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Drilling Rigs in Demand

Posted on: Sunday, 13 November 2005, 12:00 CST

By Dave Scott, The Akron Beacon Journal, Ohio

Nov. 13--These should be great times for drillers of natural gas wells.

Prices are high. Supplies are low after hurricane damage to rigs in the Gulf of Mexico. Federal and state laws are changing to make it easier to find prime drilling spots. Winter is coming and natural gas is the way about half of all Americans heat their homes.

But Ohio drillers have a problem that is costing residents money. There is a shortage of both the equipment used to drill for oil and gas and the people trained to operate it.

There are only 12 drilling rigs in the entire state and they are operating around the clock. Workers are moving them to new locations as fast as they can, which is usually once a week.

There is talk of drilling in places like Salt Fork State Park and beside and under Lake Erie.

The drilling could cause some environmental and safety concerns. But price and demand are driving this surge, and those factors are not about to ease.

About 10 percent of the natural gas Ohioans burn comes from the Buckeye State. It's sold at about the same price as gas from the Gulf of Mexico, but Ohio gas saves residents money because it does not come with the expense of transportation costs, which amount to about $1.50 per thousand cubic feet.

The industry shortages are not exclusive to Ohio.

Houston-based Baker Hughes Inc. reported 1,253 rigs were exploring for gas nationally. That compares with 4,530 rigs in 1981, during the height of the oil boom.

Time is running short. Natural gas prices already are in the $14 range for a thousand cubic feet (mcf) and some experts predict it will reach $20 for the winter heating season. That means the typical home that uses 9.5 mcf of gas per month could see its bill go from $133 to $190 per month.

Ohio's role in the boom-and-bust oil and gas exploration industry has shrunk in recent years.

The industry that employed 20,000 workers in the 1980s is down to 5,000, according to Joel Rudicil, a partner in Bass Energy Co. of Akron. In Summit County, 318 wells were dug in 1985, but rigs made only four holes in 2004.

Many companies have gone out of business. Those that remain scaled down their operations as low gas prices in the 1980s and 1990s ate into profits. Prices near $2 per mcf were common in the 1990s.

"Our industry was so devastated in the '80s, we lost 60 percent -- maybe more than that," said Rex Baker, president of Baker Well Inc., a gas exploration company based in Westerville with significant operations in Holmes County.

"The whole infrastructure has shrunk over the last decade, and that will not change overnight," said Baker's brother Jeff, secretary-treasurer of Baker Well and president of the Ohio Oil and Gas Association.

With prices high, drilling companies are eager to hire, but finding skilled workers is almost impossible. There are no schools teaching how to drill a gas or oil well -- you have to learn on the job, the Bakers say. It can take as much as 10 years to train a top-skilled driller.

"It's going to take time, it's going to take long-term capital commitments, especially as it relates to well equipment and training of employees to take management positions," said Rudicil. "Not only does it take training, it takes experience and you only get experience one way."

"We could buy a new rig and it might be impossible to staff it," said Jeff Baker.

Rudicil had a crew drilling on Seneca Golf Course in Brecksville earlier this month. He pointed out that the four men working at the rig all had more than 10 years experience.

The narrowest bottleneck has to do with rigs.

"One of the most common complaints I get from my members is, 'Where can I get a rig?' " said Thomas E. Stewart, executive vice president of the Ohio Oil and Gas Association.

While a rig cost as little as $650,000 a couple of years ago, now the prices are in the millions. And it can take months to get one delivered.

"Quite honestly, we are probably going to sell one of ours," said Rex Baker. "It's the demand for them. Buy low, sell high!"

Clyde Willis, president of Walker Neer Manufacturing Co. in Wichita Falls, Texas, can't make drill rigs fast enough to meet demand.

"It takes 45 man-weeks to build a rig," he said.

He can only make a few at a time. He has 50 employees, compared with a high of 110 in the 1980s.

Willis said he will hire if he can find qualified workers.

"If you have any welders up there I would fly them right down and put them to work," he said to a reporter by telephone.

It wasn't like this in the 1980s when Ohio had hundreds of rigs and natural gas was sold at a steady, but government-regulated pace.

Then came deregulation. Gas prices stayed the same or went down. The gas exploration industry went into a slump, as companies relied on established wells in well-known fields. A lot of companies went out of business. Many rig makers scaled down to a point where they only made parts to keep their old products running. The existing rigs either broke down or were scavenged for parts.

Word of possible natural gas shortages surfaced last year and Ohio laws were changed to remove local regulatory barriers to oil and gas development.

State laws, not local regulations, determined where and how wells could be dug. That meant gas fields in populous places such as Cuyahoga County became available for exploration and offered a better return on drilling because they had not been explored before, Rudicil said.

The golf course site his crew was drilling on would have been unavailable before state laws changed to allow more urban drilling, he said.

Ohio has seen an increase in drilling this year, but not as much as might be expected from the rise in gas prices.

Through September, the Ohio Department of Natural Resources reported 426 wells dug in the state. Mike McCormac of the division of mineral resources department predicts 700 wells will be dug in 2005, up from 548 last year.

More changes are on the way.

Ohio Rep. John Hagan, a Republican from Alliance, is proposing legislation that would allow drilling on state-owned property, including state parks like Salt Fork. "To open up virgin territory means the yields are almost guaranteed to be better," he said.

He promised the bill will include environmental safeguards.

"There will be major considerations of wetland areas, of endangered species, of particular flora that is out of place due to movement of glaciers, that are historic factors," he said.

Jack Shaner, a lobbyist for the Ohio Environmental Council opposes the proposal.

"We're not going to be able to drill our way out of this winter's gas shortage by drilling in state parks," he told the Associated Press.

Rudicil said tougher regulations on drilling were passed in 1980 that cut down on environmental incidents. For example, he said 377 wells have been dug in Bath Township since 1940 with no reports of any fresh water sources being contaminated.

The Associated Press contributed to this report.

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To see more of the Akron Beacon Journal, or to subscribe to the newspaper, go to http://www.ohio.com.

Copyright (c) 2005, The Akron Beacon Journal, Ohio

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BHI,

Source: Akron Beacon Journal (Akron, Ohio)

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