Demand keeps Pa. companies busy drilling

Monday, August 21, 2006 Through May, Pennsylvania ranked No. 7 of all states in well starts. PITTSBURGH (AP) — Natural gas coming out of the ground selling for $2.50 to $3 per thousand cubic feet years ago kept companies such as Union Drilling working, CEO Christopher Strong said. Today, with demand outstripping supply and natural gas priced between $5 and $8.50 per thousand cubic feet, Union and its drilling competition rapidly are expanding, many times selling shares to the public to finance growth. "That's [higher prices] very exciting. You're drilling marginal [less-than optimal] lands, but it's bringing much larger returns to our customers," Strong said. And higher drilling rates for Union and others. Union Drilling, Linn Energy LLC, Superior Well Services Inc., now or at one time locally based, all went public within the past 18 months to capitalize on the need for their services. While areas in Texas, Colorado, California and Wyoming are busily being explored, this region, the godfather of U.S. oil production, has become extremely active primarily for natural gas exploration and production. Number of permits In June, Pennsylvania issued 430 drilling permits, more than any other state east of the Mississippi River, and third highest total in the nation, trailing only Texas (1,618) and Colorado (532), according to American Oil & Gas Reporter. Through the first five months of the year, Pennsylvania was ranked No. 7 in terms of well starts with 843, trailing Texas, Oklahoma, Wyoming, California, Colorado and Kansas, RigData reported. "There is a movement afoot concerning drilling that affects a number of plays [areas] of the country, including southwest Pennsylvania," said Rick Gordon, an independent oil and natural gas consultant based in Overland Park, Kan. The movement Gordon referred to is drilling on land in the U.S. Experts say low-risk, stable areas are becoming more important to operators, particularly after the upheaval the oil and gas industry experienced during the 2005 hurricane season and the more recent eccentricities exhibited by Venezuelan dictator and Citgo Petroleum owner Hugo Chavez. "There definitely is more interest in the onshore U.S.," said Tim Evans, an energy futures analyst in New York for Citicorp. "If you look at all of North America, the onshore drilling rig count now is 46 percent above the five-year average." In the U.S. alone, the on-land drilling rig count as of July 28 was up 24.6 percent from one year ago, to 1,598 from 1,282. Keeping companies busy Increased activity is keeping companies such as Union Drilling, Mount Lebanon-based Linn and drilling services firm Superior Well of Indiana, Pa., busy, locally and nationwide. Each company specializes in different parts of the oil and natural gas industry. Linn is an oil and natural gas exploration and production company, Union Drilling provides drilling services, and Superior offers well services, including down-hole surveying and various well-pumping services. "The activity in western Pennsylvania definitely is increasing," said David Wallace, Superior's chairman and CEO. "You know what you get when you drill in this area; there are no surprises, so you don't have to worry, and you're closer to end users in the Northeast." Union Drilling and Superior each were formed in 1997. Linn was formed just three years ago. All three went public within the past 18 months. Once based in Bridgeville, Strong relocated Union Drilling earlier this year to Fort Worth, Texas, primarily to be closer to the area where most of the company's capital investment is and will be. The company still maintains its Northern Division base in Punxsutawney, Jefferson County. Staying in Pa. Michael Linn is more than content to maintain Linn Energy's base in Mount Lebanon, with satellite facilities in Houston, Texas, and, as of last week, significant operations in Orange County, Calif., and in north central Oklahoma. The company announced deals last week to acquire 681 natural gas and oil wells in the two regions for $416 million. Once consummated, the acquisitions will move Linn from having 99 percent of its proven reserves in natural gas, to a 60-40 natural gas-crude oil split, as the company diversifies productwise and geographically. "I'm comfortable with that split between gas and oil," said Linn, who has been involved in oil and gas for more than 25 years, and currently serves as chairman of the trade group Independent Petroleum Association of America. Linn is convinced the Appalachian Basin, including southwestern Pennsylvania, is and will continue to be an attractive drilling location for a number of reasons, including: Low-risk drilling. Linn Energy has a 100 percent success rate on 200-plus wells drilled annually. Linn operates 1,900-plus wells, and all are considered shallow, less than 5,500 feet deep. Low-cost drilling. Linn's average well drilled costs $250,000, compared with other areas of the country or offshore, where a typical well can cost $2 million-plus. Long-life wells. Many Appalachian wells produce for more than 50 years. Drawing outsiders Appalachia's long-lived assets, high drilling success and proximity to the Northeast market are drawing the attention of outsiders, Linn said. "The big boys are getting involved with drilling in Appalachia," Linn said. "Anadarko [Petroleum] and Chesapeake [Energy] are here." Anadarko, the nation's largest independent gas producer, reportedly has stockpiled land in western Pennsylvania for future drilling, while Chesapeake, the country's second-largest natural gas producer, has leaseholds on property in Fayette, Somerset and Clearfield counties. Fortuna, the U.S. subsidiary of Canadian exploration giant Talisman Energy, has drilled for natural gas on the Pennsylvania-New York border, and recently began a well in Washington County, according to John Harper, with the state Geological Society. Unlike most of its fellow operators, Fortuna is drilling deep wells, hoping to tap what's known as the Trenton-Black River natural gas pool.