July 18, 2005

Kentucky Expects Jump in Oil Drilling

Oil and natural gas exploration companies are on pace to drill more than 1,500 new wells in Kentucky this year, despite a shortage of drilling rigs, the head of the state regulatory agency that oversees drilling said Friday.

Rick Bender, director of the Kentucky Division of Oil and Gas Conservation, said increases in oil prices, coupled with high natural gas prices, have drillers scurrying for fresh domestic supplies.

The renewed interest in Kentucky's reserves isn't limited to the Appalachians. Petroleum companies are looking to southern and Western Kentucky as well. By July 1, the state had issued permits for 243 new oil wells, 327 gas wells and 214 combination oil and gas wells.

Those numbers, Bender said, likely will double by year's end. "That's about all we're going to be able to do with the number of rigs available in Kentucky," he said. "If there were more drilling rigs, we would be issuing more permits."

Only about 30 drilling rigs, most of them owned by independent contractors, are operating in Kentucky, according to industry estimates, and Bender said they're not able to keep up with demand.

Drilling activity in Kentucky is at its highest level in at least five years, based on state permits issued. Last year, the Division of Oil and Gas Conservation issued 1,266 permits for new wells in the state.

The state has about 48,000 producing oil and gas wells, according to the Kentucky Oil and Gas Association. Crude from Kentucky sells for about $57 a barrel. Natural gas sells for about $8 per thousand cubic feet.

Mike Wallen, vice president of engineering for Daugherty Petroleum of Lexington, said higher prices for natural gas and crude make it financially feasible to drill wells in places they wouldn't have considered a decade ago.

"Last year, our company drilled 157 wells," he said. "We're on pace to drill 160 to 170 wells this year."

Many of the new wells will be in remote locations that will require the construction of roads and pipelines. The wells will be an average of 4,500 feet deep and cost from $200,000 to $300,000 to drill and put into production.

Wallen said Daugherty Petroleum has been fortunate to have a long- term contract with a Barbourville company to dig wells in southeastern Kentucky. As a result, his company hasn't yet been affected by the lack of drill rigs.

That's not to say it won't be affected in the future.

"It's a concern," he said. "There have been very few drilling rigs put in operation in this country in the past decade."