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News Release, Kansas Geological Survey, June 26, 2000

Higher Oil Prices Boost Drilling

LAWRENCE--Higher oil prices have not only led to higher gasoline prices. They've also spurred a renewed interest in drilling for oil and gas in the state, according to geologists at the Kansas Geological Survey, based at the University of Kansas.

Prices paid for crude oil in Kansas have fluctuated between $25 and $30 barrel for the past several weeks. That's the highest prices have been since the Gulf War in 1993, and dramatically above the $7 per barrel levels in February 1999, less than 18 months ago.

Those higher prices have translated into increased levels of drilling in Kansas. According to industry sources, 19 oil rigs are currently drilling in the state, up from a low of three rigs during the time when prices bottomed out. Another measure of industry activity are "intent to drill" forms filed by drillers with the Kansas Corporation Commission. According to the KCC, drillers filed 714 "intent to drill" forms in the first five months of this year, compared to 260 in the first five months of 1999.

Drilling levels might even be higher in Kansas, but low prices during the past few years have led to a shortage of drilling rigs and experienced crews.

"As prices came back in the last half of 1999, activity picked up," said David Williams, a geologist with the KCC. "Now there's a shortage of crews, and some rigs are booked up until spring of 2001."

While higher gasoline prices have led to consumer complaints, higher oil prices will affect the Kansas economy in a variety of ways, said Survey geologist Tim Carr.

"Higher crude prices have led to more exploration activity, and that's a positive thing for the oil and gas industry and the 6000 people it employs in the state," said Carr, chief of the Survey's petroleum research section. "Higher prices are also going to put more money in the pockets of royalty owners across the state, and eventually generate more tax revenues in the form of severance taxes, income taxes, and higher property taxes from oil producers."

The higher prices may also keep some wells in production. About 95 percent of the oil wells in Kansas produce less than five barrels of oil per day, and higher crude prices may keep operators from plugging those wells, said Carr.

In addition, the higher prices have generated interest in using new technologies to explore for, and produce, oil. One increasingly popular technique is horizontal drilling, in which a rig drills down in the traditional manner until it reaches the rock formation that produces oil, then drills out horizontally, chewing through the oil-saturated rock formation and producing additional oil. Horizontal wells can cost twice as much to drill as traditional wells, but they also produce more oil, and increased prices have generated more interest in their use.

Other techniques, such as injecting carbon dioxide into the subsurface to force oil additional oil, are also beginning to attract attention. The Survey, working with KU's Tertiary Oil Recovery Project and private operators, is beginning a demonstration project in Russell County to test the use of carbon dioxide to produce additional oil from a long-established field.

"With prices at these levels, alternatives like carbon dioxide flooding become much more attractive," said Carr.

Kansas is a net producer of energy--that is, the state produces slightly more energy than its people use, primarily because of high levels of natural gas production from the Hugoton natural gas field in southwestern Kansas. Maintaining that role as an energy exporter is difficult, particularly as production slows from older oil and gas fields. Kansas oil production totaled 34 million barrels in 1999, down about 8 percent from 1998.

"Kansas needs to figure out ways to promote production," said Carr.

Additional research, improved access to oil and gas information, and improved technology might help produce more energy. But that won't bring gasoline prices down overnight.

"It's going to take a year or two before the increased activity, or these new technologies, make a difference," said Carr. "After a long period of low prices, it takes a while to go from looking at exploration prospects to putting gasoline in the tank."

In the meantime, gasoline prices aren't the only thing influenced by higher energy prices. Consumers could be facing higher natural gas prices come winter time.

"Production of natural gas is higher than it has been since the late 1970s," said Carr. "But our consumption is much higher. We are using increasing amounts of natural gas to generate electricity during the summer. So this winter, electricity, propane, natural gas, gasoline--all have the potential to be quite a bit more expensive."

Story by Rex Buchanan, (785) 864-2106
For more information on oil and gas production in Kansas, please visit our Oil and Gas Data web page.
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