July 25, 2008

The Prize: Illinois Oilman Strikes Paydirt Again

By Jeffrey Tomich, St. Louis Post-Dispatch

Jul. 25--KINMUNDY, Ill. -- Count Ben Webster as either the luckiest oilman in Southern Illinois or the shrewdest. Maybe both.

Webster got into the oil business as a hobby a decade ago when oil was $14 a barrel. In 2002, his company, Deep Rock Energy, made the state's biggest oil strike in a half-century when he drilled the Warren No. 1 well from the outskirts of Stephen A. Forbes State Park. This spring, he celebrated another big find, tapping a reservoir estimated to hold 1.5 million barrels of oil as the price of crude climbed to a record $140 a barrel.

"We've been blessed with a lot of success," the soft-spoken Webster said at Deep Rock's headquarters outside of Kinmundy.

Webster's latest discovery is just a fraction of the size of the one in 2002, and it's only enough petroleum to keep Illinois running for less than a week. But for a state dotted with hundreds of tiny so-called stripper wells that yield little over a barrel per day, it's significant.

"We don't often find 1,200-barrel-a-day wells," said Brad Richards, executive director of the Illinois Oil & Gas Association in Mount Vernon.

Webster's newest well continues a string of drilling successes under the 3,100-acre Forbes State Park, about an hour and a half east of St. Louis, that have helped him expand his Deep Rock Energy Corp., which today produces about 800 barrels of oil a day

Since 2002, Webster has acquired controlling interests in a trucking company, Triple R Transport, to haul oil to market, and Alliance Geophysical Corp., an exploration company that uses sound waves to help search for oil deposits.

For years, Webster criss-crossed Southern Illinois as a land surveyor. He also farmed and ran a construction firm before purchasing his first oil production company in 1999. In 2002, he teamed with Ceja Corp. of Tulsa, Okla., to raise money to drill the first well. Ceja and Deep Rock Energy remain partners today.

The initial well was more expensive than most in the Illinois Basin, a 60,000-square-mile oil-producing region that covers parts of Southern Illinois and Indiana and western Kentucky. Because the drilling target was below a state park, Webster had to set up outside the park and drill down 3,900 feet, then hundreds of feet sideways to tap the oil reservoir. The recent well was drilled the same way, to a depth of 3,800 feet and more than a half-mile horizontally.

"It's very difficult to get it right, but it can be done," Webster said.

Webster's newest well, which cost about $1.3 million to drill, is pumping about 400 to 500 barrels a day, far less than the 1,200 barrels a day it's capable of producing. Moderating output, however, will help him squeeze more crude from the reservoir over the long haul.

Even at $100 per barrel, about $25 less than the spot price for benchmark West Texas Intermediate crude, that equals about $50,000 a day in revenue --the kind of prize that motivates wildcatters like Webster to risk $1 million or more on a new well in search of new petroleum deposits.

"It's not hard to figure that these prices make exploration a lot more attractive," Richards said. "We will look at projects now that were not even fathomable a few years ago."

Oil producers in the basin are staying busy these days, but there's not the same kind of boom witnessed a generation ago during the last energy crisis.

The number of drilling permits issued, rigs and oil production in Illinois has changed little in the past few years, despite a run-up in oil prices.

One reason is cost. While the price of a barrel of oil or a gallon of gasoline are well-known, the prices of steel pipe, cement and diesel used to run drilling rigs have all risen sharply, too. More important, though, much of the rigs and other equipment and crews that worked it are gone.

In the early 1980s, there were as many as 150 drilling rigs in the basin, compared with about 25 today. Major oil companies such as Exxon and Marathon left years ago in search of bigger, more lucrative projects in the deep waters of the Gulf of Mexico and overseas. And many smaller producers are no longer in business.

"A lot of the operators that were drilling in the last boom went broke," said J. Roy Dee III, president of Dee Drilling Co. in Mount Carmel, Ill. "A lot of them got out of the business, and they were old enough that they weren't getting back in."

A lot of the rigs available 25 years ago either moved to oil fields in Oklahoma, Kansas or other states, or were sold for scrap, Dee said. The crews that ran them are no longer available, either.

"For the people who are left, they're all working at capacity with what equipment they have," he said.

Beverly Seyler, a geologist who heads the oil and gas section at the Illinois State Geological Survey in Champaign, estimates that only about a third of the 12 billion barrels of oil in the basin has been produced. While some of it will never be extracted, there's plenty that can be.

"There is still a lot there," Seyler said. "It's just a matter of people having the resources to go after it. The rigs that are here in the basin are working as fast as they can."

While some of the oil companies still active in the basin remain focused on hunting for new oil deposits, others are trying to squeeze more petroleum from known reservoirs.

"Certainly we want to find new oil and drill deeper," Richards said. "But the here and the now is really the exploitation (of existing reserves) and getting more oil out."

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