By Joshua Lindenstein April 18, 2014
As job creation and development soar along with Weld County’s rising oil and gas boom, one major question looms over the long term: What happens when the boom busts?
A recent six-state study of western oil development suggests that communities have difficulty sustaining growth in income and education once booms end, and some see rising crime rates.
However, longtime local observers say Weld County should weather any slowdown that may come.
Pete Morrell of leadership management development firm Morrell and Associates was Greeley city manager from 1973 to 1986. He said the city has been fortunate to avoid the boom-and-bust cycle, enjoying a more steady level of growth.
“It’s not going to be perfect,” Morrell said. The development might appear supercharged now, he said, but ultimately it is infrastructure the city will need for the long term.
From a strong agriculture sector to the University of Northern Colorado, wind energy and other technology, the county, they say, won’t be awash in tumbleweeds and abandoned buildings if the oil and gas companies pull up stakes and leave.
“The more that you’ve got going on should shield you, theoretically, from an industry that has proven to be very volatile,” says Patty Gude, a research analyst for Bozeman, Mont.-based Headwaters Economics, which authored the study tying counties’ long-term specialization in oil and gas to slower income growth, lower education levels and higher crime rates.
Weld production high
Oil and gas companies, of course, don’t figure to leave Weld County any time soon.
The Colorado Oil and Gas Conservation Commission recently reported 2013 as a record year for oil production, with 64 million barrels produced in the state. Weld County accounted for 51.9 million, or about 80 percent of the state’s production.
With oil and gas companies projecting more than 4 billion barrels available in northeastern Colorado’s Denver-Julesburg basin, that means a supply of more than 80 years is available at current production levels. Even if Weld’s production tripled, from the current 142,000 barrels per day to 500,000, the supply still would last 25 years. That’s assuming further technological advances don’t provide access to other sources of oil beneath Earth’s surface.
For real estate developers, that means a wave of opportunity. At a Northern Colorado Commercial Association of Realtors conference in Loveland last month, CBRE real estate energy consultant Tom Bradley outlined six stages of development in an oil boom cycle, ranging from an influx of traffic and man camps early on to a rush of office building development in later years.
In some ways, Bradley said, Northern Colorado already is in a Stage 6-like environment as post-recession office projects sprout. Vacancy rates are so low, he said, that more building will soon be done on speculation, particularly in the industrial realm.
Bradley said Northern Colorado has many buffers against any future slowdown, although he makes no predictions about how far in the future that might be. The area’s proximity to a large metro area and the fact that Colorado is a nicer place to live than many oil-rich areas make Weld a more attractive place for oil workers to settle down with their families.
In addition, Bradley cited information from Credit Suisse Equity Research that shows the Denver-Julesburg Basin to have the third-best return on investment for oil companies in the country because of the area’s low cost of extraction and the infrastructure that already is in place. That means that if oil prices go south, Northern Colorado has a better chance of weathering the downturn.
Lower education, higher crime
Still, there can be costs associated with long-term oil and gas production.
The Headwaters study looked at socioeconomic data for six western states – Colorado, Wyoming, New Mexico, Utah, Montana and North Dakota – from 1980 to 2011. Counties with higher percentages of personal income produced by the oil and gas industry saw slower wage growth over time along with lower education levels and higher crime rates when compared with other counties in those states.
Weld County shows mixed results for the period. Its inflation-adjusted per capita income rose just $7,100 compared with an average of $18,000 elsewhere. At the same time, the percentage of adults with a college education beat the average, rising 8.8 percentage points versus an average of 8.2 percentage points in the other counties.
Authors of the study note that it doesn’t establish cause and effect, and that there are plenty of differences in the West as a whole now versus 30 years ago that change the dynamics going forward.
Julia Haggerty, an assistant professor of geography who also worked on the Headwaters study, said one scenario of a prolonged oil boom in Weld County could be that the oil and gas industry simply becomes one industry among many that helps the others to grow. But she said it also could lead to a crowding-out effect in which other industries find labor tough to come by.
“The promise that this (boom) will be different has yet to materialize, though it has been made many times,” Haggerty said.
Already, renewable technologies such as wind and solar are grabbing a larger piece of the pie. But even those, said Doug Flanders, director of policy and external affairs at the Colorado Oil and Gas Association, still need to be firmed up by natural gas, which remains less expensive and in greater supply.
Fracking curbs pose threat
Strict regulations or bans on hydraulic fracturing, however, do pose a threat, even in the short term, industry officials say. “Fracking” is the process of injecting a mix of water, sand and chemicals into shale to break it up and release the oil and gas trapped there. That coupled with horizontal drilling – which enables the same production from one well site as from six to 12 vertical wells – has increased the industry’s efficiency and provided access to previously inaccessible reserves.
Voters in several Front Range communities have passed or tried to pass bans on fracking, arguing that it threatens groundwater supplies and is a nuisance to surrounding communities.
Officials from Noble Energy and Anadarko Petroleum, two of the largest oil companies operating in Weld County, did not respond to requests for comment.
But Alex Hohmann, Anadarko’s stakeholder relations manager, speaking at the same NCCAR conference as did Bradley, acknowledged that politics are the biggest threat to Weld County’s boom.
“If it’s voted out, if it’s voted into extreme restriction, that would certainly slow it down,” Hohmann said.
Flanders said companies such as Anadarko have tried to work with communities on issues such as noise abatement, traffic, dust and other issues that come into play around fracking sites to ensure concerns are addressed. Weld County, he said, has been the most active in holding the industry accountable while still cooperating to foster the industry’s efforts.
“They hold our feet to the fire more than any other county, even the ones that want to ban oil and gas,” Flanders said.
After the boom
Still, the question remains. What happens in 10, 20 or 50 years when the boom busts? Wells that are completed can be removed and the land around them restored to its original state. But can the commercial development it brings with it be supported if the industry goes away or slows down significantly?
Former Greeley city manager Morrell believes it can.
“Sometimes you overbuild (during big spurts of growth), and I think that’s what causes problems just about as much as anything else,” Morrell said.
Bradley agreed that much of the onus for responsible development falls on city and county officials to make good long-term decisions rather than making a short-term buck for their municipalities.
“As long as they can be smart about planning and zoning and not just throw things up willy-nilly, I think there’s a way to prepare for when that activity slows down,” Bradley said. “I think and hope and believe that when all this activity dies down it will be better for everyone.”