July 1, 2005

Oil Wells in Kansas Are Fired Up Again

Jul. 2--Dorothy Lang spent decades making egg noodles to help her farm family pay the bills.

Now she's in the oil business, reaping royalties from two wells drilled on her property in the past 2 1/2 years.

"It's so nice to go to bed and know you're making money when that well is going up and down," said Lang, 74. "The next morning, you get a bill in the mail and you can pay it."

She's not alone in her neighborhood near Catherine, 9 miles northeast of Hays. From her kitchen window, Lang can see two drilling rigs working around the clock, poking holes in the ground in search of the cherished black goo.

Increasing demand and a shortage of refining capability have caused the world price of crude oil to jump in recent months, hitting a record $60 a barrel earlier this week before falling back. Kansas crude oil that fetched just $10 for a 52-gallon barrel in 1997 was worth $54.50 Friday.

"Everyday's Christmas right now," said John O. Farmer III, owner of an oil and natural gas producing company at Russell that has wells throughout Kansas. He's planning to drill 25 to 30 new wells this year.

Others in the oil industry are in an equally festive mood. They're rushing to find not only new sources of oil, but to bring back into production marginal wells that were shut down when oil had little value.

It costs an average of $15 a barrel to pump oil, said Tim Carr, head of the energy research section of the Kansas Geological Survey.

"It's worthwhile at 50 to 60 bucks a barrel," he said of firing up low-producing wells.

Most Kansas crude comes from so-called "stripper wells" that yield fewer than 15 barrels of oil a day, said Danny Biggs, a consultant at Pickrell Oil, an oil producer and driller in Great Bend. The average Kansas oil well pumps fewer than three barrels a day.

"We can just do a lot more when the price is right," he said. "That's why everybody's busy."

Farmer mentioned one well that was brought back into production, pumping five barrels of oil and 50 barrels of salt water each day.

At these prices, "that's excellent economics to restore that back to production," Farmer said.

His company's wells are pumping anywhere from 2 to 75 barrels of oil a day.

Farmer's firm employs 13 full-time people, and a contract labor force that can reach up to 100 workers.

"We're having the time or our lives," he said. "How long it lasts, who knows, but we're not rat-holing the money. We're putting it in the ground."

Statewide, there are 40 to 50 rigs drilling for oil, said Rex Buchanan, director for public outreach with the Kansas Geological Survey.

"When oil was cheap, it was in the single digits," he said. "There is no question there is more optimism and more activity out there than there has been for quite a while."

Increased drilling over the past two years has curbed the annual 6 percent decline in Kansas crude oil production. That decline lasted 30 years, Farmer said, but today the industry boasts a slight upward trend in Kansas.

The revival of the Kansas oil industry also is reflected in doubling in the state's collection of severance taxes in the past five years.

Those taxes, collected at a rate of 4.33 percent of the value of oil at the wellhead, jumped from $9.1 million in 1999 to $20 million last year.

"There's just a lot of new wealth created, and that wealth filters down to everybody," Farmer said.

Consider an oil well producing 50 barrels a day. With an oil price of $50 a barrel, that's $75,000 worth of Kansas crude oil in a month. A standard, one-eighth share for a royalty owner is $9,375 a month.

"That's a really good well," Farmer said.

Production at such high-yielding new wells typically tapers after a few months, Farmer said.

"That period of big income is very short," he said.

Still, if production of that well falls to a typical 15 barrels a day, the revenue generated with $50-a-barrel oil still is more than $22,000 a month -- meaning a $2,800-a-month royalty check for the landowner.

Lang, at Catherine, won't say what her royalty checks total. But she is so appreciative of finding them in her mailbox that she sent Farmer a gift from her heart and her past -- several sacks of fresh egg noodles.

Lang intends to use some of the extra income to help her four children. She regrets that her husband, Tony, who died in 1996, didn't see oil wells on their farm.

"It has not changed me in any way. I still love people," Lang said. "I sure appreciate the money."


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