Oil and gas prices have collapsed in the past couple of years, leading to fewer jobs in Southwest Colorado and concerns about how fast the industry might rebound.
In La Plata County, no more than 20 wells have been drilled each year since 2012, and the number of jobs has fallen from about 690 in 2011 to 580 in the second quarter of 2015, according to the Colorado Department of Labor and Employment.
After oil and gas jobs in La Plata County peaked in late 2008 when 740 people were employed in the industry, employment numbers have remained fairly stable. No fewer than 625 people were employed in the industry until 2013.
When the oil and gas industry is adding jobs, it can have a positive ripple effect through the economy. For every high-paying oil and gas job added, it helps support about 2.5 jobs in the community, said Laura Lewis Marchino, assistant director at the Region 9 Economic Development district.
The opposite is true when the industry lays off employees.
If the community lost 100 oil and gas jobs, the top five industries that could see jobs losses would include oil and gas support services, commercial building maintenance, restaurants, real estate and hospitals, Roger Zalneraitis, executive director of the La Plata Economic Development Alliance, said in an email.
At the same time, declining production will lead to a tight budget for La Plata County – and it might not turn around quickly.
Taxes from natural gas are predicted to drop from 41 percent of the county’s property tax revenue in 2015 to 30 percent in 2017, reported during La Plata County Commissioner Gwen Lachelt’s State of the County address.
“This is not a good combination of factors facing us: job loss, wage loss, royalty payment loss, tax loss. Our economy is relatively diversified, but not enough for us to avoid some impact from all this,” Zalneraitis said.
Oil and gas job losses in the San Juan Basin, which includes La Plata County and San Juan County, New Mexico, are difficult to track because companies operate on both sides of the state line and they are not required to immediately divulge specifics to the public. Industry data from the state’s Department of Labor and Employment is available through mid-2015.
But layoffs have been announced in the last six months.
M3 Midstream reported last week it would close its Durango office, which employed 49 people. A third will relocate to Houston, a third will continue working through May and a third lost their jobs.
BP announced in January it would lay off 4,000 people globally. The company employs about 300 in the San Juan Basin, but the company refused to comment on job cuts.
“We are not giving a running commentary on numbers. Nor are we breaking out head count reductions by regions,” said company spokesman Brett Clanton.
ConocoPhillips, Halliburton and Baker Hughes also laid off people in San Juan County, New Mexico, during 2015.
Not only do cuts in New Mexico hurt La Plata County because many local oil and gas companies cross the border for work, but Durango is also a destination for people from Farmington who come to visit or buy a house.
“When their economy suffers, it hurts our restaurants, Main Street shops, ski area, train and lodging,” Zalneraitis said.
While companies are cutting back, they are not plugging wells because of the downturn, and will likely keep the wells they have, said Bill Clark, owner of A-Plus Well Services in Bloomfield. Business is slow at A-Plus, a company that services and plugs wells. As a result, it has laid off some staff and cut its hourly rates by 10 percent, he said.
“Everybody is slow; nobody wants to spend money,” he said.
Wells must be plugged when they are depleted or when they have a mechanical failure.
The decline of the industry is similar to the bust of 1985 because the industry is losing jobs at the same pace and the same percentage of the workforce, said Sarp Ozkan, senior energy analyst at Ponderosa Advisors in Denver.
He predicts the price of oil could fall to between $20 and $30 a barrel and the price of natural gas may dip below $2 again. From 2014 to 2015, natural gas prices fell from $4.57 to $2.27 per thousand cubic feet at the Ignacio-Blanco hub. In December, the national natural gas price fell to $1.99 per thousand cubic feet.
“We may have not seen the bottom yet,” Ozkan said.
But it is possible that oil prices could get back to $46 a barrel this year, he said. If some companies go bankrupt, it might reduce the glut of oil on the market and raise prices. But those companies might continue producing after their debt has been erased by declaring bankruptcy.
A full recovery will likely happen in three to seven years, and that will allow new oil well exploration, depending on overall global economic conditions, Zalneraitis said.
A recent global survey from DNV GL, a Norwegian company, found that some industry leaders think that major job cuts could hurt the industry’s ability to rebuild.
But new technology has made it easier and cheaper to get projects started and stopped quickly, Zalneraitis said.
“That also means that over time, nimbler oil and gas plays could help temper price swings,” he said.