions benefits extend far beyond drilling,” he says.
During completions, Extraction looks for ways to reduce truck traffic emissions, Owens says. To illustrate, he points to the western side of the field. “The area has some of the richest agricultural land in state, so there is an intricate system of irrigation canals. By pumping water from one of those canals through a lay-flat hose, we take thousands of trucks off the road that normally would be associated with delivering water to each pad site,” he relates.
In some areas, Owens says Extraction runs oil pipelines to reduce traffic and emissions. “One of the largest sources of emissions occurs when an oil truck driver releases vapors by opening the production tank to determine how much oil he will be taking away,“ he reports. “With oil pipelines, the system is closed; the oil goes from the ground, through the separation process and into the pipeline.”
In areas where a pipeline is impractical, the company retrofits lease acquisition custody transfer (LACT) units onto its production tanks. “Instead of climbing up to open the tanks, the truck driver ties into the LACT unit, which creates a closed seal for the oil transfer, fills the truck with oil and then prints a receipt showing how much the driver is hauling away,” Owens relates. “This is much safer for the oil haulers and more environmentally friendly to neighbors.”
To minimize the risk of leaks and spills, Extraction has installed sophisticated remote monitoring and automated systems on its wells, Owens continues. “We monitor pressure points on every single well in real time 24 hours a day,” he details. “If pressures get out of hand, the system notifies us, and if need be, automatically shuts the well until one of our operators can address the problem.”
To prevent methane leaks, Owens says Extraction has a team equipped with infrared cameras capable of detecting temperature drops associated with fugitive emissions. “The team visits each well site at least once every few months and uses the cameras to look at the pipe fittings and connections. If there is a temperature change or another sign of fugitive emissions, we get a construction crew out to fix the leak immediately.”