Thursday, August 18, 2011
Houston Chronicle
by Tom Fowler
Natural gas drilling has been the dominant energy story in the U.S. for the past few years, but oil is back with a vengeance.
For the first time in 18 years, the number of oil rigs working in the U.S. has exceeded the number of natural gas rigs, according to July rig data compiled by IHS-CERA, covering both land and offshore rigs.
By 2020 this surge in oil drilling could increase U.S. oil production by as much as 3 million barrels per day, Peter Stark, head of IHS-CERA's industry relations said Wednesday during a session launching the start of Summer NAPE, the semi-annual oil and gas prospects expo being held in Houston.
Two factors are spurring the surge in oil production.
The combination of horizontal drilling and hydraulic fracturing, which has unlocked previously inaccessible gas, also has opened up new possibilities for oil production.
Relatively low natural gas prices have prompted companies to focus exploration efforts on more valuable oil and natural gas liquids.
Oil actually may have returned to the top of the heap among U.S. drilling rigs earlier this year, according to another data set. Baker Hughes' rig count for onshore and offshore rigs has oil surpassing natural gas on April 21, (913 oil rigs vs. 878 gas rigs) for the first time since April 28, 1995 (343 oil rigs vs. 321 gas rigs).
And on June 24 the number of rigs drilling for oil surpassed the 1,000 mark for the first time since 1987.
IHS-CERA predicts oil production could directly and indirectly generate another 1.3 million U.S. jobs over the next decade and raise an additional $97 billion in federal taxes and royalty payments.
The oil boom is showing up in well-known U.S. oil fields, like Texas' Permian Basin, and in newer fields like North Dakota's Bakken shale and the Utica shale in Ohio.
The surge could slow if natural gas prices continue to rise and make gas projects more attractive -- which many analysts expect in the next year.
Benchmark crude rose 93 cents Wednesday to $87.58 per barrel in trading on the New York Mercantile Exchange. Natural gas rose a penny to $3.93 per million British thermal units.
But at least for now, producers have reasons beyond crude and gas prices for renewed interest in oil.
In some cases drilling for oil can cost less than for gas. Tom Ward, CEO of SandRidge Energy, said his company is spending as little as $760,000 per well in the Central Basin field in the Permian, compared to several million per well in most shale gas fields.
John Christmann, head of Apache Corp.'s Permian Basin operations, said his company has acquired acreage in the Empire ABO field in the Permian, a field where no new wells have been drilled since 1984.
"In some cases you have million-barrel wells that have never had an offset drilled near them," Christmann said, seeing strong potential for large quantities of oil.
Oil shales will be a big topic on the floor of NAPE this year, as attendees assess potential oil and gas drilling and production projects.
Started in 1993 as the North American Prospect Expo with 80 booths and about 800 attendees, NAPE is now held twice a year, and the winter 2011 gathering in Houston had 1,600 booths and drew 16,000 attendees.
This week's Summer NAPE is expected to draw about 5,600 attendees and 600 booths.
Scott Wilmoth, a vice president at Houston investment bank Simmons & Co., said NAPE gives big firms and small a chance to see a lot of different deals in one place.
"Deals get done across the board," Wilmoth said.
NAPE is also a networking opportunity, said Charles Cusack, Petrohawk's Vice President of Exploration.
"The main benefit has been the multitude of contacts made at NAPE that have indirectly led to deals," Cusack said. "The most significant NAPE transaction was my first meeting Dick Stoneburner (Petrohawk's chief operating officer) at NAPE in 2000 that led to my working with him for over a decade."
Wilmoth expects a lot of discussion at NAPE about tight oil plays, including the Utica, the Lower Smackover Brown Dense in Arkansas and Louisiana, the Tuscaloosa Marine Shale and horizontal Wolfcamp in the Permian basin, among others.
The shale gas plays will still get attention, however -- including the areas in the Eagle Ford that yield oil and natural gas liquids, and the Marcellus shale in the northeast U.S., Wilmoth said. Internationally, unconventional oil and gas opportunities in Argentina may be a big draw at NAPE as well.
While the business is famously cyclical, the recent oil boom surprised some in the industry.
During a recent meeting of the National Petroleum Council in The Woodlands, the group discussed an upcoming report on U.S. natural gas reserves. Not surprising, the group said, the study would report that North American natural gas resource potential was enormous.
"Secondly, and perhaps surprisingly to some of us and certainly to many Americans, our Canadian and American oil resource base is also very big news," said NPC member Susan Tierney.
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