A recent audit is questioning the economic value of the Denver International Airport (DEN) portfolio of 71 oil and natural gas wells, prompting officials to consider plugging and abandoning some of the currently uneconomic ones.
Denver City/County Auditor Timothy O'Brien last week released a third-party audit of the DEN’s five-year, $3.6 million contract with PetroPro Engineering Inc., which manages the wells. Recommendations were made to improve controls, royalty revenue accounting and generally monitor total costs, and airport officials agreed to all the recommendations, which included examining 20 wells for possible closure.
"PetroPro has conducted a full-curve analysis of all 20 wells in question," said DEN Senior Vice President George Karayiannakis in a letter to O'Brien. "Their analysis shows that two wells are uneconomical and are on the plugging and abandonment list; the remaining 18 wells are still economical based on the latest full-curve analysis” as of Feb. 19.
DEN separately has contracted for a feasibility study by the University of Wyoming for a full-curve analysis of all the airport wells "to determine if additional wells need to be added to the plugging/abandonment list."
Colorado Oil and Gas Association (COGA) CEO Dan Haley said energy development has provided millions of dollars to the local municipality and airport over decades.
"As with all commodity markets, prices fluctuate over time, and oil and gas is no different," Haley said. "It's important to view energy investments over a longer time frame than a year or two. Wells naturally deplete, new wells are drilled and technology advancements in today's industry make modern development that much safer, cleaner and economic."
Last year the airport wells produced $2.3 million in revenue for the local government, and historically those annual proceeds were several times larger when commodity prices were higher. The production on DEN's 53-square-mile expanse pre-dates the development of the international air travel hub 23 years ago. DEN is now the sixth busiest U.S. airport and generates more than $26 billion a year in economic activity for the region.
From 2010 through 2017, production and revenue from the DEN wells have declined. Production in 2010 was 29,000 bbl of oil and 712 MMcf of natural gas, which resulted in $7.2 million of annual revenue. Last year the wells produced 16,000 bbl and 400 MMcf with $2.3 million of revenue.
Currently, the airport owns 71 wells across about 100 acres. It’s the same number of wells that DEN began with in the 1980s. Twenty eventually were plugged and abandoned to build the airport. Subsequently 30 wells were drilled, of which 22 are still producing. The airport has working interest in 27 wells. Five wells were plugged in the past three years because they were uneconomic.
The multi-year contract with PetroPro is to operate the wells through 2021 for an annual fee of $517,000.