Weak growth likely in Colorado, U.S. oil production in 2022, report says

Oil and gas drilling activity has increased slightly in Colorado since Russia’s invasion of Ukraine sent prices up earlier this year, but investor demands and supply constraints — not state or federal policy – ​​will likely limit production growth at least through the end of the year, a new analysis from the Colorado School of Mines concludes.

The quarterly oil and gas markets report from the school’s Payne Institute for Public Policy found that little had changed since the weeks following the Russian invasion, when several major producers operating in Colorado assured investors from Wall Street that they would use high oil prices to boost dividends and stocks. takeovers, not increase production.

“The top priority for U.S. public oil and gas companies remains to deliver higher financial returns to shareholders,” reads the report released last week.

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Data released by industry consultancy Baker Hughes shows the number of working rigs in Colorado hit 16 in May – the highest total since the early days of the COVID-19 pandemic in April 2020. , but still just half the number of devices in operation three years ago.

While rig counts similarly increased slightly in oil and gas fields across the country, U.S. oil and gas production declined slightly in the first and second quarters of 2022 due to “weather-related stresses” like heavy snowfall in North Dakota’s Williston Basin, the report says. The industry is also being hit by inflation and supply chain issues, including shortages of steel used in pipes and hydraulic fracturing equipment.

Despite claims to the contrary by industry groups and Republican politicians, government policy has had no discernible impact on drilling activity, analysts said.

“There is no evidence to suggest that federal policy is having a constraining impact on onshore industry activity,” the Payne Institute report read, noting the thousands of approved federal drilling permits stored by producers. “The constraints are instead investors’ requirements for spending discipline and, increasingly, the availability of certain services.”

Colorado producers still hold more than 1,400 active drilling licenses, nearly 1,100 of which are on private land in the oil-rich Denver-Julesburg Basin in the state’s northeast quarter, data shows. of the Colorado Oil and Gas Conservation Commission.

Industry lobbyists have sought to downplay its large number of approved permits, instead pushing policymakers to roll back environmental protections and climate change commitments in the name of what American Petroleum Institute President Mike Sommers, in a speech to Colorado business leaders last month, called “regulatory and policy certainty.”

In shareholder communications in recent years, however, Colorado oil companies have rarely attributed significant impacts on production to federal and state policy, including a comprehensive new health and safety law passed by Democrats in the United States. Annual General Meeting in 2019. Their 2021 year-end earnings reports, released in March, were full of assurances to investors that they planned to prioritize positive cash flow and shareholder returns, in the part of an industry-wide shift towards greater “capital discipline” after years of lavish reinvestment in new drilling projects.

Brad Handler, a research fellow at the Payne Institute’s Sustainable Finance Lab, concluded in the report that it could be up to a year before domestic oil production can increase significantly as financial and logistical constraints industry are gradually loosening, assuming oil prices remain high.

“These pinch points reinforce the idea that output growth is likely to remain modest and employment gains moderate through 2022,” the report said. “As very high commodity prices persist and belief grows that the industry can achieve several years of higher prices, oil and gas companies, reassured by investors, will be more comfortable spending more aggressively.”

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