Much has been made by Minority Leader Josh Penry that fear of coming oil and gas regulations is killing the industry and killing jobs. However, maybe we should look at some actual data to determine if there's any validity to that. The other day Penry referred to this site that tracks drilling rig activity. So, let's look at that.
From the site, I pulled the active drilling rig count for each week going back one year. I did this for Colorado, New Mexico, and Wyoming. To the spreadsheet I created I also added funds related to oil prices (iPath S&P GSCI Crude Oil Total Return, listed on the NYSE as "OIL") and natural gas (Natural Gas Services Group, Inc, listed on the NYSE as "NGS". It was easy to get this data into a spreadsheet from google's financial page here. and here Not, being satisfied those funds accurately represent true commodity prices, I went and pulled oil futures prices over the past year.
The blue, light green, and brown lines represent active number of drilling rigs for that week for Colorado, Wyoming, and New Mexico respectively. The orange line is the closing futures price of light sweet crude oil for the same day of the week. Purple is the oil fund, and light blue is the natural gas fund.
click for larger image
In this graph I removed the two lower set of data to better compare drilling activity in CO and WY to the price of a barrel of oil.
click for larger image Finally, this graph only shows NM drilling activity and the natural gas fund to be able to better see changes over time as the Y axis is rescaled.
What does it all mean? Well, first of all, New Mexico just went through enacting some new oil and gas regulations. One of the earliest references I could find on this referred to the rules being proposed in November of 2007. The rules appear to have been enacted on or about June 16, 2008 (ref 1). The Petroleum Association took NM to court in July 2008 over those new rules (ref 2). Finally, Governor Richardson talked of more rules on 2-19-09 (ref 3), but then backed off. I added reference points to the chart showing NM drilling activity.
As you can see, the NM line very closely follows the other states. With a lag of a few months, it also almost exactly tracks the price of oil. There's seemingly no indication changes to New Mexico's regulation had any effect on drilling activity.
Next we have Wyoming. Searching for news articles found almost no mention of any changes for years. The last thing I could find was from September 2007. There's also this from 2005. Most references I could find were about oil shale rules from the federal govenment. That's not to say Wyoming didn't make any changes to their rules. The state has a history of changes made, with the last being on 2-12-08. However, they mostly appear to be small changes here or there as best I can tell.
Then we have Colorado where draft rules were first released in March of 2008. The final version of them was approved by the oil and gas conservation commission in early December 2008. That process sure did seem to take some time as also evidenced by this governor's office statement (pdf):
1) Was this a lengthy rulemaking process?
Yes. This was the most extensive rulemaking hearing in the COGCC's history. During more than 21 days of hearings, the Commission heard approximately 12 hours of public comment by about 200 people and another 75 hours of testimony from about 160 party and staff witnesses. It also reviewed thousands of pages of written comment, witness testimony, and exhibits, addressed dozens of legal motions, and conducted more than 70 hours of deliberations. The resulting rules reflect substantial input from local governments, the oil and gas industry, property owners, and conservation groups.
So between two states, one where almost no changes to regulation have been made for years, the other where changes are pending and about to be approved by the legislature, isn't it funny how the drop in drilling activity in these states is almost identical? The slope of the change is also quite similar to the slope in oil futures price. In the case of Colorado, the peak in drilling activity seems to lag the peak in oil price by two months. In Wyoming's case, there's a four month lag.
Normally I would tell you to confirm this data yourself if you don't trust me, but it looks like Divestco is now only showing Canadian drilling activity. The change is particularly disturbing because the source html has all references to Colorado and other areas of the county commented out. Hmm, what are they trying to hide?
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