Audit: Nearly third of oil and gas wells lose money
Denver International Airport makes millions of dollars a year from more than 70 oil and gas wells on its expansive property, but a new city audit questions the operation with a key finding: nearly one- third of those wells are losing money.
“The airport needs to take a closer look at whether it’s a good idea to continue operating wells that could be costing — instead of making — money on the airport’s land,” Denver City Auditor Tim O’Brien said in a news release Thursday. “If we are going to be in the oil and gas business, we need to make sure it’s worth it.”
DIA says in response to the audit that its operations contractor has decided after an analysis to close two of 20 money- losing wells. But it says the other 18 are still considered economical, based on their projected depletion rates.
The airport’s commercial division also has commissioned a feasibility study of its oil and gas program to evaluate each well’s viability and DIA’s business strategy, according to an audit response signed by George Karayiannakis, the airport’s senior vice president of airline and commercial affairs.
But a DIA spokesman cautioned that the audit came amid a multi- year dip in oil prices.
The wells generated $ 2.3 million in 2017. When oil prices were higher over the last decade, DIA’s annual oil and gas income reached several times last year’s amount.
“As ( the price of oil) comes back up, wells may be profitable again,” DIA spokesman John Leavitt said. “Once we shut them in, they are no longer able to produce. … This needs much more in- depth analysis to determine if the substantial cost of shutting them in is worth it.”
Oil and gas drilling predates the building of DIA on 53 square miles of land 23 years ago. Thursday’s audit cited 71 current wells, including six that are shutin or temporarily abandoned.
The airport outsources operations and maintenance to PetroPro Engineering. Its five- year contract is worth up to $ 3.6 milnewed lion and runs through October 2021.
The city hired outside auditing firm CliftonLarsonAllen to review that contract and the wells’ operating costs.
Its report says that the 20 money- losing wells, along with the six shut- down wells, cost $ 226,667 more to operate during the first nine months of 2017 than they generated in income. During the same period from January 2017 through September, the 71 airportowned wells produced an operating profit of $ 617,530, the audit says.
Other audit findings included that DIA was paying as much or more to outside vendors for maintenance and repair work in some months as it was to the main contractor.
Karayiannakis’ audit response says DIA has hired the University of Wyoming’s College of Business and UW’s Enhanced Oil Recovery Institute for the feasibility study. DIA agreed to three other recommendations made by auditors.