Oilmen like to say that each well they drill increases their knowledge of the formation beneath them.
Technology to dive deep and far, to shatter rock and unleash oil, has been at hand for years. More recently, operators have learned new lessons on sending a drill bit out horizontally for miles. The more they know, the less expensive and more effective drilling becomes.
Operators are now applying that knowledge to the ground beneath the Powder River Basin.
Companies are yearning for a future when knowledge and technology will intersect with higher oil prices to unlock the northeast Wyoming basin as Texas producers have opened up the Permian over the past two years.
It’s a glimmer of hope in a depressed economy. As operators get better at reducing the cost to produce sweet crude or natural gas, production will eventually rise and spending will hopefully return to a depleted state. But it’s unclear what the intersection would mean for the rank-and-file workers who depend on the oil and gas industry for their livelihood.
In April, the number of oil and gas jobs experienced a year-over-year increase for the first time since January 2015, when the price of crude began to slide, according to the state’s Economic Analysis Division. The rig count has hit 25, up from seven last year, and, as expected, jobs flowed in the wake of that increased activity.
But some see horizontal drilling, fracking and the tendency to drill multiple wells on a single pad as a blessing and a curse. It’s great for the industry but a challenging trend for the roughnecks who have been waiting on the return of jobs in the Cowboy State.
Others argue jobs have already been affected by new technology in the last 10 years. As bad as things have been for workers in Wyoming, they say, any return will be, by comparison, hopeful.
Jobs reveal the health of the Wyoming economy, said Jim Robinson, principal economist for the Economic Analysis Division.
“The number I look at first, that’s most important to the state, is oil and gas jobs,” he said. “That’s what it really comes down to, not the rig counts or the price of crude oil. But when the numbers show up for oil and gas, that’s what’s important.”
A few years ago, that job count came close to 20,000. In April, only 10,900 were employed across the state.
For Robinson, the increase in unconventional drilling has already affected the industry in Wyoming. When gas drilling took off in the Pinedale region in the mid-2000s, the number of rigs out in the field was lower than expected as the move to drill multiple wells in a single location made rig activity more efficient.
But the jobs held on, as gas fields require more manpower to maintain a network of smaller pipelines to carry gas to larger conduits, he said.
As the price of gas began to decline, those rigs shifted, and drilling picked up in the oily eastern edge of the state. The rig count held, but jobs declined in the field as operators employed unconventional drilling and needed fewer workers, Robinson said.
Now, rigs have become as much as three times as productive since 2014. Downturns teach lessons, and a clear takeaway from better prices has been how to survive with less.
The direct impact of that trend on jobs is unknown right now, said Rob Godby, director of the Center for Energy Economics and Public Policy at the University of Wyoming.
In the short term, oil and gas jobs are going to depend largely on operators’ decisions, he said.
“l think it comes down to what technologies and production choices are made by the specific firms in the Powder River Basin,” Godby said in an email. “It could be the case that labor saving technologies are employed more widely, or that more traditional unconventional methods are used that use the same amount of labor that we’ve seen previously.”
However, the long-term trend in the industry, and in most industries, is toward reduced manpower as technology improves and the cost to deploy new methods becomes cheaper, he added.
“The long-term labor trend is clear in oil and gas. We have seen significant declines in production cost in the oil and gas sector,” Godby said. “Part of these reductions has certainly been the use of less labor. The drive to reduce costs to an absolute minimum has reduced the amount of labor employed in that sector over time. There is no reason to expect that longer-term trend won’t continue. One of the largest controllable costs an extraction firm has is the choice of labor employment.”
EOG Resources, one of the more respected players in the state for its creativity and discipline, is the largest oil producer in Wyoming and was the leading player in both the DJ and Powder River basins last year.
The Houston-based firm has brought operating costs down 22 percent since 2014 and is focused on “premium wells” — those that promise the most bang for the buck. It’s also one of the leaders in horizontal drilling industry-wide, from the Rockies to operations in the prolific Permian and the reliable Bakken.
“EOG is a really interesting company,” said Ron Auflick, who leads operations for Casper-based Wold Oil. “Last year, when we really had our downturn, they were the only company drilling wells.”
As the price of oil dropped off, operators in the PRB scaled back, halting a rising tide of horizontal drilling that was clarifying the mysteries of that play. Though industry advancements will have an uncertain impact on jobs, they are crucial for an industry eager to move past the downturn and many have its sights set on northern Wyoming.
Applications to drill have increased so far this year from the first half of 2016 by nearly 1,000, mostly for unconventional drilling.
“The vast majority of our (applications) are for horizontal wells,” said Kim Mazza, spokeswoman for the Wyoming Oil and Gas Conservation Commission. “Production increases per well as operators can do multiple fracs along the formation they are targeting versus drilling a vertical well for each.”
Still, operators are somewhat locked in by the price constraints right now. The ability to tap the PRB is just out of reach, said Peter Wold of Wold Oil.
“One of the things that changes the game is the economics of horizontal,” he said. “You figure out what kind of bits you are going to use, what kind of downhole motors you use, what drilling muds you use. All of that is so key to the success and the economics of a well.”
Companies like Anadarko or EOG are able to spend $20 million on a frontier well, a cost that can’t be recovered by production. But those wells do tell a story to companies that have interest in them. It’s just a matter of patience.
“One of the things that’s been frustrating for us is we hoped there would be a lot more drilling going on by other companies in our area that would help us,” Wold said. “A year ago there wasn’t anybody drilling in the Powder River Basin. Didn’t matter what formation. They weren’t there. So it’s been slow. The development of those processes has been slow.”
On schedule to decline
The future prospects of the PRB are more hope than hard currency. Nobody knows when the price of crude will rise. But tepid expectations so far this year have held true, according to Don Richards, budget and fiscal administrator for the Wyoming Legislative Services Office, which creates yearly forecasts for Wyoming’s income.
The West Texas Intermediate price of crude had held for much of the first quarter at around $50 a barrel, with Wyoming trailing between $5 to $8 of that price, Richards said.
The WTI spot price hit $45 on Wednesday, meaning Wyoming operators are looking at a price of about $40 for their own sweet crude, making many wells uneconomical. Production is on track to see another decline in 2017.
But horizontal drilling is a key part of understanding the revenue picture right now, Richards said. The decline curve for unconventional wells is much steeper, with a front end flush or oil that declines rapidly one to three years into production.
“The wells that went on line through 2014 have some pretty steep decline curves, and of course we had a lot more rigs in the state in some of those years. As a result, we see that decline,” he said.
Richards forecasts a year-over-year decline in production. The new rigs and new wells will not be enough to make up for the decline since the boom, he said.
And as new horizontal wells come online, the problem becomes one of momentum. Wyoming needs new rigs to continue rising into the second half of the year, to carry production forward for those early-rush, quickly declining new wells, some say. That’s not expected with current prices.
However, oil production declines are not abnormal. Wyoming had two decades of yearly production drops until 2015, Richards said. That briefly picked up before the price dive.
What about jobs?
What do these trends mean for workers? There’s no clear answer for the near future, though ultimately the workforce is likely to decline, giving way to automation and increased efficiency.
“You still need to have your basic crews, hands-on guys that are on the rigs,” said Robinson, the state economist. But technology and efficiency always eat away at the workforce, regardless of the industry, he said.
Judging by what has happened in other regions, like West Texas’ Permian and Oklahoma’s STACK, operators can and will find a way to produce, and they’ve learned to operate tight and disciplined in a downturn. But the pace of the rebound in Wyoming may be significant for the labor force trend, said Godby, the UW economist.
“[Jobs] will depend on the choices that firms make as they move into the Powder River Basin and other production areas in Wyoming,” he said. “But it may also depend on when they move in. The longer that development takes to occur, the more likely it is that more firms will adopt labor-saving technologies, following the general trend in the sector. In that case, it could be that as production comes back to Wyoming, it would be with much less labor than previously seen.”