Drilling advances

	Vol. 232 No. 2
JIM REDDEN, CONTRIBUTING EDITOR

Headlines from tomorrow’s newspaper

Back when I was a member of that now-dying fraternity known as newspapermen, we were quick to seize on some news event and immediately try to make it a “trend.” A murder in some swanky neighborhood meant it had degenerated into a crime-infested hovel. A freakish plunge of the temperature in Fort Lauderdale was a sure sign another Ice Age was upon us.

While we occasionally hit pay dirt, for the most part our trends fizzled with the next day’s edition. With that disclaimer out of the way, try these prospective headlines on for size:

• “San Antonio overtakes Houston as energy hub”

• “North Dakota emerges as top oil producer in US”

• “Israel becomes Middle East’s hottest spot for gas drillers” 

Admittedly, the gap here between reality and whimsy is quite wide, so it would be foolhardy for anyone to rush out with their life savings and grab up all available commercial properties in San Antonio or Bismarck; nor should contractors relocate their entire rig fleets to Israel. On the other hand, these headlines serve to point out the dramatic impact a single play or a single field can have not only on the industry, but also the communities within its epicenter.

Take San Antonio, for instance. While a couple of refiners have home bases in the Alamo City, it has not experienced anything resembling a drilling boom since shortly after World War II. As an erstwhile editor, I recall going there once on oil and gas business, and that was sometime around 1977 to cover the annual convention of the Texas Independent Producers and Royalty Owners Association (TIPRO). While Houston city leaders certainly have no reason to start wringing their hands, as the song says, “The times, they are a-changin’.”

As the only major metropolis near the prolific Eagle Ford Shale, San Antonio suddenly has become the place to be. By any standard of measurement, the Eagle Ford is one of the hottest drilling plays in the country today. And many in the industry see San Antonio as the only nearby location capable of accommodating the many employees they’ll require to exploit the play, which starts at the Mexican border and traverses 14 counties across South Texas.

Late last year, Houston’s EOG Resources, a major Eagle Ford operator, opened up an office in San Antonio, initially bringing in 120 employees with expectations to more than double the staff by sometime next year. More recently, Chesapeake Energy Corp. of Oklahoma City brought in some 50 employees to staff its new office in San Antonio. You may recall that in late 2010, Chesapeake joined forces with China’s CNOOC with plans to spend as much as $2.2 billion on Eagle Ford exploration. No word if CNOOC, likewise, will set up shop in the city.

Sideline players, like Houston-based energy law firm Burleson Cooke, also have established operations in San Antonio, and many say this is just the beginning. “I’ve seen many, many new faces,” Cecilia Wallen, president of the San Antonio Association of Professional Landmen, recently told the San Antonio Express-News. “Our meetings are much larger than they were this time last year.”

As for North Dakota, this one is not nearly as farfetched, thanks to a shale formally described nearly 60 years ago. In 1953, when geologist J. W. Nordquist identified the sample taken from the H. O. Bakken-1 well in Williams County, N.D., little did he know that he had laid the foundation for what today is one of the continent’s most robust plays.

Federal estimates say North Dakota’s share of Bakken Shale reserves could have the state eclipsing both Alaska and California in the next few years and trail only Texas as the nation’s top oil producer. In its latest annual report, the US Energy Information Agency says North Dakota’s Bakken reserves jumped 83% from the last report to 481 million bbl of oil. According to the Houston Chronicle, government and industry officials believe North Dakota could hold as much as 5 billion bbl of total reserves in its slice of the Bakken.

“We’re starting to see indications that we could reasonably get 11 billion barrels,” Lynn Helms, director the North Dakota Department of Mineral Resources, told the Chronicle. “We have a huge amount of drilling still in front of us.”

The problem will be finding enough hands to drill the 1,000 new wells that Ron Ness, president of the North Dakota Petroleum Council, predicts could be drilled this year. I spoke with a service company buddy recently, who said his firm makes every effort to hire within the local communities near the shale plays, many of which have been hit hard by the recession. He said those efforts go for naught in the Bakken, as anyone who wants to work and is actually breathing is gainfully employed. Both the state and the industry have taken notice and are now conducting a joint study to determine how to address the severe labor and housing shortages.

Meanwhile, unlike the multi-company, multi-well Eagle Ford and Bakken campaigns, in Israel we are seeing the huge impact a single field can deliver. While Israel has enjoyed a few spurts of oil and gas activity over the years, it basically has been little more than an afterthought in relation to its more productive Middle East neighbors. A world-class gas discovery, however, suddenly has made Israel part of the discussion.

In early January, Houston’s Noble Energy announced that its gigantic Leviathan Field—in 5,400 ft of water in the Mediterranean Sea off Israel’s northern coast—holds an estimated 16 Tcf of gas. Combined with the estimated 8.5 Tcf in the nearby Tamar Field discovered in 2009, this gives Israel more gas than it can ever use. That has Noble officials trying to figure out how to get the surplus to burner tips in Europe and Asia. The company is considering a host of options, from “mega-train” LNG plants to a deepwater pipeline, but however the gas is exported, the Israeli government is already looking forward to coffers that are expected to swell from the added revenue.

Those headlines don’t seem quite so crazy now, do they?