This document provides an initial assessment of factors to consider regarding the viability of investing in an oil and gas venture in Adam County, Colorado. It outlines tools like the SWOT analysis and Porter's Five Forces model to analyze strengths, weaknesses, opportunities, threats, industry competitors, customers, suppliers, substitutes, and new entrants. Regulations around fracking and incentives for renewable energy may impact demand. Further research is recommended on the regulatory landscape and using technology to achieve cost leadership in the competitive market.

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Memo: Initial Consultation document
Author: Peter Tomusange
Subject: Fracking in Colorado – Opportunity?
T0: xxxxxxxxxxxxxxxxxxxxxxxx
The brief below is an initial assessment of the factors that would affect the viability of investing in an Oil and Gas venture in the Adam County (Colorado) and by thus, provide some initial guidance as to what needs to be researched into, in order to provide the client with better information, in order to help them make a decision either way.
Industry Analysis of factors that might affect the Adam County opportunity
The following strategy analysis tools (The SWOT, and Porter’s Five Forces) will supply the basis for the analysis of the opportunities that are available to the client, covering both the internal, as well as external factors, leading on to a final decision as to whether to go ahead with the opportunity or not.
The SWOT analysis
This matrix will be used evaluate the opportunity in 4 different areas:
Strengths: The intention with this will be to evaluate the strengths that the client brings to the industry that can be leveraged in order to compete within Colorado, but most especially within Adam County. It will be important to explore the following areas:
 What is the client’s competitive advantage, in relation to the competition, that will allow our client to out compete the industry rivals?
This will necessitate an examination of the client’s Unique Selling Points (USPs)
 Organisational capacity? – E.g. what sort of leadership is currently present, and how can the leadership be used to advantage?
Weaknesses: What would be the most likely factors internally, to hamper profitability? For example:
 Uncultivated customer relationships; these could hinder the expansion of the client’s market.
Opportunities: Considering the current market conditions for energy in Colorado, and Adam County especially, what are the opportunities that our client can explore?
 Is there a gap in the market [that can be filled]?
 What can the client be good at? Cost leadership?
How could the new opportunity reduce on operational costs in order to be more competitive on price of the oil and gas?
 Weaknesses in competitors
Are there any weaknesses in the way the competition goes about its business? Perhaps is there a chance to expand market share through price incentives in order to bring in more smaller customers, e.g. at gasoline pumps
 Refineries
How does the client propose to process the oil and gas? Is there a plan to have own refineries, or is the strategy to be suppliers?
 Distribution channels
What alternative avenues are available to dispose of the oil and gas? Is there a possibility for export routes?
Threats: In comparison with the competition, it will be necessary too, to research into what potential threats might present themselves if the opportunity were to be acquired. These need to be clarified upon before embarking on the acquisition. For example:
 What is the nature of the proven reserves of Oil and Gas, in the opportunity area
The commercially viable amounts of Oil and Gas in the opportunity are a key issue in order to determine long term profitability, and therefore current viability.
 Regulation: What is the foreseeable Regulatory landscape, and how will a change in this affect the whole undertaking? E.g. permitting, and setbacks.
For instance, there is growing pressure from anti-fracking groups for setback limits to be increased. Even though the Adam County opportunity is 1 mile outside of the nearby town, changes in regulation might have detrimental impacts on the opportunity.
 Technology: How efficient will the technology be, in order to get the maximum return on the opportunity?

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External factors analysis - The Porter’s Five Forces
The combined effort of all 5 forces depicted in Porter’s Five forces, exerting pressures on the opportunity must be examined independently, and as a whole, to determine the future profitability of the opportunity. The Five forces should be examined under the following:
Industry competitors: What is the competition like within the industry, in Adam County, in terms of for example Industry concentration? In that regard, point to be made, of the increase of number of active Oil and Gas wells (Almost doubled from 2000 @ 22,228 to 2010 @ 43,354 – BLM 2011).
The likely implications of this can be assessed using demand and supply and how this will affect prices and generally, the profitability of the Oil and Gas concern.
 Industry growth competition in extended region
Colorado as a whole has a high density of oil and gas wells. The impact of this on the local market might be to aggressively price compete, due to the magnitude of supply.
 Intermittent overcapacity, due to the abundance of suppliers (see below)
Customers (Buying power): It will also be important to study the customer landscape in order to understand the leverage they hold over the Adam County opportunity. Most especially, it will be important to cover the following areas, as pertains to the Adam County opportunity:
 Buyer volume Directly affecting supply and demand
 Transportation and distribution costs
 Threat of backward integration
What for example would the likelihood be of certain customer segments buying up competition and therefore reduce the client’s market share?
 Buyers' incentives
In the price competition that surrounds the commodity that Oil and Gas is in Colorado, what incentives can the client put in place to increase and retain the market share?
Suppliers: The Bureau of Land Management, as well as other stakeholders combine to affect the supply of oil and gas in Adam County, as a result of factors such as regulation e.g. setbacks, to limit or avail the supply of the raw material.
What is the implication of more oil and Gas drilling permits to be given out, and how does this affect the long to short term viability of the opportunity?
Threat from Substitute energy sources: Tied in with the above two areas, it can be argued, that even though Natural Gas is depicted as one of the leading primary energy fuels used in the generation of electricity, the threat from alternative sources of energy in Colorado, is an area that will need to be looked into. Most especially the renewables landscape (e.g. Wind, Solar)
For instance, Colorado State requires that 30% of all electricity sold comes from renewable resources (EIA) 2014). What impact can this have on the opportunity, if alternative distribution channels are not sought out?
Threat of new entrants to the industry: EIA data depicts that from 2007 to 2013, crude oil production in Colorado rose 146%; marketed natural gas production rose 38% between 2007 and 2012. Also, according to data the number of active Oil and Gas wells almost doubled from 2000 (22,228) to 43,354 in 2010. This probably signifying new entrants, in the industry, or the issuing of more permits to incumbents.
Going by this alone, there are a lot of suppliers in the market, which might affect the price.
There will therefore be need to look into Oil and Gas permitting in Adam County, in order to access the gradient of the competition.
Political markets analysis: The success of the opportunity will to a very large extent be contingent on the resolutions through the political markets, both within Adam County, and without, federally, or in wider Colorado.
The environment
One of the issues of most contention for all stakeholders, is the environment and perhaps what fracking has done to exacerbate the issue, on several fronts:
Water and air pollution
As a result of fracking, previously commercially unextractable oil and gas has now been accessed, its extraction, and subsequent processing, and end use, directly impacting on CO2 emissions.

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Colorado State is currently the 23rd most polluting state in the US, and this, as in other Oil and Gas producing regions (e.g. Texas) (EIA 2014) can directly be attributable to the boom in Oil and Gas in these states.
Moreover, as a result of fracking, it has been argued by anti-fracking activists, that air and water quality has seriously deteriorated due to the dust and other chemical pollutants that have been released into these bodies.
Institutional forum
Even though many of the discussions about the issues above are held formally in the executive political forum, headed by a statutory body, The Colorado Oil and Gas Conservation Commission – COGCC, to enforce legislation, a lot of the influence that has gone into the final decisions has been through the so-called ‘courts of public opinion’, where pressures by citizen groups, have been exerted. Such citizen groups include industry organisations like The Colorado Oil and Gas Association – COGA, as well as anti-fracking ones such as Save Colorado from Fracking, San Juan Citizens Alliance, Fracking Colorado, Routt County Frack etc.
Cross-section of stakeholders
There are several stakeholders that are poised to have an interest in the resolution of the Adam County opportunity, one way or another. Listed below is 3, of them, with a later emphasis on one and how significant or concentrated political decisions are likely to affect them, and hence their resolve, resources and Authority in supply political action in that regard.
 The Colorado Oil and Gas Association - COGA
 Colorado Oil and Gas Conservation Commission – COGCC
 Anti- fracking groups
Below, the Colorado Oil and Gas Association – COGA will be examined in terms of its Resolve, Resources, as well as Authority in demanding, and supplying political action in relation to the Adam County opportunity:
Resolve (and issue position): As an Oil and Gas industry representative body its mission states that it “… aggressively promotes the expansion of Rocky Mountain natural gas markets, supply, and transportation infrastructure…” This therefore means that members derive their livelihoods out of the exploitation of the Oil and Gas opportunities in the Colorado region.
Because they there is the high likelihood that their incomes will be drastically affected by unfavourable political decisions, they have a very high resolve in fighting their cause and will demand political action in their favour.
Resources
The COGA has enormous financial capacity owing to the revenue from its members. This capacity can be used to great effect in lobbying for favourable political action.
COGA’s organisational capacity has a considerable depth too, owing in part, to the concentrated impact on members of this group. COGA has several operational tactics to ensure their message is passed to as a wide an audience as possible; from seminars, to deep representation at public hearings and also the use of technology. They have several sensitisation events, as well as a newsroom from which favourable propaganda can be disseminated.
Authority
The depth of authority that COGA has is considerable too, having won over the support of Colorado Gov. Hickenlooper (Bloomberg .com July 2014) who has the powers to select members of the new task force on Oil and Gas (Bizjournals.com September 2014).
Political issues and their impacts
There are repercussions arising out of the political decisions, in relation to the opportunity, and these will chiefly associate to affect supply, and consequently demand through the following:
a- Setback limits
b- Air quality – BACT =Best Available Control Technology through Air Quality Control Commission (AQCC)
c- Incentives for renewable energy in the Colorado State

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Real Markets analysis - Demand and Supply of primary energy resources
According to EIA data (2014), November marked the lowest level of Brent prices since September 2010 and the lowest level for West Texas Intermediate (WTI) prices since October 2011. This fact alone creates the benchmark for the analysis of the determinants of supply and demand in the real market, and how these might affect the opportunity in Adam County.
1. The dip in oil prices, would be as a result of an increase in supply of oil on the markets not followed by an equal increase in demand for the oil.
The increase in supply or the subsequent reduction in demand for oil, and therefore fall in price maybe due to several factors:
a. Technology – the increased use of fracking to release previously unrecoverable reserves.
b. The creation of incentives for renewable energy sources (currently a legislative requirement to have electricity generated from renewables to be at 30% by 2020) – EIA 2014
c. Climate action lobbying
Recommendations
In view of the above observations, the following recommendations for further work in the area:
1. Research the regulatory landscape in order to understand the level of risk much better, and therefore be in position to manage it [the risk].
This will be instrumental in understanding the barriers entering the market/industry and therefore understand the competition.
This will also assist in understanding the process of issuing Applications for Permits to Drill – APDs.
This will in turn help in understanding the issues relating to setback limitations and other finer detail in this regard.
2. It is also recommended to investigate the technology space, as an operational strategy, in order to offer better cost leadership, in the price competitive market for oil and gas in Colorado.