Slower oil, gas activity leaves Greeleys economy behind other Colorado metro areas

Nearly three years after the start of the pandemic, Greeley is the only one of Colorado’s metro areas whose economy hasn’t fully recovered and the reason might be the same one for its previous robust growth — the oil and gas industry.

Overall, Colorado’s employment has rebounded and then some, reaching 117% of pre-pandemic levels in September and surpassing the U.S. recovery rate of 102%. But Greeley and the rest of Weld County has recovered just 57% of their pre-pandemic job levels.

Employment in the other six metro areas is higher than before the pandemic broke out in March 2020. Colorado Springs’ recovery rate is 123%, the state’s best.

“They have been slower to recover from the pandemic in terms of economic activity, in terms of jobs. I think that the impact of oil and gas as a major industry in northern Colorado is a contributing factor in their lagging recovery,” said Brian Lewandowski, executive director of the Business Research Division at the Leeds School of Business at the University of Colorado-Boulder.

Weld County is the epicenter of Colorado’s oil and gas production, and the industry’s build-back has been slower than other sectors. Factors range from global economic forces to the industry’s current business model to new state regulations.

The bottom line is that Colorado has thousands fewer oil and gas jobs than it did before COVID-19 spread across the world and halted or greatly constrained activity.

“Just prior to the pandemic, Weld County was really booming with oil and gas development,” said Don Warden, the county’s director of finance and administration. “They basically pretty much dropped to almost nothing there in the pandemic.”

Colorado Department of Labor and Employment statistics show 6,300 fewer mining and logging jobs than in February 2020, right before the pandemic hit. Roughly 80% of the jobs in the state’s mining and logging category are in oil and gas, said Ryan Gedney, senior economist at the state labor department.

A collapse in demand and a price war between Russia and Saudi Arabia plunged oil prices plunging into negative territory in April 2020, sending shock waves through the industry and associated businesses.

“It was a brutal time. The last downturn, things slowly got worse over 18 months. This one, they dropped off a cliff and then it slowly got better,” said Chris Wright, CEO of Energy Liberty, a Denver-based oilfield services company.

The effects were felt across Weld County, where oil and gas workers were staying in hotels, eating in local restaurants and buying trucks and equipment.

Other parts of the economy, including the county’s large agricultural industry, have added jobs and grown, Warden said. “But the numbers look bad because of the impact the energy industry had on our local economy.”

There were nearly 8,000 mining jobs, mostly oil and gas jobs, in Weld County in the first quarter of 2020, according to the U.S. Bureau of Labor Statistics. The total was 4,649 in the first quarter of 2021 and 4,984 the first quarter of 2022.

Besides jobs, the drops in oil and gas production and their prices also hit local governments in their budgets. Warden said oil and gas account for more than half of the county’s assessed value and generate a big part of the property tax revenue. The revenue fell by about $45 million from 2019 to 2021.

Weld County’s severance tax revenue plummeted from $3.3 million in 2020 to $141,944 in 2021. Companies pay severance taxes for extracting nonrenewable resources. The money goes to state and local governments.

Weld County used the entire $63 million it received in COVID relief money to replace lost revenue to avoid cutting services or deferring such projects as road work. The money helped pay the extra expenses of running the jail during the pandemic.

“That’s the problem with such a high percentage of our property tax being associated with oil and gas is the volatility of the swings, not so much from production but the price,” Warden said.

Of course, what goes down can go up again, which is happening with oil prices and Weld County’s revenues. Property tax revenue for the 2023 budget will be a little above pre-pandemic levels and the county expects a bigger increase in 2024.

Severance tax revenue for 2022 jumped to $6 million. Nearly all the increases are because of rising oil prices. The average annual price per barrel during the pandemic was approximately $45, and is now closer to $85, Warden said.

Looking at recent data, the Greeley area’s economy grew 2.9% year over year in September, Lewandowski said. And from 2012 to 2022, its growth was on par with Colorado’s other metro areas.

“We’re sort of hyperfocused on where they were during their high time, their peak, which was showing the energy boom,” Lewandowski said.

Keeping the doors open

Weld County, like the rest of Colorado, got help from the government during the pandemic. A Denver Post analysis of the 22 largest governments shows pandemic aid programs provided $63.17 billion to Colorado as of January 2022. The state was 20th in the nation for the amount of assistance received, which came out to $10,970 per person on a per capita basis.

Weld County received a total of $2.47 billion. The county is the state’s eighth-largest county, but came in 41st out of 64 in per capita aid at $2,096 per person.

Counties heavily dependent on tourism got some of the highest per capita amounts as coronavirus restrictions abruptly closed restaurants, ski resorts and hotels. Pitkin County’s share of Paycheck Protection Program loans amounted to $9,258 per capita.

Some residents in non-resort, rural counties where the per capita assistance was lower expressed frustration with figuring out the qualifications and were wary of the amounts of federal dollars streaming in.

In Weld County, business and civic leaders rallied early to keep communities going, said Jaime Henning, president and CEO of the Greeley Area Chamber of Commerce.

“The sentiment of the business leaders I work with in Greeley is that they like to get things done and they like to help each other,” Henning said.

The feeling was that figuring out the various programs and getting the money “might be a ways down the road,” Henning added. The chamber headed a grassroots effort that raised $650,000 and later matched state and local funds to keep small businesses open.

More than 200 businesses received assistance. Matt Estrin, co-owner of 477 Distilling in downtown Greeley, said his business kept the doors open with the help of both a PPP loan and the local fundraising campaign. The distillery, which makes 11 different products, started business a year and a half before the coronavirus outbreak.

“We could sell to liquor stores and restaurants throughout the state,” Estrin said. “And we had the ability to sell bottles to go out of our tasting room.”

The distillery’s sales have returned to back to pre-pandemic levels and all nine of his employees have stayed, Estrin said.

General manager Joey Martinez said a committed customer base pulled Homewood Suites by Hilton through the downturn. Oil and gas workers and business travelers make up a significant portion of the Greeley hotel’s clientele.

Homewood Suite is seeing occupancy rates and business levels similar to those in 2019, Martinez said.

One difference is the workforce. Homewood Suites let about half its employees go during the height of the pandemic and it’s been tough to hire and retain workers.

“Guests are expecting the same experience with limited staff,” said Martinez, who had to delay talking to a reporter because he was filling in as bartender.

Despite the challenges, Martinez is optimistic. So far, at least half a dozen companies want to book extended stays in 2023.

There’s reason for optimism, said Rich Werner, president and CEO of Upstate Colorado, a nonprofit economic development organization. He said northern Colorado’s economy is becoming more diverse as industries such as bioscience, distribution, e-commerce, aerospace and food processing expand.

Werner noted that northern Colorado is one of the state’s fastest-growing regions. Larimer and Weld counties combined grew 24.5% between 2010 and 2020, compared to the statewide increase of 14.8%, according to the state demographer’s office.

Werner said over the past two years, Upstate Colorado has received a record number of inquiries from businesses interested in the area.

Oil, gas industry regaining ground

Caleb Harbst was one of the thousands of oil and gas workers who lost jobs when oil prices went negative and drilling rates nosedived. He started with a fracking crew at Liberty Energy about a year before the pandemic and was let go when the company laid off roughly 1,000 of its 2,400 employees throughout the region in April 2020.

After buying a bus to convert into “a little mini home,” Harbst was rehired by Liberty around October 2020.  “They were picking up again and wanted me to come back, and I was more than happy to,” he said.

Liberty said the layoffs in 2020 were its first ever. Wright, the CEO, said within nine to 12 months, the company offered jobs to everyone it had let go. Most returned, but at least 30% had left the industry.

Liberty Energy’s workforce grew to 4,500 from 2,400 after the company acquired Schlumberger’s North American hydraulic fracturing unit. Wright said business is up in all the states where it operates except Colorado. He said the difference is new state regulations, which he blames for slowing the approval of drilling permits and discouraging investment.

“In every other region we work in we have more employees and more activity than we did before the pandemic,” Wright said. “In Colorado, we’re down one frack crew, which is about 80 people.”

Writing and approving new rules to carry out a 2019 law revamping Colorado’s oil and gas regulations took about a year and a half. The law directed the Colorado Oil and Gas Conservation Commission to prioritize protecting public health and safety and the environment when regulating oil and gas.

“This was a tall task to help with the creation of and the implementation of these new permitting rules. COGCC has worked through this and has arrived at a place where there is now a workable, protective permitting process for Colorado,” Jeff Robins, commission chairman, said in an email.

The pace of development in Colorado was affected by the regulatory process, said Steve Diederichs, who leads the U.S. oil research team at Enverus, an energy research firm. He said one large company discussed cutting the number of drilling rigs because of a lag in permits.

“We’ve definitely seen that trend reversing even in just the last couple of months with the commission getting more (drilling) pad and well permits across the line,” Diederichs said.

Activity in the Denver-Julesburg Basin, Colorado’s major oil field that extends from the Denver area into Wyoming, appears to be in line with other oil and gas basins in the region, Diederichs said.

Colorado’s average drilling rig count for February 2020 and October of this year was the same: 21.

Diederichs doesn’t expect a resurgence of soaring drilling rates and production levels. Consolidations have occurred and the industry remains intent on paying down debt and bolstering returns to shareholders.

“I think their hope and plan is to be able to roughly maintain production flat, maybe grow a few percentage points per year with the current headcount they have,” Diedrichs said.

Source: Read Full Article