EXPLORATION Drilling for cash is a gas, gas, gas

With the price of energy so high even the smallest wells are worth tapping.
WILGUS, Ohio (AP) -- Cemeteries, golf courses, school grounds and churchyards around the nation are becoming unlikely oil and natural gas fields because, at current prices, even a marginal well produces enough to make exploration and drilling worthwhile.
Crude oil futures rose above $41 a barrel last Monday, as the Organization of Petroleum Exporting Countries announced plans to cut production, and colder weather hit much of the United States.
That left crude nearly $15 a barrel cheaper than in late October, but still about 30 percent higher than a year ago.
At those prices, well-disguised urban wells are proliferating.
"They make such a small footprint, sometimes they occupy one parking space in a parking lot ... urban areas where you would never think you could drill a well," said Joel Rudicil, an independent producer who has drilled wells in Ohio and neighboring states throughout the Appalachian Basin. "There's a rig on site for six days and then it's gone, and you'd hardly know a well was there."
A passer-by might see a small wellhead, a landscaped, fenced-in space or nothing at all.
A December rig count showed 1,250 rigs exploring for oil and natural gas, up 141 from a year ago. The tally peaked at 4,530 in 1981, during the height of the oil boom, and bottomed at 488 in 1999, when oil went for $11 a barrel.
High demand
War in the Middle East and the growth of industry in China contributed to sharply higher prices and demand for oil and natural gas.
The United States produces about 5.1 million barrels of crude oil a day, down from 5.6 million a year ago, and imports 67 percent of the crude it needs, about 10.5 million barrels a day, according to the American Petroleum Institute.
The increase in drilling is a combination of establishing new wells and keeping current wells operating longer, said Rex Buchanan, assistant director of the Kansas Geological Survey, a research arm of the University of Kansas.
He said in an old-line, oil-producing state such as Kansas, marginally producing wells were idled decades ago.
"Since then, it's gotten harder and harder. But if prices are high enough, you can go back and start getting that stuff out," he said.
Some industry observers say the drilling boom will continue as long as oil stays above $25 a barrel and natural gas above $5 per 1,000 cubic feet. Natural gas producers now get just over $7 per 1,000 cubic feet.
A well a week
Rudicil, president of Bass Energy Co. of Fairlawn, expects to drill a well a week, either oil or gas, well into next year, although it remains a risky proposition.
"For every dollar we're investing, we're trying to turn that into three, four, five dollars," he said.
Even in the developmental stage, in an area of known reserves, there is no guarantee of drilling a producing well. More than 10 percent of those are dry.
About 900 exploratory ventures around the country struck oil or gas last year, but 1,100 found nothing, said Jeff Eshelman, spokesman for the Washington-based Independent Petroleum Association of America.
There are more than 300,000 marginal wells -- also known as stripper wells -- operating in the United States, according to Tom Stewart, the executive vice president of the Ohio Gas & amp; Oil Association. Most are in Texas, Oklahoma, Kansas and Ohio.
Some produce only a barrel a day, but together they produce 1 million barrels a day, about 20 percent of domestic crude production.
"There's a lot of wells drilled in a lot of strange places," said Harold Hamm, president of the National Stripper Well Association, a trade group based in suburban Houston. "A lot of them are mom and pop operations. They keep the cost down to nearly nothing by doing all the maintenance themselves."
Most wells yield both oil and natural gas, but natural gas often is easier to recover because of the pressure built up under rock formations.
Natural gas
David Martineau, a geologist and exploration manager for Pitts Oil Co. in Dallas, said 85 percent of the rigs in use are drilling for natural gas.
Landowners typically get a small lease fee, perhaps $5 an acre, and 12.5 percent of the revenue from a well, so royalties often are not large. At one barrel a day, a marginal well would generate royalties of just under $1,400 a year if the price is $30 a barrel; at $50 a barrel, it would be nearly $2,300.
Near Wilgus, a crossroads in southeast Ohio, Burt Payne has a half-dozen working wells on land his family has owned since 1847. The farm almost slipped away from his grandparents when times were tough.
"They didn't know they were sitting on oil," said Payne, 74, a retired physician. "They put a gas well down several years ago and oil started seeping up around it."
The well produces just eight to 10 barrels a day. Payne said his gas and oil royalties amount to about $8,000 to $10,000 a year.
Cleveland will receive about $60,000 a month in oil and gas royalties from wells Rudicil drilled at Highland Golf Course, Rudicil said.
"We really weren't expecting the kind of revenue we are going to get from it," said Natalie Ronayne, the city's parks and recreation director.
Legislation enabling the pilot project requires that revenue be used only for golf course maintenance, such as upgrading irrigation, cart paths and clubhouses, Ronayne said. Studies are looking at the possibility of drilling at some city parks.
That sort of thing has not gone over well with environmentalists.
The environmentalists
"We have had concerns with some of the pollution and health issues that come from locating oil and gas wells," said Allison Horton, a Sierra Club representative in Traverse City, Mich. "There have been some gas well problems in Michigan where fumes from wells have caused problems."
Pennsylvania is in its fourth wave of drilling activity, dating to the 1800s and both World Wars.
"It's the result of fuel prices," said Tom Rathbun, spokesman for the Pennsylvania Department of Environmental Protection, which regulates drilling. "We're seeing them (wells) inside many city limits in the state, in church yards and schools."
He said spills did not pose much of a problem.
"Our biggest concern is sedimentation from road building and earth moving," Rathbun said. "With our steep topography -- we have a stream in every valley -- you can get runoff problems very easily."
The city of Lyndhurst, in northeast Ohio, has received more than $300,000 in royalties and benefits and uses its allotment of gas from wells in community parks to heat swimming pools and City Hall. The brine is used in de-icing.
"It's better than rock salt, which bounces off the pavement," said Rick Glady, director of city services.