Oklahoma’s oil and gas operators haven’t completely abandoned drilling vertical, or “straight hole” wells, Corporation Commission records show.
It reported that 197 wells of the 1,003 completed in 2016 were straight hole wells.
Granted, that’s down from a recent high of 858 vertical wells permitted in 2011 and completed by June the following year, when that represented about 42 percent of the 2,082 that year.
But while an industry analyst and a driller are quick to agree that much of the media and general public focuses their attention now on horizontal drilling and production, they add that the tried and true process of drilling and producing vertical wells won’t become extinct anytime soon.
Russell Evans, an economics professor who directs the Steven C. Agee Economic Research & Policy Institute, regularly analyzes trends in the state’s oil and gas industry for trade groups and banking officials.
He said continued drilling and production of vertical wells is supported by three factors, based on information he’s encountered as part of his research.
The first, Evans said, is that he believes risks associated with vertical wells are diminishing in part through data collected as deeper, horizontal wells are drilled.
He said that often, mineral rights owners only sell rights to a resource being targeted by a horizontal well to the company seeking to exploit it. As part of that, they require the company to provide them detailed information on up-hole zones to improve their understanding on potential production from those.
Second, Evans said costs to drill vertical wells have been falling as drilling times have improved.
Third, he said data shows costs to lease mineral rights typically accessed by vertical wells are much less expensive than those for resources targeted by drillers in horizontal plays.
Those factors, he said, continue to make vertical wells attractive for some producers.
Tom Gray, a principal of Raydon Exploration, said another reason vertical wells remain attractive is the potential return a producer can get from such projects.
Gray, whose firm is based in Oklahoma City but has most of its ongoing operations in the Oklahoma and Texas panhandles and southwest Kansas, noted the typical rate of return on a deep horizontal well usually is about $2 for every $1 it cost to drill and complete the project.
“In the conventional realm, we are going after traps of oil and gas, and we have a risk that’s higher,” Gray said. “But when we find those reservoirs, their quality is vastly better (than what horizontal shale wells produce).
“Because your return is better, it allows you to take some additional risk. To me, that’s the biggest difference.”
He also agreed that drilling and production costs are down outside of Oklahoma’s SCOOP and STACK plays, although he added that it sometimes can be more of a challenge to find talented drilling and completion firms in areas where activity hasn’t rebounded since 2014.
Gray agreed with Evans that oil and gas companies drilling vertical wells that target conventional reservoirs remain in Oklahoma’s future.
“The likelihood of finding a 10 (million) or 20 million barrel field in the conventional world is pretty small in Oklahoma because there has been so much drilling, historically,” Gray said.
“But there are lots of 500,000, 1 million, 2 million and 3 million barrel fields left to be found through vertical drilling,” he said.
“I think there will always be an appetite for that. And there is some pent-up capital willing and waiting to be deployed in the vertical realm.”
When an industry is in a down-turn, companies start thinking of ways to save money. It comes with the territory. All of us in the oil and gas industry are dealing with this right now. The first budget cuts are usually made to advertising and marketing. But did you know that cutting back on advertising is actually one of the worst things you can do for your company?
Sure, you’re saving money in the short-term, but it’s not benefiting you in the long run. Just because an industry is in a down-turn, doesn’t mean that consumers magically disappear and go away. They’re still there and they’re more selective than ever. They’re going to be looking for alternative companies to do business with as companies are closing their doors and going out of business. The oil and gas industry is slowing, but it’s not stopping. The existing wells and rigs are still going to need parts, supplies and services.
The consumers are going to be shopping around and looking for ways to save money. It’s in your best interest to keep your name in front of the consumer! You’ll want to stand out from the competition. Do you want to be remembered or forgotten?
When the industry does turn back around, who will the consumer be more likely to buy from? YOU! Because you never went away.
The wonderful thing about Don’s Directory is that we make it possible for you to save money while still keeping your name out there. We offer advertising options that aren’t going to “break you” and spend your entire budget in one shot. We are the cost-efficient way for your company to stay relevant. For more information on our advertising options, please visit our website at www.donsdirectory.com.
“This program will set a much better baseline for Texas seismicity,” Dr. Scott Tinker, state geologist of Texas, said.
By Jennifer Delony
Texas Gov. Greg Abbott in June signed legislation that authorized $4.47 million in funding for the TexNet seismic monitoring program, which will be led by the Bureau of Economic Geology – State Geologic Survey of Texas – at University of Texas at Austin.
“This program will set a much better baseline for Texas seismicity,” Dr. Scott Tinker, state geologist of Texas and director of the Bureau of Economic Geology, told Oilman on June 24. “Understanding Texas base level seismicity can help in many ways not just related to disposal of fluids from oil and gas wells; we have a lot that goes on in Texas – industrial as well as natural.”
According to Tinker, the program will help Texas lead a national response to growing concern over increases in seismic activity.
“We are forming a research team with different expertise at University of Texas, and we’ll collaborate with other universities, including Southern Methodist University, Texas A&M, and Stanford University, as well as with other states,” he said.
The TexNet program will include the purchase and installation of 22 new permanent seismometers in Texas to add to the 16 seismometers currently installed throughout the state.
“We’ll decide what types of permanent seismometers we want this summer, and we’ll open that up for public bid, and by mid to late fall we will begin to deploy them on a station-by-station basis throughout Texas,” he said. “That also will require permitting with landowners because they will be in place for a long time.”
Deployment of the permanent arrays will continue throughout 2016, Tinker added.
During deployment, Tinker said the team will make sure that data collected from the arrays meet the protocols established by the U.S. Geological Survey and the Incorporated Research Institutions for Seismology.
The TexNet program also will include the purchase and deployment of 36 portable seismometers.
“This summer we will also begin to decide what types of portable arrays we want, put that out for public bid, and then begin to acquire them,” Tinker said. “We will probably have those arrays staged in three facilities that the Bureau of Economic Geology has across Texas – in Midland, Austin and Houston – so that they are accessible to different parts of the state.”
When and how the portable arrays are deployed will be determined by seismic events, he said, adding that an advisory committee and technical group will decide whether new seismic events can be explained by natural causes and whether those events warrant deployment of portable arrays in order to pinpoint the event by geographic location and by depth.
Data from the permanent arrays will be available to the public.
“We’re hoping that local schools and libraries will get excited about knowing what is going on seismically in their areas,” he said.
Data obtained from the portable arrays relating to specific seismic events will be studied by the TexNet group and released to the public on a case-by-case basis.
“The exciting thing about this program is that it has brought industry, government, universities and even NGOs together around the topic of seismicity,” Tinker said. “They are engaged in understanding this problem better.”
In a field of brittle yellow grass and clotted mud about five miles north of Dickinson, North Dakota, stands a cemetery of sorts. Drilling rigs stretch into the sky like tall skeletons. The occasional lone truck rattles along a dirt road. Otherwise, the location is deserted.
Similar graveyards have been popping up across the western half of the state since the price of oil sharply declined last fall. These once-great moneymakers that drew thousands to the state are now idle, or “stacked,” in the lingo of the oil fields. As more and more companies have stopped drilling following the decline in the price of oil last year, the term has become all too familiar.
During the good times, jobs were plentiful and businesses prospered. High-school graduates earned six-figure salaries in the oil fields, and cash flowed into the hands of those lucky enough to own the mineral rights to land rich with oil. North Dakota’s sudden success coincided with an economic slump in the rest of the country; job seekers rushed to the state fleeing hard times. For seven straight years, North Dakota boasted the lowest unemployment rate in the country. Early this year, it slipped from that coveted spot.
Though many native North Dakotans remembered the oil bust in the late 1980s, this time it was easy to believe that the boom would last. “Your grandchildren’s grandchildren will be working in the Bakken,” Lynn Helms, director of the North Dakota Department of Mineral Resources, said in October. Just over a year ago, North Dakota was producing more than one million barrels of oil per day, more than any state but Texas. This time around, it seemed, things would be different.
But as soon as the price of oil dropped late last year, things began to unravel, and rigs started to close. Of the 192 drilling rigs active in April of 2014, just 94 were open one year later.
Charlie Cogdill, an agent for Halliburton, has been through four oil busts over the course of his career. He describes drilling as “the tip of the spear,” the first part of the industry to be affected by the slowdown. A downturn in oil prices produces a ripple effect that spreads from drilling to fracking, from the workers on the rigs to the small communities where those workers live.
What will happen to those who uprooted themselves and their families to move here? What will happen to the towns that suddenly flourished? What will happen to those who pinned their dreams on the North Dakota oil boom?
* * *
Early this spring, 16 miles east of a town called Watford City, Dallas Lawrey watched from his trailer as one of his last drilling rigs was taken apart piece by piece.
The bust hit the drilling industry the hardest. As more and more drilling rigs stack, more and more men like Lawrey worry that they won’t be able to hang onto their jobs.
At high noon, the rig buzzed with activity. Men wearing steel-toed boots, clear safety goggles, and mud-splattered hard hats were everywhere, driving trucks and moving machinery. A team hosed down and cleaned the rig before it was stacked as an extra safety consultant watched to ensure protocol was followed while the rig was disassembled. Just beside a dirty, frayed American flag, another flag—a white one, bearing the name of the drilling company Nabors—flapped in the wind. The crew took down the flag of XTO Energy, a subsidiary of Exxon Mobile, after they learned the company was idling the rig.
Lawrey, a long-time resident of Dickinson, North Dakota, worked in the oil fields most of his adult life and is the main provider for his family. His wife, Sara, works as a secretary for the private Catholic elementary school his two youngest children attend, earning them discounted tuition but little else. The family moved into a spacious new home five years ago, which they have yet to finish paying off. Lawrey recently bought Sara a “spendy” new Suburban.
For the past five years, Lawrey worked for XTO Energy as a drilling consultant. “I think they’re going to keep me on,” Lawrey said in March. But that’s not how things shook out. Lawrey worked his last day for the company on April 21. He is now working full-time for a friend’s excavating company. “I’m kind of enjoying the break from the oil field, to be honest,” he says.
* * *
Although drillers and their supervisors are the ones most affected by the slowdown, the livelihoods of those who sell equipment to the oil field have also diminished in recent months.
Jesse Kilwein, 27, is one of those workers. On behalf of Little Dog, LLC, he sells the tools that drillers use to break apart rock formations. In 2012, Little Dog serviced 68 rigs. By March, that was down to 25 rigs and Kilwein’s boss, Charlie Cogdill, expected that number to keep falling, and it did. Before the slowdown, Kilwein and two other full-time salesmen would each work with five or six different drilling companies every day. Little Dog has so few rigs left to service now that Kilwein and his co-worker Zach Schlabsz make their rounds together. The staff has shrunk significantly as of late—the other full-time salesman, two shop hands, and a secretary have left the company or been laid off.
Cogdill gave the two employees he laid off a month’s severance and told them to find another job while they still could. “Having been through this before, I know how it goes,” he said. “What I told them was, ‘I can keep you on for two, three more months but, in the end, this is going to happen.’”
Both Kilwein and Schlabsz are anxious about the slowdown. With fewer rigs to service, salesmen who are paid commission make less money. And both men have young families to support. Kilwein’s wife, Kayla, gave birth to the couple’s second daughter earlier this month. The couple had been hoping to buy a house, but that now seems out of reach. “We are constantly looking,” Kilwein says. “With the market the way it is, it’s hard to find the right place for the right price right now.”
The slowdown has spread to the oil-production side as well. Although not seriously affected yet, production companies are taking steps to save money. Jesse Crone is the regional manager of Extreme Energy Services, one such company. Crone’s team has already taken one pay cut, and he’s laid off two people. “Every week you see more and more rigs coming out of the field,” he says. “I’ve been taking pay cuts myself.”
Crone has worked in the oil industry for 10 years and remembers when work slowed temporarily in 2008. “When times are good in the oil field, no one ever thinks about the slowdown. But the slowdown’s [always] just around the corner,” he says. “It’s either feast or famine,” his wife, Chelsey, adds.
* * *
The promise of steady work lured the Air family—Clint, Jamaica, and their children—to Dakota territory.
They came from Apple Valley, a town of 70,000 people, considered small by the standards of Southern California. When the housing market crashed in 2006, Clint’s eight-year-old surveying business collapsed. “There was no work,” he says. “It was horrible.” Clint worked in Australia for a year but wasn’t able to obtain long-term visas for the whole family. When they returned to California, in 2008, the economy was still in a slump. Jamaica worked at a vacuum store owned by some of their friends. The couple started a side business slaughtering rabbits and shipping them to restaurants, which brought in an extra $600 a month. Still, they were barely making ends meet.
Then, the Airs’ luck changed. A headhunter recruited Clint to be a surveyor in North Dakota for a Texas-based company. He moved to Dickinson in June 2013 and Jamaica brought the kids out in August.
During the economic downturn back in Apple Valley, Clint says, a part-time, minimum-wage opening at a McDonald’s would bring in a long line of applicants. But during the boom in western North Dakota, fast-food chains, desperate for workers, paid above minimum wage and offered hiring bonuses to potential employees.
Prior to the slowdown, Clint managed five crews of two people each, most of whom were from Texas. Many of the crew members have since been laid off, although a few of them were able to return to projects in Texas. By March, Clint was working on his own, and the four trucks that belonged to his crews—each containing about $100,000 of surveying equipment—were parked outside his home. Since then, one crew has returned to North Dakota, but the others remain out of state.
The Airs had always thought North Dakota would be a temporary home, but not this temporary. They had originally planned to stay and save money until their son, Destin, now an eighth-grader, graduated from high school, and then they’d move to Oregon or Washington. But after experiencing the steep cost of living firsthand, the family had resolved to leave after the current school year if the rents didn’t drop. Since the rents did drop, the Airs will be staying in Dickinson for the time being.
The Airs are planning to stay put for now, but some families can’t manage that degree of stability. The district has lost 120 students over the course of the year, a 3.4 percent decrease, according to Vince Reep, the assistant superintendent of Dickinson’s public-school system. The loss is in sharp contrast to the steady influx of young students the schools saw for two years prior. “We grew by over 500, nearly 600 children in two years,” Reep says.
The departing children and families left empty homes behind. Dave Bauer, who manages 700 apartments, garages, and houses in Dickinson says that in September of last year, he had barely any vacancies. Then in October, he began receiving notices from residents saying they were leaving the state for reasons related to the oil slowdown. This spring, the vacancies piled up.
* * *
Recently, the price of oil has crept slowly upward, but it has stagnated at around $60 per barrel. The improvement is enough to inspire a sliver of hope but isn’t enough for drilling to ramp up again in again earnest.
“It’s the first to fall and the last to come back up,” Cogdill, of Little Dog, says. “Unfortunately, we’ve fallen a little farther than I thought we would,” he says.
Some are hopeful that oil production will rebound, but Cogdill predicts that drilling won’t bounce back for at least two or three years, even if the cost of oil shoots upward. For one thing, it would take time for drilling to ramp back up after the rigs have been stacked and crews have been laid off. In any case, he believes production would need to fall significantly in the United States before the price of oil would increase and new drilling would start up again.
These are just Cogdill’s predictions. As to what will actually happen to the industry: “I don’t know. Nobody really knows,” he says.
During the June 17-24 period, Oklahoma experienced 35 earthquakes of magnitude 3.0 or greater, according to the Oklahoma Geological Survey, with some of the quakes occurring in the Oklahoma City metro area where there are no high-volume wastewater injection wells.
The spike in quakes comes two months after drillers were ordered by the Oklahoma Corporation Commission, which regulates the oil and gas industry, to stop disposing wastewater below the state’s deepest rock formation.
Oklahoma’s elected officials have been reluctant to shackle an industry that directly generated more than 7% of state revenues last year in the form of production taxes from companies such as Devon Energy (NYSE:DVN), SandRidge Energy (NYSE:SD), Chesapeake Energy (NYSE:CHK) and Continental Resources (NYSE:CLR).
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Oklahoma’s oil and gas operators haven’t completely abandoned drilling vertical, or “straight hole” wells, Corporation Commission records show. It reported that 197 wells of the 1,003 completed in 2016 were straight hole wells. Granted, that’s down from a recent high of 858 vertical wells permitted in 2011 and completed by June the following year, when […]