Booming Times for Driilers

By Alexander Taylor

A rush to dig for energy after oil and gas prices are deregulated

Giant semitrailer trucks groaning under loads of heavy oil-drilling equipment churn up dust on the dirt roads of Evanston, Wyo. On the high buttes surrounding the town, tall trapezoidal rigs often push drilling bits 15,000 ft. and more into the earth in search of oil and natural gas. More than 100 wells are already in operation in the area, some of them pumping oil from directly beneath Main Street.

Scenes similar to the one in Evanston are now being played out in such other Wyoming towns as Rock Springs, Green River and Baggs, as the U.S. heads toward the greatest drilling surge in its history. During the first six months of this year, 34.9% more oil wells were completed than in the same period of 1979. Some 3,000 drilling rigs are in operation, the most in 25 years. The Oil & Gas Journal predicts that U.S. drillers will complete 59,107 wells this year, surpassing the old record of 58,160 that was set in 1956.

The search for more domestic energy comes at a time when Saudi Arabia, the U.S.'s principal foreign supplier of crude, is once again showing its clout in world oil. That country last week paid an estimated $2 billion to buy the remaining 40% of Aramco, which produces the bulk of Saudi oil, from a consortium of four American oil producers, Exxon, Mobil, Texaco and Standard Oil of California. Americans will continue working for Aramco, but only in technical and managerial roles. The kingdom's Oil Minister, Sheik Ahmed Zaki Yamani, is also reported to have told British Foreign Secretary Lord Carrington that Saudi Arabia would soon reduce oil production. Although Yamani did not specify the amount of the cutback, he has previously indicated it might be from the current 9.5 million bbl. per day to 8.5 million bbl. per day. For about a year, the Saudis have kept their petroleum output high in an attempt to hold down world energy prices. So far, their efforts have been successful; world crude inventories are at record levels. Any Saudi cutback would likely mean some tightening of world oil supplies and somewhat higher prices for gasoline and heating oil.

The drilling boom in the U.S. is yet another demonstration of an old economic law: when prices rise, producers will attempt to increase their output. In 1978 Congress began phasing out price controls on natural gas, and in 1979 the Government started a gradual decontrol of crude-oil prices. The cost of oil and gas immediately increased, but the initial production results are impressive. U.S. oil output will rise by 2% this year, from 8.5 million bbl. per day to 8.7 million bbl.--marking only the third increase in a decade. The additions to natural-gas reserves grew by 35% last year, the largest jump in twelve years.

Some drillers, however, are playing it conservatively by erecting rigs in areas of known oil and gas availability rather than "wildcatting" in new regions. They have found that profits are the same and success more certain with "in fill" wells, which are drilled between existing pumps, or smaller "stripper wells," which produce 10 bbl. or less per day. Explains Charles DiBona, president of the American Petroleum Institute: "A well that might have been abandoned before, because there was not enough oil to make it commercial, now will be completed because of the higher price."

One of the richest and relatively undeveloped new regions being explored is the Western Overthrust Belt, a geological formation of petroleum- and gas-bearing rock running from Canada to Mexico. Other new drilling in the mainland U.S. is under way in the Tuscaloosa Trend of Louisiana, the Permian Basin of West Texas, the Williston Basin of North and South Dakota and Montana, and offshore in the Gulf of Mexico.

In areas of wildcat exploration, rigs are in many cases going deeper and becoming more expensive. Probing for gas deposits, which are usually found beneath oil strata, is particularly costly. Exxon this year spent about $42 million drilling a gas well in Mississippi that was 23,154 ft. deep. The results from wildcat wells, though, no longer match those enjoyed in the halcyon days of great American oil discoveries. The output of oil, or an equivalent amount of gas, discovered in new wildcats has declined from more than 350 bbl. per ft. of drilling in the late 1940s to less than 50 bbl. per ft. today. Says John D. Haun, petroleum geologist at the Colorado School of Mines: "We will have to drill many more wildcat wells to come close to finding as much oil as we found in the last decade."

Energy drilling during the past 20 years has been strongly affected by Government price controls and the availability of cheap oil from abroad. The number of rigs in operation peaked in December 1955 at 3,137. But then large oil finds overseas, especially in the Middle East, and price restrictions in the U.S. discouraged domestic drilling.

Natural gas is a prime example of federal regulation run amuck. During the 1960s and early '70s the Government limited the average wellhead price producers received for gas sold between states to below 200 per 1,000 cu. ft. At the same time, gas within producing states, where there were no price controls, was sometimes sold for more than $2. As a result, producing states enjoyed a surplus of gas, while the rest of the U.S. was beginning to suffer shortages. Few drillers were bothering to explore for gas that could be sold between states. The Natural Gas Policy Act of 1978 lifted the restrictions on interstate commerce and offered producers a premium price for gas found at 15,000 ft. or below. Today the product is plentiful, but by 1979 the average wellhead price had risen to $1.14 per 1,000 cu. ft.

Although price controls are coming off, production is often limited by shortages of experienced workers and supplies. Houston newspapers are filled with ads for oilfield jobs like "geophysical technicians" and "mudloggers," the experts who study rock chips from the bottom of wells for signs of oil or gas deposits. Pay scales are also shooting up as high as the rigs. Roustabouts, the all-purpose handymen in oilfields, earn $1,300 a week in some Rocky Mountain boomtowns.

Equipment is likewise in short supply. Oil Industries Manufacturing and Engineering Inc. in Odessa, Texas, is currently building four new drilling rigs. But they cannot be delivered before September 1981. Says John M. Ouzts, executive vice president of Denver's Hamilton Bros. Petroleum Corp.: "We would drill in the Gulf of Mexico, if equipment were available. Rigs are tight, pipe is in short supply, and personnel are difficult to come by."

Is there a new giant energy field somewhere in the U.S. that might eliminate American dependence on foreign oil? Experts doubt it. But new discoveries could help reduce the nation's overall reliance on foreign energy. Natural gas discoveries probably offer the greatest potential. American gas reserves now total about 195 trillion cu. ft., and geologists predict that another 1,000 trillion are still undiscovered. Says Donald B. Basko, director of the Wyoming Oil and Gas Conservation Commission: "There's been an awful lot of gas discovered in our state in the last couple of years, and most of that has come from new fields or fields where heretofore it was not economically attractive to drill into them."

The outlook for large new oil discoveries outside Alaska is far less encouraging, because oilmen have thoroughly explored most of the U.S. mainland. The oil industry, though, claims that it could find much more oil if the Federal Government would open millions of acres of publicly owned property in Alaska and offshore that are now out-of-bounds for exploration. The API's DiBona says: "We think that there are enough reserves to produce at today's levels for 40 years. But production will be a lot less than it is to day if we can't get access to public lands."

A top Department of Energy official ad mits that "the single most important fac tor in finding new oil reserves is opening up unexplored territory." Thus far, the Carter Administration has accepted arguments from environmentalists that even testing the public land for deposits would upset a region's ecological balance.

Despite the new drilling bonanza, the U.S. continues to use up its oil and gas re serves faster than it is finding new ones.

For every 3 bbl. of new oil that were found last year, producers pumped 4 bbl. out of the ground. The gas picture is similar.

New discoveries totaled 14.3 trillion cu. ft., but production was 19.9 trillion.

And even though decontrol has resulted in more domestic oil and gas, it will not lessen the need to search for alternative energy sources.

Reported by Richard Hornik/Washington and Robert C. Wurmstedt/Houston

With reporting by Richard Hornik, Robert C. Wurmstedt

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