Oil and Gas Development in Colorado Fact Sheet No. 10.639

Consumer Series|Energy

by Cary Weiner* Oil and gas development in Colorado has grown rapidly in recent years. The combination of hydraulic fracturing, horizontal drilling technologies, and oil prices have made the extraction of resources in the state economically attractive. This growth—particularly when development occurs close to population centers—has led to questions about the process of oil and gas development. This fact sheet places current industry practices for hydraulic fracturing and horizontal drilling in the context of overall development of oil and gas resources in Colorado over time. It focuses on the basic drivers behind development and the process of drilling, extracting, and distributing the resources. Research is currently underway to more definitively understand and quantify potential impacts to air and water from oil and gas development in the state.

Quick Facts • In 2012, Colorado was the 6th leading producer of natural gas and the 9th leading producer of oil in the U.S. • In Colorado, natural gas is produced primarily through hydraulic fracturing and coal bed methane recovery while oil is produced primarily through hydraulic fracturing. • Over 90% of new oil and gas wells in Colorado utilize hydraulic fracturing, and most of the recent growth in the industry can be attributed to the now cost-effective combination of hydraulic fracturing and horizontal drilling.

Basic geology of Colorado’s oil and gas deposits Colorado is home to 10 of the nation’s 100 largest natural gas fields and three of its 100 largest oil fields. This abundance of resources is due to the geology of the state, which includes the large Niobrara shale formation in northeast Colorado, numerous sedimentary basins throughout the state, and significant deposits of methane-bearing coal in northwest and southern Colorado. Oil and gas are often found together in relatively shallow underground ‘traps’ below rock formations, but natural gas can also be found on its own either in very deep accumulations where the earth’s temperature is hotter or in coal seams as coalbed methane (CBM). The Niobrara shale is one of many shale formations across the country in which oil and gas development has accelerated through the combination of hydraulic fracturing and horizontal drilling. The Denver-Julesburg basin within the Niobrara—specifically Colorado State University Extension energy specialist 9/2014 *

Map of Colorado sedimentary basins. Source: Colorado Geological Survey

the Wattenburg field—has seen much of this activity. Other basins such as the San Juan in southwestern Colorado and the Raton in south-central Colorado contain large quantities of CBM, while the Piceance basin (pronounced ‘pee-awnts’) in western Colorado is home to large amounts of natural gas that has been extracted with conventional drilling techniques.

• The state exports about 3/4 of the natural gas it produces while crude oil produced in the state offsets about 1/3 of state consumption.

State oil and gas production Development of oil and gas in Colorado began near Canon City in 1881, following the initial exploration wells drilled there in 1864. More recently, gas production began to increase steadily in the 1990s while oil production was relatively stagnant from

© Colorado State University Extension. 9/14. www.ext.colostate.edu

Source: U.S. Energy Information Administration

the 1980s through 2007. From 2007 to 2011, crude oil production in Colorado rose 64 percent and marketed natural gas production rose 27 percent (U.S. Energy Information Administration). The development of oil and gas is dependent upon a number of factors, including geology, the cost of extraction and distribution, and commodity prices. Colorado was the 6th leading producer of natural gas in the country in 2012 and has an estimated 24.8 trillion cubic feet (tcf) of proved reserves. For perspective, the entire U.S. consumes approximately that much in one year. The uptick in natural gas production in the state in the early 1990s was primarily the result of CBM, first in the San Juan basin and then in the Raton basin. Nowadays, CBM accounts for 40‑50% of all natural gas production in the state and Colorado is responsible for more than 25% of all CBM production in the U.S. The continued production of natural gas in the state (despite falling natural gas prices since the peak in 2008) is the result of a lag between price and production even after use of natural gas has been expanded (particularly in the electric utility sector). In terms of oil, Colorado was the 9th leading producer in the country in 2012 and has an estimated 423 million barrels of proved reserves. This is approximately 6% of what the entire U.S. consumes in a year but may be a conservative estimate as some analysts suggest that the Niobrara shale alone may contain 2 billion barrels of oil (representing over 30% of annual U.S. consumption). The dramatic uptick in Colorado’s production in the late 2000s was a result of both increased oil prices and the cost-effective application of hydraulic fracturing and horizontal drilling mainly in the Niobrara. In fact, the Wattenberg field in the Denver-Julesburg basin made up 75% of all oil production in the state in early 2013 (Colorado Foundation for Water Education). As of September 2014, 87% of Colorado’s 52,556 active oil and gas wells were located in six counties, with 62% of all active wells in Weld and Garfield counties alone.

How oil and gas is produced

Source: U.S. Energy Information Administration

Wells can be drilled vertically or directionally (diagonally) as well as horizontally. In vertical drilling, a borehole between 16–20 inches in diameter is drilled to varying depths below the

Source: Colorado Oil and Gas Conservation Commission

surface depending on the geology of the formation. Wells in the Raton basin tend to go only 2,500 ft. underground, while wells in the Piceance basin can be found as deep as 12,500 ft. Horizontal wells involve drilling vertically or directionally until the target formation is reached and then kicking off horizontally to access the resource. The horizontal portion of a well can extend thousands of feet in a given direction. Because much more of the well is embedded in the target formation where the oil and gas exists, horizontal drilling allows for higher potential production from a given well. Multiple horizontal wells can also be drilled from the same well pad, allowing considerable resources to be accessed from a single site. Drilling can take from days to months depending on the characteristics of the formation, the depth of the wells, and the number of wells to be drilled on a given well pad. Once the well operator verifies that a commercially viable quantity of gas or oil exists at the well site, the well will be ‘completed’. Well completion involves strengthening the well with casings, testing pressure and temperature, creating flow of the resource

Diagram courtesy of Colorado Oil and Gas Conservation Commission (not to scale)

into the well, and regulating the flow of the resource. A number of different casings are used to ensure the integrity of the well and to avoid mixing fluids and gases within the well with materials outside the well. More specifically, surface casing is a cemented steel casing that, in Colorado, must go a minimum of 50 feet below any freshwater aquifer to prevent infiltration of fossil fuel or other materials into the aquifer. Production casing runs all the way into the producing formation and is also cemented to isolate the producing formation from surrounding formations. Once all the casing is in place, tubing to carry the oil and/or gas is inserted down the length of the well. Then the production casing is sealed off with a plug and any surrounding cement or other barrier between the formation and the well is perforated. Half-inch to 1-inch holes are made by either small ‘bullets’ or via electrically ignited charges down the hole to allow the oil and/or gas to flow into the well from the adjacent rock. Rare ‘open hole’ completions, on the other hand, can be used in structurally sound geologic formations in which the resource is extracted directly into the bottom of the well. Pressure and the rate of oil and gas production coming out of the well are regulated at a surface-level wellhead. While natural gas-only wells often do not require any lifting or treatment for the resource to enter and rise up through the well, some ‘tight’ natural gas wells and many mixed oil and gas wells do require some sort of lifting or treatment. Older wells for which the resource has been extracted to such an extent that pressure has decreased are

also candidates for lifting or treatment. Lifting is used only when oil is the primary resource being extracted from a well and most commonly includes use of a pump jack. Treatments will vary according to a number of factors, but commonly include the injection of hydrochloric acid, water, gases (including natural gas associated with an oil well as well as CO2), or other materials downhole. Hydraulic fracturing —the injection of water, proppant (usually sand), and various chemicals downhole to pressurize the well, fissure and prop open the surrounding producing formation, and allow for the efficient extraction of oil and gas—has become an extremely commonplace treatment in Colorado and elsewhere where shale resources exist. Natural gas can also be produced as CBM through a different set of extraction methods. CBM production involves extracting methane from existing coal seams. In the past, CBM was the cause of numerous explosions in underground mines. It is only during the last twenty-five years that it was realized that CBM could be captured and used as a resource. CBM is extracted via a vertical well much like conventional natural gas. The big difference is that water must be pumped out of the formation in order to allow the methane that is absorbed onto the coal particles to escape and travel to the surface. As a result, CBM wells actually increase in production as more and more water is removed from the formation and a decline in production is experienced late in the life of a well.

CBM extraction. Source: Montana State University Science Education Resource Center

Fracturing the formation Over 90% of new oil and gas wells in Colorado utilize hydraulic fracturing (fracking), and most of the recent growth in the industry can be attributed to the now cost-effective combination of fracking and horizontal drilling in low-permeability shale plays. In fact, this combination of technologies is the primary reason why in 2013 the U.S. surpassed Saudi Arabia as the world’s largest oil producer and is projected to soon surpass Russia as the world’s largest producer of oil and gas combined (U.S. Energy Information Administration). Of course, fracking has also been the subject of intense debate in Colorado and other parts of the country, as previously uneconomical resources closer in proximity to population centers have now become cost-effective sites for development by industry and questions about the effect of fracking on the environment and human health have arisen. Fracking involves injecting a solution of approximately 90.5% water, 9% proppant (usually sand), and 0.5% chemical additives into a well to pressurize and make small (0.2”) fissures along a typically horizontal span of the target formation. Fractures are estimated to extend up to 300 feet from the center of the wellbore as demonstrated via evaluation of microseismic data. Application of fracturing techniques to stimulate oil and gas production began to grow rapidly in the 1950s, although experimentation dates back to the 19th century. Starting in the mid-1970s, a partnership of private operators, the U.S. Department of Energy, and the Gas Research Institute (GRI) endeavored to develop technologies for the commercial production of natural gas from the relatively shallow Huron shale in the eastern United States. This led to advancements in downhole drilling motors and other equipment that made fracking and horizontal drilling more economically feasible. When pilot wells drilled with these technologies in Texas’s Barnett shale proved immensely productive by the early 2000s, the application spread to other shale formations across the country (U.S. Energy Information Administration).

Where do the resources go once extracted? Once extracted from a well, desired natural gas may be heated and ‘scrubbed’ (if necessary) near the wellhead to remove sand and ensure the smooth flow of gas through a gathering line. Once in the gathering line, it will be transported via a set of pressurized compressor stations until it reaches a processing facility which removes liquids and sometimes sulfur. These liquids can include ethane, propane, and butane which can be sold separately in the marketplace. Heating, scrubbing, and treatment may also take place at intermediary stations along the gathering line before entering a processing plant and distribution pipelines. In some instances, natural gas may be pure enough when extracted to enter distribution pipelines with little to no processing. In addition, some recovered natural gas may be used onsite to fuel drilling rigs. The U.S. contains over 300,000 miles of inter- and intra-state natural gas pipelines. Colorado is home to the western end of one of the largest pipelines in North America, called the ‘Rockies Express’. The Rockies Express was completed in 2009 and can transport up to 1.8 billion cubic feet (bcf) of

Source: U.S. Energy Information Administration

natural gas per day between northwestern Colorado and eastern Ohio. Of the approximately 500 natural gas processing plants in the U.S., about 40 are located in Colorado. Total processing capacity almost doubled in Colorado between 2004 and 2009, when it reached 4.4 bcf per day (U.S. Energy Information Administration). If natural gas was produced as a by-product of targeted oil extraction (‘associated’ natural gas), it may be ‘flared’, or burned off in a controlled fashion. Burning the gas actually results in less greenhouse gas and pollutant emissions than simply allowing the raw methane to leak into the atmosphere. Flaring is a particularly common practice where natural gas infrastructure has not been put into place because development in an area is new or is not cost-effective for the industry. In Colorado, a very rough trend between crude oil production and gas flared can be seen. The amount of natural gas flared in Colorado has ranged between 0.08% and 2.55% of dry gas produced in the state from 1982‑2011. By contrast, almost 80,000 Mmcf of natural gas was flared in North Dakota in 2012, representing 52% of total dry natural gas produced that year in that state (U.S. Energy Information Administration).

Crude oil follows a different pathway to the marketplace once extracted. Because oil is often produced from a well alongside natural gas and water, many wellheads use heat to separate these three streams. Once separated, the natural gas will either be processed and distributed, flared, used to fuel drilling rigs, or reinjected along with water into the producing formation to enhance the oil recovery. The oil is then typically stored in large steel cylinders in proximity to the well pad. Because fewer oil pipelines exist (about 180,000 miles) than natural gas pipelines, crude oil in Colorado is usually pumped from the storage tanks into trucks and driven to a refinery for further processing into gasoline, diesel, lubricating oil, and other common products. The transport of crude oil via rail is also becoming increasingly common in the U.S. and Canada. Colorado has just two petroleum refineries accounting for just over 100,000 barrels per day in refining capacity (0.5% of the 17.8 million barrels refined per day nationwide) (U.S. Energy Information Administration). All told, Colorado is a net exporter of natural gas but a net importer of crude oil. The state exports about 3/4 of the natural gas it produces while crude oil produced in the state offsets about 1/3 of state consumption.

Plugging wells and reclamation The surface landowner can influence the type and extent of reclamation activities. Requirements can vary depending on whether the disturbed area from a well is on private or federal land. In Colorado, reclamation activities which occur on private and state lands are regulated through the Colorado Oil and Gas Conservation Commission. Reclamation activities occurring on federal lands are regulated through the Bureau of Land Management and U.S. Forest Service. Interim reclamation will occur during the productive life of a well. The objectives of interim reclamation are to reestablish vegetation, control weeds, re-contour surfaces, and restore the ecological functions of the disturbed area. Reinstating

the disturbed site to its original state is the overall goal of final reclamation. This includes restoration of the surface land, natural resources such as crop production or wildlife habitat, and visual aesthetics. After a well has become cost-prohibitive for an operator to continue operation, wells must be plugged. ‘Plugging’ a well involves sealing the well bore at multiple depths to prevent possible contamination of aquifers or formations outside the producing formation according to state regulations. While cement is the most common plugging material used to seal the wells, drilling mud, bentonite, and mechanical plugs also are used frequently in conjunction with cement. In wells plugged prior to the more modern regulations and standards set in the 1950s and onward, many wells used plugs consisting of brush, wood, paper sacks, linen, or any other material that could be pushed into a well to form a basis for the dumping of one or two sacks of cement (National Petroleum Council, 2011).

Conclusions

References Colorado Foundation for Water Education (2013). Do Oil and Water Mix? Headwaters Magazine (Fall 2013) Colorado Oil and Gas Conservation Commission (2001). The Orderly Development of Coalbed Methane Resources from Public Lands. Access 9/18/14 from: http://cogcc.state.co.us/ Library/HouseResources090601.htm National Petroleum Council (2011). Plugging and Abandonment of Oil and Gas Wells. Accessed 9/18/14 from: www.npc.org/Prudent_DevelopmentTopic_Papers/2-25_Well_Plugging_ and_Abandonment_Paper.pdf U.S Energy Information Administration (2011). Natural Gas Processing Plants in the United States. Accessed 9/18/14 from: www.eia.gov/pub/oil_gas/natural_ gas/feature_articles/2010/ngpps2009/ rockies.cfm U.S. Energy Information Administration (2011). Review of Emerging Resources: U.S. Shale Gas and Shale Oil Plays. Accessed 9/18/14 from: www.eia.gov/ analysis/studies/usshalegas/

Oil and gas development has a long history in Colorado. Natural gas is produced primarily through hydraulic fracturing and coal bed methane recovery, and oil is produced primarily through hydraulic fracturing. Extraction of these resources depends on geology, the cost of extraction and distribution, and commodity prices. Oil and gas resources are processed and distributed via a complex infrastructure that is relatively robust in Colorado. Reclamation of oil and gas wells begins after a well is completed but final reclamation occurs only after a well is plugged. Research is currently underway to more definitively quantify impacts to air and water from oil and gas development in the state.

Colorado State University, U.S. Department of Agriculture and Colorado counties cooperating. CSU Extension programs are available to all without discrimination. No endorsement of products mentioned is intended nor is criticism implied of products not mentioned.