June 17, 2008

Oil Drilling Permits in Nebraska Are at 20-Year High

By Leslie Reed, Omaha World-Herald, Neb.

Jun. 17--LINCOLN -- With a barrel of oil over $134 and natural gas prices doubling in five years, western Nebraska is seeing its biggest spurt in oil and gas well drilling since the early 1980s.

Bill Sydow, director of the Nebraska Oil and Gas Conservation Commission in Sidney, said Nebraska has issued more than 40 new well permits a month for the past two months.

"The last time that ever happened, there were over 600 wells drilled, in 1981. We're not going to get to 600 this year, but we have to go back more than 20 years to see any activity levels like that on a monthly basis," Sydow said.

Nebraska showed small increases in both oil and gas production last year. It also issued 238 permits for new oil and gas wells, about two-thirds of them for natural gas. So far this year, 108 permits have been issued and an additional 16 requested.

The wells are being drilled on land owned by area farmers and ranchers by relatively small independent drilling companies who lease oil and gas rights from the landowners.

Some landowners said the past few years have sparked exploration activity at levels they haven't seen in decades.

Stan Jones, a Benkelman farmer, rancher and crop sprayer, said he has had natural gas leases and two nonproducing wells on his property for 40 years. Late in 2006, Houston-based Noble Energy asked to drill.

The new wells were in production by March 2007. Jones now has about two dozen wells producing natural gas. Most private landowners collect a 12 percent royalty on production.

"They're exploring quite a bit of ground, of mine and the neighbors," Jones said of Noble. "I think it's going to be good for southwest Nebraska."

Scott Olson, a Haigler farmer and Dundy County Board member, hadn't leased mineral rights on his land for 25 years. Noble now is paying $13.50 per acre for five years to lease mineral rights on his land.

David Larson, vice president of investor relations for Noble Energy, said the company has assembled mineral rights to drill for gas on about 300,000 acres in Chase, Dundy and Perkins Counties in southwest Nebraska.

Natural gas is measured in quantities of a thousand cubic feet, or "Mcf," and Nebraska production in 2007 was 1,400,326 Mcf, its highest level since 1995. The state's record year for gas production was 1962, with 8,835,000 Mcf.

Nebraska ranks in the mid-20s among the states in both oil and natural gas production, according to statistics from the Energy Information Administration and the Interstate Oil and Gas Compact Commission.

That output is dwarfed by oil giants such as Texas, which in 2006 produced 344 million barrels of oil and 5.5 billion Mcf of natural gas.

Nebraska's oil history dates to 1939, when the first producing well was drilled in Richardson County, said Marv Carlson, research geologist at the University of Nebraska-Lincoln. That area continues to see one or two new oil wells a year.

Nebraska oil production peaked in 1962 at nearly 25 million barrels. It had declined to 2.31 million barrels in 2006.

But in 2007, oil production rose slightly -- to 2.33 million barrels -- the first increase since 1989. The state now produces about 6,000 barrels of oil a day, Carlson said.

Iowa had no oil or natural gas production. Kansas reported 36.1 million barrels of oil and 438,000 Mcf of natural gas. Colorado produced 22.9 million barrels of oil and 1.2 billion Mcf of natural gas.

Total domestic U.S. production now is about 4.8 million barrels a day, about half the 1971 peak of 9.4 million per day, Sydow said.

The total number of producing oil wells in Nebraska has held steady for the past several years, while gas wells have increased. There were 1,187 producing oil wells in 2007, compared with 1,182 in 2005. There were 197 natural gas wells, compared with 96 wells in 2001.

Bruce Evertson, a Kimball, Neb., "wildcatter" who explores for oil and gas, said there's a good supply of high-quality sweet crude oil beneath the Panhandle and southwest Nebraska -- but dense rock formations make it difficult to recover because there is not enough pressure to force it through the rock.

He said it likely would cost millions to drill a high-tech well that would recover only about 20 barrels a day because of the low pressure.

"We found a lot of oil, but it's not recoverable using today's techniques," he said.

Evertson Operating Inc., a 24-year-old company, has been the largest oil producer in Nebraska for the past four or five years. Evertson said his company pumps 1,500 barrels a day in Nebraska. It has operations in several other states as well.

While Colorado, Utah and Wyoming have more oil than Nebraska, they also have more regulatory requirements, Evertson said. He said an industry-friendly attitude from Nebraska regulators, combined with rising oil prices, have increased interest in Nebraska oil.

David Nicklas, president of Vista Oil & Gas Inc. of Pittsburgh, said his company has drilled about 50 natural gas wells in the Sidney area since 2002 and plans to drill another 30 to 40 a year for the next four or five years.

He said the Nebraska natural gas field is on the edge of a higher-quality area just over the state line in Yuma County, Colo.

"That's what led us to Nebraska," Nicklas said. "We thought we might be able to make the fringe area work."

Sydow said Noble has about 90 producing gas wells in the "Chundy" area -- straddling the border between Chase and Dundy Counties. The company has 15 other wells awaiting completion and permits to drill 74 more.

Nebraska's oil and gas reserves can contribute only incrementally to the nation's effort to reduce its reliance on foreign fuel, but every little bit helps, Noble's Larson said.

He said natural gas fields in northeast Colorado, southwest Nebraska and northwest Kansas are a small but growing part of his 75-year-old company's operations.

Larson said Noble probably would drill 150 wells in Nebraska this year. It may sound like a lot, but that is because the natural gas reserves, although plentiful, are shallow and low-producing. Noble is drilling wells that are about 2,200 feet deep, compared with perhaps 8,000 feet for a more typical gas well.

But shallow wells are cheaper to drill -- and advances in technology have allowed the company to find natural gas in about 90 percent of the wells it has dug.

--Contact the writer: 402-473-9581, [email protected]


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