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Environmental Groups Sue BLM Over Piceance Projects

Four environmental groups filed a lawsuit against the Interior Department's Bureau of Land Management (BLM) in federal court on Monday, alleging the agency illegally approved dozens of oil and gas projects in the Piceance Basin in western Colorado without analyzing the impacts on air quality.

The lawsuit was filed in U.S. District Court for the District of Colorado by the public interest law firm Earthjustice on behalf of the Wilderness Workshop, the Natural Resources Defense Council, the Sierra Club and the Wilderness Society.

Michael Freeman, Earthjustice's lead attorney on the case, told NGI's Shale Daily the issue centers on air pollution in western Colorado. He contends that BLM's Colorado River Valley Field Office in Silt, CO, violated the National Environmental Policy Act when it approved 34 oil and gas projects in the Piceance Basin without performing an environmental impact assessment. According to Freeman, the projects collectively contain more than 1,400 wells.

"The BLM has been saying for awhile now that they're going to undertake a broad analysis that may fix the problem, but they haven't done so, and we don't know when they will fix it or whether what they're planning to do will be adequate to fix it," Freeman said Tuesday. "Until then, the agency is just proceeding with business as usual, continuing to approve more drilling permits and more drilling in the area without grappling with the air pollution problem. We've sued to force the agency to address this problem."

Dave Boyd, spokesman for the BLM's Colorado River Valley field office, told NGI's Shale Daily that the agency would not comment on pending litigation.

The complaint mentions three projects -- involving Williams Production RMT Co., a subsidiary of Williams Cos., in 2008; and Antero Resources and Laramie Energy in 2010 -- that were approved by the BLM and contain about 400 oil and gas wells. Earthjustice said the BLM was relying on an air quality analysis it performed in 2006 for the Roan Plateau oil and gas project.

"The rules are pretty clear and they're not complying with them," Freeman said. "They need to go back and do the analysis that should have been done before they approved these projects. That analysis will help them determine whether additional mitigation needs to be done and identify what steps might help clean up the air in that region of Colorado."

Freeman said a court date had not yet been set.

After increasing at an annual clip of more than 20% between 2003-2008, natural gas production in the Piceance Basin slowed to just 9.3% in 2009, and 1.8% in 2010 (to an estimated 720.5 Bcf).

Williams, one of the leading producers in the Piceance, saw its overall net production (including liquids) in the region decline 3.4% in 2010, falling to 245.9 Bcfe from 254.6 Bcfe the year before. Williams averaged 11 rigs in the Piceance in 2010, and still had 12 rigs working the area as of June 10, according to Smith Bits data. Nine of those rigs are in Garfield County, which features acreage in the "Piceance Valley," with the other 3 working the "Piceance Highlands" area of Rio Blanco County.

In stark contrast, Bill Barrett Corp., who partners with Williams on several projects, saw its net Piceance production grow to 48.1 Bcfe in 2010, up 32% year-over-year.

Producers have been sending mixed signals about the economics of the Piceance in recent quarters. In its 3Q10 earnings call, Berry Petroleum indicated that they didn't think they would see prices high enough over the next 18 months to justify a "full-blown" reinvestment in the Piceance. Yet Williams announced on its 1Q11 call that it is earning a 44% after-tax rate of return on a typical Piceance Valley well at a $4.85 Nymex strip. That includes a $0.73/Mcf benefit from liquids production.

Part of the reason for mixed messages on Piceance economics is likely because of location. Wells in the Highlands section of the play tend to be be less profitable than those in the Valley, because Highlands wells require more vertical drilling. Williams did not show comparative economics for its Piceance Highlands wells in its 1Q11 presentation, but in 3Q10 the company took a $175 million impairment charge related to capitalized costs of acquired unproven reserves in the Piceance Highlands that it acquired in 2008.

According to NGI's Shale Daily Unconventional Rig Count, there were 30 oil and gas rigs operating in the Piceance Basin for the week ending June 10, a 3% increase from last year.

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