The DJ/Niobrara Basin| May 2020

Field Overview

Located mainly in the Northeast of Colorado, the Denver-Julesburg Basin consists of five main oil-producing formations: Niobrara sections A-C, Codell, and Greenhorn. These five plays produce over 90% of Colorado’s oil/gas.

State Drilling Statistics (End of May)

Active Drilling Rigs in Basin- 5
Total Rigs in Colorado- 6
Total Rigs in United States- 301
Total U.S. Rigs down 69% YTD

State Top Producers

Top Oil Producer- Kerr McGee Oil & Gas Onshore LP
Top Gas Producer- Kinder Morgan

Financial & Economic Updates

Water Crisis Solution Fueled by Oil

Colorado’s population was 5 million in 2015, and is expected to double over the next three to four decades. Because of this projection, Colorado has prioritized the problems of drought, climate change, and increased municipal demand. Outside of the state budget, the biggest source of funding for these water projects is the severance tax associated with oil and gas production, which is quickly plummeting thanks to Corona virus. Fortunately, sports gambling was approved in the state early last month in an effort to make up the difference in funding. Unfortunately there are not a lot of sports to bet on right now, therefore no money for the water projects that require about $100 million in funding annually. Best estimates say that the gambling alone will generate no more than $29 million a year.

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State Highlights

Judicial Veto of Approved Gas Wells

In Colorado, Judge Lewis Babcock, a Ronald Reagan appointee, sided with conservation groups ruling that the Trump administration’s approval of 171 proposed natural gas wells neglected to consider the cumulative effects of drilling on climate change and the nearby deer and elk populations. Other actions from federal courts with similar stances range from orders for more environmental analysis all the way to cancellation of oil and gas leases across hundreds of thousands of acres in Western states. US district Judge Brian Morris, an appointee of Obama, was responsible for such lease cancellations. He claims that it risks harm to water supplies and the greater sage grouse. He also struck down a nationwide permitting program for new oil and gas pipelines in a lawsuit against the controversial Keystone XL oil sands pipeline from Canada. Many have accused Morris of acting as an “activist judge.”

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Industry Supports More than Meets the Eye

It has been no secret that the oil and gas industry has been suffering amidst the COVID pandemic and price wars, but what does that mean for communities built around the industry? It may not be completely obvious how drastically the oil and gas industry influences the area around it, but effects from the diminished drill and production activity have started to trickle down to other businesses. Chris Golding, a welder in the DJ basin, has had his hours slow form 100 per week, to about 20-30 hours. Most of those hours are spent on odd jobs serving local businesses making renovations rather than rig and pipeline repairs that he is used to. Justin Mapes used to be a quality control manager for a now defunct oil and gas firm. Today he is attempting to print T-shirts. Jose Casillas owns a mexican restaurant in Evans, but the decreased oil and gas activity has dropped demand for his orders around 60% because companies don’t need the large morning burrito orders. Hotels that normally house workers and traveling employees have only been between 20%-40% capacity with fewer work trucks out in the lot. A lot of communities have been built around oil and gas, and these are perhaps the ones most affected right now.

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Top Oil Producers (2020 cum)

Top Gas Producers (2020 cum)

Refining

Colorado Production

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The information contained in this newsletter is provided by RARE
PETRO Engineering, PLLC via the following sources unless otherwise
noted:

www.eia.gov
www.drillinginfo.com
www.bhge.com
RARE Petro Analytics