In western Kansas oil country, two industries compete
10/24/2012 5:52 PM
10/24/2012 5:52 PM
There are two oil industries duking it out on the western Kansas frontier.
Those two industries – the traditional vertical oil drillers and the new out-of-state horizontal drillers – were on display last week during Gov. Sam Brownback’s tour of oil wells in Ford and Hodgeman counties.
Officials with Sandridge Energy, a publicly traded company based in Oklahoma City, showed off a horizontally drilled well in Ford County, a few miles from Dodge City, and talked about extending their aggressive horizontal drilling program into western Kansas. Sandridge first moved into a few southern Kansas counties two years ago after buying up more than 2 million acres of mineral leases in Oklahoma and Kansas. Now the company is chasing the oil-and-gas-bearing Mississippian Limestone formation as it stretches northwest from the Oklahoma line.
Sandridge has filed intent-to-drill notices for more than 60 horizontal wells in Ford, Finney, Gray, Ness, Hodgeman and Gove counties. Company senior vice president Kevin White said the company actually has 14 operating oil wells in the area, pumping an average of about 200 barrels of oil or the equivalent in gas.
Rick Kirby, Sandridge’s vice president of operations, said that the company is finding a higher percentage of oil the farther north it drills – a good thing because oil prices are high and gas prices are low.
In 2013, White said, Sandridge intends to drill about 370 wells in Oklahoma and 200 in Kansas. Of the Kansas wells, the company expects to drill about 65 to 70 in west and northwest Kansas.
EnCana USA, Tug Hill Operating and Apache Corp., all large out-of-state companies, have drilled or filed intent to drill notices for dozens of horizontal wells in those same six to eight counties in central and western Kansas.
The arrival of bigger firms may mean more oil, or it may not, but it certainly means big changes.
Cecil O’Brate, owner of American Warrior Energy, was also on the tour with the governor.
O’Brate, based in Garden City, is a traditional vertical well driller who has drilled hundreds of wells over the years.
The out-of-state companies have changed the economics of drilling by driving up land-lease prices by 10 times or more.
Vertical drillers such as O’Brate have another year or two before they finish drilling on their existing leases.
Because the cost of acquiring new leases is now so high, O’Brate estimated that in two years 30 percent of the state’s drilling rigs will be idled.
“It’s a business,” O’Brate said. “But they’re screwing it up for the rest of us for years to come.”
But, he added, the horizontal drillers will also discover as they drill in Hodgeman County and counties farther north and west that the Mississippian Limestone changes from relatively thick and flat to thin and undulating, making it difficult to keep a drill bore in the formation for 4,000 feet.
Lynn Watney, senior scientific fellow with the Kansas Geological Survey, said the geology of western Kansas is certainly different from southern Kansas. The Mississippian layer is thinner and does undulate, but with adjustments, he said, the drilling crews might make it work.
Will western Kansas see a replay of the apparently strong results of southern Kansas?
It’s just too early to say, said Sandridge’s White. The results, on average, have been encouraging, but it’s hard to tell at this point.
“We’ve always said the Mississippian is a statistical play, a combination of good, average and bad wells,” he said. “And we expect to see all of that. We don’t expect to focus in on one area with monster wells.”
EnCana has filed intent-to-drill notifications for 24 wells so far in the western counties, as well. But at this point, it has just four wells completed and can’t say yet whether drilling in western Kansas will pay off, said Jerri Akers, who handles stakeholder relations for EnCana’s Mid-continent Business Unit.
“It’s really early in the play,” she said.