Colorado’s overall employment should return to pre-pandemic levels for 2022, but the state’s natural gas and oil sector will likely lag behind other industries in regaining jobs, according to a new report from the University of Colorado Boulder (CU Boulder).

DJ Basin Wells

“Improved prices are clearly what’s driving more drilling and increased production,” Richard Wobbekind, associate dean with CU Boulder’s Leeds School of Business, told NGI. “It’s in a positive direction.”

Wobbekind added, however, that the CU Boulder study — the annual Colorado Business Economic Outlook (CBEO) — shows the state’s oil and gas employment level is at its lowest point in 15 years.

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Brian Lewandowski, executive director of the college’s Business Research division, told NGI that oil and gas companies have been reversing an earlier trend of establishing regional headquarters in the Denver area.

“The fact is that we’ve lost some of those regional headquarters,” Lewandowski said, adding that some oil and gas industry jobs simply will not return to Colorado.

One company focusing its attention outside Colorado is Whiting Petroleum Corp., which divested its Denver-Julesburg (DJ) Basin assets this summer. 

An Uneven Recovery

An analysis that covers 10 industries statewide, the latest CBEO installment estimates that Colorado will regain 73,900 jobs in 2021. Although the 2.7% year/year increase would effectively recoup the total number of jobs the state lost during the pandemic-driven recession, the recovery will be uneven, cautioned the report’s authors. For instance, they do not expect particularly hard-hit industries such as leisure and hospitality to fully recover until 2023 or 2024.

The natural resources and mining industry, another economic sector that sustained heavy job losses in the recession, should return to net job growth for the first time in two years with a 600-job gain in 2022, predicts CBEO. The report states natural resources and mining shed 7,000 jobs in 2020, or 24.3% year/year, and should end 2021 down by a relatively modest 1,900 jobs overall. 

For the purposes of CBEO, the natural resources and mining classification spans oil and gas, minerals and uranium, renewables, wind energy, solar energy, hydroelectric power, and geothermal. The Colorado Oil and Gas Association (COGA) told NGI that the state’s oil and gas industry lost about 9,000 jobs during the first year of the pandemic.

The CU Boulder report does show signs of recovery in Colorado’s oil and gas industry. 

In the case of natural gas, it forecasts statewide gas output of 2 Tcf, valued at $8 billion, for 2022. Right before the pandemic, in 2019, the state produced nearly 2.06 Tcf of gas valued at $5.3 billion, according to CBEO. Colorado’s 2020 gas production slightly exceeded 2.06 Tcf, and the state will likely produce more than 1.93 Tcf in 2021, the report said.

For crude oil, the report projects Colorado will produce 160 million bbl next year — 17% lower than the record-setting 192.4 million bbl the state produced in 2019. On a value basis, the CU Boulder study anticipates $9.6 billion worth of crude output in 2022 — 4% lower than the nearly $10.2 billion figure for 2019. It notes that Colorado produced 171.5 million bbl of oil in 2020 and is on track for 147.6 million bbl this year.

The “combination of additional output and higher prices will drive production values to record levels in terms of dollar value,” said Wobbekind.

He attributed the oil and gas production ramp-ups, despite the industry workforce contraction since 2019, to well efficiency improvements and lower per-barrel well costs over the last price cycle — and, of course, higher commodity prices.

“I think that it’s still quite profitable at this price level for what they’re pulling out of the ground, but the issue is how many holes they can poke,” he said, referencing recent changes to Colorado’s oil and gas regulatory system.

A New Mandate

In 2019 Colorado’s Democrat-controlled legislative and executive branches enacted Senate Bill 19-181 to overhaul how the state’s oil and gas industry is regulated. The CU Boulder report states that the new system, which took effect in January, changes the Colorado Oil and Gas Conservation Commission (COGCC) mandate from “fostering” to “regulating” the oil and gas industry.

The overhaul reflects ongoing discord between Colorado’s energy and environmental interests, which Wobbekind said is “probably the most contentious issue in the entire state.” Biden administration plans to reduce drilling on federal leaseholds have also contributed to, as one CEO put it earlier this year, “‘a lot of acrimony and angst.’”

The CBEO points out the new state regulatory system gives local governments more regulatory oversight over the industry, restructures the COGCC makeup, establishes larger setbacks, collects information on cumulative impacts, and overhauls permitting to more closely focus on operator planning and environmental and wildlife protection measures.

Besides COGCC, the Colorado Department of Public Health and Environment this year began collecting methane emissions data via aerial surveys of oil and gas wells in the DJ Basin. 

Wobbekind noted that, barring the new regulatory system, the CBEO researchers who prepared the report’s oil and gas section likely would have projected higher 2022 production levels. The models “had shown a very high correlation between higher prices and higher output, with higher prices driving more production,” but activity could be higher without the new restrictions, he said.

Lewandowski told NGI the pandemic-related reduction “was almost all economic in nature” but, “with the rebound, we do see the new regulations holding some things back.”

Dan Haley, COGA’s CEO, told NGI that the state’s regulatory changes “have added more than $200 million to the cost of doing business in Colorado, and that number continues to climb as rulemakings continue.”

Haley said that Colorado’s rig count “remains below pre-pandemic levels” as other U.S. oil and gas basins recover.

On Dec. 10, Baker Hughes Co. reported 12 rotary drilling rigs operating in Colorado — a five-unit increase year/year. During the corresponding week in 2019, however, 23 rigs were running in the state, according to NGI’s review of Baker Hughes’ historical rig data. From a broader perspective, Baker Hughes’ latest weekly rig count shows a 73% year/year increase in land rigs for the United States as a whole.

“The fact is, Colorado’s operators are producing some of the cleanest molecules of energy on the planet and we can play an important part of our global energy solution, but unnecessary red tape and constant rulemaking hinders that progress,” said Haley. “At one point, we had more rulemakings taking place in downtown Denver than we had rigs running in the state.” 

Haley added, however, that the state’s operators “have identified a path to securing permits for new development, and we expect that will only increase as we forget ahead in this new reality.”