With Prices Rising, Rush to Drill for Natural Gas is on in Tennessee
By Bob Fowler, The Knoxville News-Sentinel, Tenn.
May 14–OAK RIDGE — Natural gas prices, high and rising, are driving a well-drilling boom on the northern Cumberland Plateau and in Anderson County’s mountains, experts say.
With the demand for natural gas predicted to outstrip supply for the next few years, it’s just the beginning of a rush to lease land for wells, an official with a statewide group of drillers forecasts.
“You’re just seeing the tip of the iceberg,” Tennessee Oil and Gas Association President Bill Goodwin said of the dramatic increase in natural gas and oil drilling permits now being issued.
“It’s really just getting started.”
Consider this: There were 221 applications for oil and natural gas wells filed in Tennessee in 2004.
Last year, 354 applications were submitted.
For the first quarter of this year, 132 permits were filed, officials with the state’s Department of Environment and Conservation said.
At that pace, there will be about 500 to 600 well applications filed this year.
And that’s on top of the 1,200 or so active wells now in Tennessee, according to state official Paul Schmierbach.
Gas rush Most of those wells are for natural gas, and interest in that drilling is spiking in Anderson, Morgan and Scott counties, Schmierbach said.
Pockets of natural gas and oil are trapped in fractured layers of Mississippian limestone that are about 2,000 to 2,500 feet deep on the plateau.
That gas- and oil-rich layer gets deeper the farther east you go, Goodwin said.
Drillers in Anderson County often burrow down 3,000 feet — cheaper exploration than natural gas wells drilled out West that often plunge two to three miles.
While skyrocketing fuel prices are behind the latest drilling rush, it’s been known for more than a century that you can strike oil and natural gas in certain parts of the Volunteer State, said Mike Hoyal, deputy state geologist.
Residents seeking underground brine reservoirs in the late 1800s as a cheap salt source accidentally drilled into natural gas pockets in Scott and Morgan counties, Hoyal said.
Those counties, along with Fentress and Overton, remain among the state’s most prolific natural gas producers.
Anderson County is coming on fast, experts say.
Mike Hartzell, a vice president with Atlas America Inc., one of the biggest players in the natural gas drilling business in the Eastern United States, predicts his firm could be drilling about 100 new wells in Tennessee this year.
Many of the wells will be around the Windrock Mountain area of Anderson County among thousands of acres owned by the Coal Creek Co.
Each natural gas well costs $200,000 to $300,000 to drill.
Based on the current statewide permitting rate, drilling companies will be investing between $100 million and $180 million this year in their search for natural gas and, to a lesser extent, oil.
That doesn’t include the economic ripple effects, Hartzell said.
There are the local contractors who work for the drillers, from well service firms that run steel casings down the wells to timber crews that cut trees for roads and pipelines.
Landowners who lease out their property also receive a 12.5 percent royalty on any oil or natural gas extracted from their land.
Drillers have focused on signing leases with companies that own large chunks of the plateau and Cumberland Mountains, including Coal Creek Co. in Anderson County and Heartwood Forest Land in Morgan County, Hartzell said.
“There are thousands of acres that are not leased that will be leased in the next few years,” Goodwin said.
“You start with the big ones (landowners) if you can get them,” he said. “Then you go to the 10- to 20-acres.”
Companies use a combination of satellite photos and various geological and topographical maps to pinpoint where to drill.
“When you’re drilling in these shallower basins, it’s considered low risk and low reward,” Hartzell said.
“It’s exciting but tricky,” Goodwin said. “I’ve drilled the same place three times,” he said.
Tennessee’s exploration and production activity pales in comparison to the oil-rich states to the west, but there is still a promise of reward.
“By Texas and Oklahoma standards, these may be very modest wells, but they work. The economics works on them,” Hartzell said.
Schmierbach of the Environment and Conservation Department said the (drilling) success rate varies across the board. But, “if you hit a hot area, you have a much higher rate.”
Risk or reward Is the hunt for natural gas a high-stakes gamble, a prudent investment, or a bit of both?
“It can be a very great return,” Goodwin said. “It can be a dry hole, too.”
Today’s market price of around $7 to $8 per thousand cubic feet of natural gas is considered nearer the low end of the upcoming price range.
“Most experts predict that $5 and $6 (natural) gas per 1,000 cubic feet will be the rock bottom price,” said Scott Gilbert, vice president of exploration for Ariana Energy .
“With the price of gas where it is, you can get something out of just about every well,” he said. “Generally, 20 percent of the wells (in Tennessee) make up 80 percent of the production.”
Just a few months ago, the price of natural gas had soared to $14, Gilbert pointed out, and lately it’s been creeping back up.
“It will be there again,” Goodwin projects. “It’s the law of supply and demand.”
Headquartered in Knoxville, Ariana Energy is stepping up its efforts in East Tennessee and is now producing about two million cubic feet of natural gas a day, Gilbert said.
The company has 50 wells in Anderson County and 30 in Morgan County. Gilbert said another 50 wells are planned this year, mostly in the same areas.
The biggest single producer for Ariana is a well near the abandoned Windrock community off Windrock Road that’s producing 260,000 cubic feet of natural gas per day, Gilbert said.
A network of pipes link wells to compressors that force natural gas into the main pipeline that crosses the state.
“We’ve put in dozens of miles of pipeline,” Gilbert said, “and we’re finishing up a 15-mile-long, eight-inch steel pipeline that goes from Windrock to the East Tennessee Natural Gas pipeline near Harriman.”
Drilling for natural gas can take a toll on the environment, but not nearly to the extent of coal mining, the drillers say.
“We’re building some roads, but a lot of roads are in place from old coal benches,” Hartzell said. “That’s where we’re locating wells.
“We’re not tearing up a lot of virgin territory, and it’s a much smaller footprint than coal operations.”
Goodwin also downplays environmental concerns. “I can go into a field and clear one acre, drill a well and take $1 million worth of energy out of it, and five years later, you won’t be able to find it (the well).”
By and large, state regulators say the gas drillers are complying with regulations geared toward protecting the state’s streams and groundwater.
“We’ve issued some penalties, but I wouldn’t say we’ve issued a lot,” said Tisha Calabrese-Benton, spokeswoman for the Department of Environment and Conservation.
One of the keys to protecting the environment is making sure natural gas wells are shut down correctly after they’re played out, Schmierbach said.
“That’s very important, because if abandoned wells aren’t plugged properly, you could have groundwater contamination,” he said.
Cement plugs must be placed inside the wells between water aquifers, he said. State inspectors have to check drilling logs to make sure the abandoned wells won’t taint groundwater, Schmierbach said.
Keeping up with a rising tide of drilling activity with a small staff isn’t easy, he said. “We’re doing the best we can with the resources we have.”
And according to Hartzell, state officials “aren’t bashful about telling us what they expect.”
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