Wyoming’s smaller oil and gas operators pay attention when big players move, tracking where opportunities may arise to get in or out of a play.
When the CEO of BP announced that the oil and gas company’s lower 48 headquarters would relocate from Houston to Denver, a hub central to two-thirds of its operation, production and reserves, he called it a “homecoming.”
And Wyoming noticed.
The bust has lingered longer in Wyoming than it has in the resource plays of west Texas and Oklahoma, but the news of BP’s intention to lead operations from Denver beginning in 2018 may be a sign of the worth of the Rockies, and particularly Rockies natural gas, long term.
There is an obvious boon to Wyoming if BP increases activities in the West. BP is the largest operator in the gas fields of the Wamsutter field, and low gas prices have taken a hefty toll on Wyoming’s revenue streams. But the company’s commitment in the Rockies is also a rising tide floats all boats scenario, said Steven Degenfelder of Casper-based Kirkwood Resources.
BP has identified about 2,000 potential horizontal drilling locations in the Green River Basin, with a potential for 1.4 billion barrels of oil equivalent, according to company reports.
“These guys are doubling down on natural gas,” Degenfelder said. “The areas that they want to take a big stand in is the San Juan Basin and Washakie Basin ... both areas that are predominately gas, and what that tells us is there could be a bit of a renaissance.”
That revival could mean a strengthening price for natural gas, from the current high $2 range, closer to $4.
“That would be an opportunity for us,” he said.
BP has consistently expressed the importance of natural gas in the future energy mix, and its production will shift from 50 percent natural gas to 60 percent in a matter of years.
“For the next few decades, oil and gas can remain the dominant form of energy powering the global expansion and we’ll see less coal and more gas,” said CEO Bob Dudley in a recent speech about the company’s 2017 outlook. “Last year gas use grew 1.7 percent while coal declined by 1.8 percent, the largest fall on record.”
At times in 2016, natural gas exceeded coal as the predominant source of electricity for the first time on record. Exports also hit record highs on increased Mexican demand.
Reading the writing on the wall, BP is leaning toward a winning commodity as the importance of reducing fossil fuel emissions impacts markets.
“The scale of energy demand means that the world will continue to need energy from all sources, but the balance of the energy mix will need to change,” Dudley said.
Natural gas took a decline in recent years following a national glut. Not only were places like the Marcellus Shale in Pennsylvania producing unheard of volumes, but technology driving greater oil production produced residual gas as well, Degenfelder said.
Prices have rebounded, but not to their former glory.
Now some analysts believe the extra gas from oil production is no longer enough to feed demand.
As more of the gas developed in the East feeds liquefied natural gas terminals, exports and eastern markets, the West may lose some of the steep competition that flummoxed western markets in the past, Degenfelder said.
If bigger players push to gas, smaller producers of the West may follow the tide.
“[We] try to predict what is going to happen, even if it is out of our hands …” he said. “Because that has a direct correlation to how profitable our business can become, or not become.”
Follow energy reporter Heather Richards on Twitter @hroxaner