U.S.A. Drilling Takes Off As Oil, Natural Gas Prices Rise

The number of rigs drilling for oil and natural gas rose 13.5% to 1,262 in November from a year ago. What isn't yet know is are they finding sufficient resources to make up for what we're using?

Published: 16-Dec-2004

class=intro-copy>Higher oil and natural gas prices are leading to a miniboom in drilling in the USA.

The number of rigs drilling for oil and natural gas rose 13.5% to 1,262 in November from a year ago, according to Baker Hughes, which tracks rig usage.

While that's nowhere near the boom in the early 1980s, it's higher than at any time since 2001. The majority of drilling is for natural gas.

Higher prices have had "a dramatic effect on the industry," says Bruce Bell, chairman of Post Oak Oil in Oklahoma City.

Since October, when oil prices twice hit $55.17 a barrel and natural gas hit $9.504 a British thermal unit, demand for rigs has jumped, land leases have been sold, and pumps have started pumping.

"We're running our fleet at capacity night now," says Greg Schnacke, executive vice president of the Colorado Oil & Gas Association. There are 60 rigs working in the state now, vs. about 45 last year.

Colorado has broken a record for drilling permits this year: 2,692 were issued as of Monday, up 20% from 2003, according to the Colorado Oil & Gas Conservation Commission. Previous high: 2,378 in 1980.

Nationwide, higher prices have spurred so much drilling that companies can't get rigs to handle it. "All the rigs are pretty much spoken for," says Richard Mason, publisher of The Land Rig Newsletter,based in Lubbock, Texas.

President Bush's re-election has the industry hoping restrictions on drilling on federally owned lands in the continental USA, offshore and in Alaska will ease.

Even without that, the oil and gas men say they could do more now if they could get the equipment and the workers.

The industry went through such an excruciating contraction after the collapse of oil prices in the mid-1980s that "the infrastructure just isn't there anymore," says Michael Bernard, president of the Mid-Continent Oil and Gas Association of Oklahoma. It will take years of higher prices to justify building more rigs, which can cost $11 million or more, Mason says.

And the industry lost more than 100,000 workers from 1989 to 1999, everything from "engineers to field hands," says Jeff Johnson, chief executive of Cano Petroleum. Those who remain are aging. The average age is 45 to 49, says Mark Baxter, director of Southern Methodist University's Maguire Energy Institute.

"We definitely have a people shortage," Bell says. "It's hard to train people to run rigs, train them so they don't get hurt. It's a dangerous job."

Although the industry is experiencing a miniboom, it's also expanding more cautiously than in the past. "We're not so much in a boom or bust as we are in a recovery," says Jeff Eshelman of the Independent Petroleum Association of America.



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