Searching, Searching for Oil

Strippers take off because crude really pays

Shouting against the windfall profits tax, oilmen tirelessly contend that higher earnings will motivate them to search harder for oil and gas. Sure enough, as oil profits have marched up this year, so has domestic exploration. Steel drilling rigs, eight and ten stories high, are rising at muddy, cluttered sites from the Rocky Mountain foothills to Louisiana's Cajun country. Although domestic production is not expected to rise in years ahead, the new activity will keep it higher than it otherwise might have been. And there is always the possibility, however slight, that oilmen may get lucky and strike another Spindletop or Prudhoe Bay.

Since last spring, the number of drilling rigs at work in the U.S. has jumped from 1,929 to 2,434. That is more than the 21-year high of 2,385 in October of last year. The count could climb to close to 2,600 in December.

The steep rise follows an unexpectedly sharp decline earlier this year. Then, the major oil companies and the nation's 12,000 independent smaller operators, who account for about 80% of all drilling, were putting off new exploration. Major reason: uncertainty over the decontrol of oil prices and new natural gas pricing regulations. The turning point came in June when crude began to be decontrolled. Oil from wells "newly discovered" after Jan. 1, 1979, began to sell at $28.81 per bbl. delivered to the refinery, rather than the artificially controlled price of $13.86. The additional oil from older wells produced by "enhanced recovery" methods, like the injection of steam or chemicals, was also decontrolled.

Gas exploration began to rise at about the same time, as producers finally started to figure out where they stood with the complicated Natural Gas Policy Act, passed in October 1978. It created whole new categories for natural gas and raised ceiling prices on some of them. The category of each well had to be determined by federal and state inspectors, and there were long delays as gasmen waited to find out what prices they could charge. The average price that interstate pipeline companies paid rose to $1.20 per 1,000 cu. ft. in August, from 91-c- ten months earlier.

Higher prices have persuaded oilmen to return to and redrill wells in the Williston Basin of North Dakota and eastern Montana, an important producing area in the 1950s. They are also exploring for oil in the Overthrust Belt, which runs down the Rocky Mountains, and they are going after gas in Oklahoma, the Texas Panhandle and central Louisiana. Across the country, small "stripper" wells and others that once would have been abandoned as uneconomic are being kept open.

Another spur is that profits of ten of the largest oil companies increased an average of 94% in this year's third quarter, and managers have attempted to divert public criticism by pumping up exploration budgets. A number of independents are still holding back until the windfall profits tax reaches final form. The Senate has proposed that newly discovered oil and certain categories of low-volume wells be exempt. Some oilmen hope that the first 1,000 bbl. per day from an independent producer's well will be free from the tax. Says Jack Allen, president of the Independent Petroleum Association of America: "That would really set off a wave of drilling. It would be the greatest drilling boom ever."

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