Prices fuel optimism for oil and gas drilling

Mahoning County is an active area for oil and gas-well drilling in Ohio.
By PETER H. MILLIKEN
VINDICATOR STAFF WRITER
After a long slump, gas and oil-well drilling in Ohio appears poised for a recovery as prices for these commodities have risen and remained robust, experts say. Drilling-permit applications are on the rise in Pennsylvania as well.
"Now, you're starting to see a relentless march upward in commodity prices" after years when they've fluctuated, observed Tom Stewart, executive vice president of the Ohio Oil and Gas Association, which represents producers. Recently, oil prices have been around $40 a barrel and gas prices around $6.50 per thousand cubic feet, he noted.
In Ohio, 499 wells were drilled in 2002 and 508 in 2003. With 43 wells drilled, Stark County was the most active Ohio county last year, followed by Ashtabula County with 39. Mahoning County ranked sixth among Ohio's 88 counties with 23 wells drilled.
Previous slump
Although several thousand wells were drilled annually in the boom times of the early to mid-1980s, the statewide annual total has been below 900 every year since 1991.
"Prices right now are robust, but just five years ago, prices were in the tank," Stewart said, noting the cost and risk associated with drilling.
In 1999, average wellhead prices were $16.20 a barrel for oil and $2.41 per thousand cubic feet of natural gas, according to the Ohio Department of Natural Resources.
Of the 508 wells drilled in Ohio last year, 64 produced no gas or oil, according to state statistics. The average cost of drilling a well in Mahoning County is between $150,000 and $200,000, Stewart estimated.
Reports for the first few months of this year show signs of increased activity. As of May 17, ODNR had issued 272 drilling permits this year, 19 more than in the same period last year.
Pennsylvania figures
This year, the Pennsylvania Department of Environmental Protection said it had received 1,374 applications for new well permits as of May 21, compared to 1,168 at the same time last year. Unlike Ohio, Pennsylvania does not publish a statewide and county-by-county annual drilling summary.
Stewart and Mike McCormac, the ODNR geologist who compiles Ohio's annual drilling reports, predict 550 to 600 wells will be drilled in Ohio this year and attribute the projected increase largely to higher oil and gas prices.
Drillers agree that the economic climate appears favorable for increased drilling. Joe Glista, president of the Canfield-based Energy Resources of America Inc., predicts a slight increase in drilling. The current price structure "makes it a little more economical to drill some of these more marginal wells," he said.
"It does look good," agreed Rick Liddle, a petroleum engineer with the Austintown-based Ohio Valley Energy Systems Corp., who noted that higher prices have lasted longer recently than in years past.
However, he cautioned: "The producers are still apprehensive because we've seen some of this happen before, and prices have come back" to lower levels.
Ohio bill
Another influence the experts say is likely to spur more drilling in Ohio is House Bill 278, which has passed the Ohio House and Senate and awaits Gov. Bob Taft's signature. The bill, which was backed by the Ohio Oil and Gas Association, would repeal the authority of local governments to regulate drilling and give ODNR sole authority over this activity.
"That would be a major contributing factor because there are a lot of companies and producers that have leaseholds where they just can't drill because of the restrictions by the local governments," Glista said.
"I used to do all my drilling in Ohio up until three years ago, and I moved everything over to Pennsylvania," where open land is more available and local governments don't restrict drilling, he added.
Last year, Glista's company drilled 26 wells in Mercer County, and this year, it plans to drill 28 to 30 there, Glista said. "We're in farm communities over there. It's a lot easier to lease the ground, and we found some good reserves over there," he explained.
Local laws
"House Bill 278 opens up quite a bit of area" to drilling, Liddle said. However, he added that he thinks some Ohio local governments will challenge the bill in court. Various Ohio localities impose drilling fees, restrict where drilling may occur or require public hearings on drilling requests, he noted.
Ohio communities with outright bans on drilling include Hudson, Fairlawn and Tallmadge. Communities with varying degrees of restrictions include Warren, Niles, Youngstown, Boardman and Canfield.
In Pennsylvania, Hermitage and other communities have tried to impose drilling-related noise ordinances, but the state overruled them, Glista said.
Although it is far from energy self-sufficiency, Ohio is fortunate to produce 12 percent of the natural gas it consumes because that production gives the state a cushion against price volatility during peak demand periods, Stewart said. "We follow the market on pricing, but we don't have short-term volatility that knocks you crazy," he explained.
There's no shortage of oil and gas resources in the region, the federal government says. Some 70.2 trillion cubic feet of natural gas and 54 million barrels of oil remain undiscovered in the Appalachian basin that includes most of Ohio and Pennsylvania, according to a U.S. Geological Survey estimate.