High oil and gas prices fuel surge in drilling in a region where it all began

New glory days for old industry

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Robert G. Hirtz is persistently searching for energy in Fayette County. Every four to five days, each of six drilling rigs he overseas in this rural region of the Appalachian Basin punches a new hole 4,000 feet into the ground looking for natural gas.

VWH Campbell, Post-Gazette
Dominick D'isidoro watches as drillers work on the gas well on his farm. In exchange for drilling rights, the company will give the property owner a portion of the profits the gas produces in addition to free gas for their home.
Click photo for larger image.

By winter, Hirtz, general manager for Pittsburgh-based Atlas America Inc., expects to have 10 rigs drilling around the clock in Fayette County, all searching deep underground for fuel to meet rising demand for industry and home heating.

Soaring prices for oil and natural gas are fueling a record-breaking drilling boom in southwestern Pennsylvania. Atlas, which employs 226, up from roughly 100 six years ago, operates 4,700 wells in Appalachia, owns interests in 900 others and expects to drill 600 new wells this year, 150 more than in 2003.

"We're in historic territory right now," Frank Carolas, a geologist and executive vice president with Atlas, said of natural gas prices that have trended significantly higher in recent years. Oil prices exceeding $40 for a 42-gallon barrel are likewise prompting operators in northwestern counties to restart long idled small-producing "stripper" oil wells.

It's not quite the industrial boom that Col. Edwin Drake started when he drilled the country's first commercially successful oil well in Titusville, Crawford County, in 1859, but it's a welcome revival for one of the region's oldest industries. In the short period of time after Drake's first well and before the East Texas oil boom of 1901, Pennsylvania was responsible for about half of the world's oil production.

Now, the state's a gnat on an elephant's back. Last year, Pennsylvania's 15,758 oil wells produced 2.4 million barrels of oil, roughly half of what the United States now produces in one day. And these days, the most furious drilling activity is not in oil but in natural gas -- the state produced nearly 160 billion cubic feet last year, up 22 percent from two years ago but still less than 1 percent of overall U.S. production last year. Overall, the state's oil and gas industry employs only about 1,700 workers.

Atlas and its competitors want to make the most of high natural gas prices brought on in part by the economic recovery, the increasing use of natural gas for electrical generation and turmoil in international affairs.

Natural gas producers have seen the prices they receive at the wellhead jump this year to above $5 per thousand cubic feet, roughly double the level in early 2002, according to the U.S. Department of Energy. Local producers typically enjoy a premium over benchmark prices set in Louisiana because of their location in the gas-hungry Northeast.

VWH Campbell, Post-Gazette
Wayne Detwiler handles pipe that will be winched up to a drill rig in Fayette County. Drilling for natural gas has increased in Western Pennsylvania as energy costs rise.
Click photo for larger image.

"Let's put it this way: If you're in the oil and gas production business and you're waiting for higher prices, you're out of your mind. They are here." said Kevin Shannon, president of the Open Flow Gas Supply Corp. The Du Bois, Clearfield County, firm buys and sells natural gas and drills its own wells.

Drilling activity in Western Pennsylvania has been rising for nearly a decade and is on track to beat records set last year when the state issued 3,785 drilling permits, all but 704 for natural gas wells. In 1995, by comparison, the state issued 770 permits for gas drilling and 418 for oil wells.

There's enough work in Fayette County alone to keep a few dozen Atlas employees constantly hustling to find acceptable drilling sites and several contract crews busy clearing timber, leveling drilling sites, building access roads, drilling holes and laying pipe.

Hirtz figures the exploration Atlas does in Fayette County keeps 50 bulldozers, 15 to 20 excavating machines and two dozen huge tri-axle dump trucks constantly moving to prepare for the drilling rigs. "My guys are running as hard as they can to keep up," Hirtz said.

This relentless search for energy brought drilling rigs working for Atlas the last two weeks to Dominic D'Isidoro's modest cattle ranch, which clings to the slope of a scenic valley along Curfew Road in Franklin. Polled Herefords graze on enclosed paddocks of natural grass.

As a crew from an Atlas contractor, Whipstock Natural Gas Services, noisily grounds into the earth with a drilling rig set up on a flat spot carved into the hillside, D'Isidoro passed time on a porch swing and counted his blessings. If the drilling pans out, D'Isidoro's family can expect to earn the standard one-eighth royalty payment on the gas sold and collect enough fuel to heat their home as part of the bargain.

When the work is completed, a wellhead will stick up from D'Isidoro's pasture at each drilling site along with a separator to part natural gas from the oil and brine water that comes up with the gas. A tank will collect oil for sale and water for disposal.

"It's ideal," D'Isidoro said of the arrangement with Atlas, which will connect his wells to a main pipeline over a hill about 1,500 feet away. "We can't make nothing much farming anyhow. It will bring in a little income if it works out."

The pace of work means steady paychecks for roughnecks such as Wayde Detwiler, Elmer Pierce and their supervisor, John Hill, seasoned drillers who move every week or so from one site to another. Their rig has drilled 54 well holes in its just-ended first year of operation.

Pierce has been working drilling rigs for about 30 years. Detwiler has been in the business for 13 years, the last four working with Whipstock. Neither can remember being laid off recently for lack of work.

"We've never shut down one day. We've never been out of work," said Detwiler, who lost eight weeks to a hospital stay a few years ago when he was cracked in the head with a rotating drill.

People may erroneously imagine that natural gas and oil come from big void spaces in the ground and that all you have to do is poke a hole in that balloon and it comes flying out at you.

In reality, drillers are exploring unseen rivers of sandstone, hoping to coax natural gas and oil from microscopic pores of the rock found at varying depths in Western Pennsylvania, New York and eastern Ohio.

It's not too hard to hit sandstone. But given that the cost of drilling a well can hit or exceed $200,000 depending on depth and other variables, the trick is finding large enough deposits to make the gamble profitable.

Atlas and other companies start by doing geologic studies and researching who owns the oil and gas rights to land they are interested in drilling. They then knock on doors offering payment for the drilling rights.

If they decide to drill, the companies file drilling permit applications with the state and must meet environmental regulations aimed at protecting the land and water resources.

They start with a small hole. Once drillers hit a targeted depth, technicians "log" the well or lower electrical and radioactive tools down on a wire to take measurements and determine underground characteristics with the hope of finding porous sandstone soaked in oil or natural gas.

If the rock is too tight for gas or oil to easily flow, production crews fracture it by pumping water or other material underground at pressures high enough to induce cracking.

Technology has vastly improved the chances of drilling a successful well, but Carolas, the Atlas executive, said experience remains an undeniable asset.

"You need an understanding of what works and what doesn't," Carolas said as he reviewed data from a logged well. "There is still some seat of the pants understanding. There's a feel."

Even though the golden years of Pennsylvania's long history in oil and gas production have passed, drillers continue to remain bullish on the region because of its prolific energy-bearing sandstone deposits.

Pennsylvania General Energy, a Warren-based company that exploits both shallow gas and oil combination wells and deeper gas wells, is drilling 75 to 80 new wells a year, said Vice President David Straub.

"We're quite convinced there is a strong future here," said Straub, whose company acquired sites once owned by Quaker State and Pennzoil, now part of the Royal Dutch/Shell Group of Companies.

Yet Carolas remains personally cautious, noting that both natural gas and oil are depleting resources and that the Northeast uses far more energy than it produces.

"There is only so much of it that is available and even though we have continued to exploit natural gas here, it is by no means adequate quantities to fulfill our gluttonous appetite for energy," he said.

Regional oil and natural gas producers such as Straub have little or no control over the prices they receive and have learned to cope with the financial ups and downs that brings.

"I grew up in this business, basically all my life. It's a roller coaster ride," he said. "As surely as prices rise, they're going at some point to fall. It's imperative from a profit standpoint to take advantage of the prices when you can."

The price paid for Penn Grade crude oil broke $45 a barrel last month for the first time since the Arab oil embargo in 1981 and is still hovering in that neighborhood at the two refineries that buy most of the local production.

That's a significant surge from last year when Penn Grade sold for an average $28 a barrel and from 2002 when the average price paid was about $22 a barrel. Local producers generally figure they need $25 a barrel to properly maintain their wells and at least $30 a barrel to make new drilling worth while.

The American Refining Group, which operates a former Kendall refinery in Bradford, McKean County, last week paid $43.25 a barrel while its competitor, Ergon Oil Purchasing of Newell, W.Va., was paying $44.75 a barrel. Ergon operates a former Quaker State refinery.

Even at those prices, American Refining can't get enough Penn Grade crude oil to meet demand for the lubricants and specialty petroleum products that it makes.

"It's a constant struggle both in getting the amount of crude we would like to get to run in the refinery and to keep up with the pricing," said Harvey Golubock, president and chief operating officer.

American Refining took over the former Kendall refinery in 1997 from the Witco Corp. and now buys 70 percent of the crude oil it processes from local operators. The rest comes in by rail from Ohio.

The refinery has been operating in the same spot since 1881 and has the capacity to process about 10,000 barrels of crude a day. It now sells lubricants under its own Brad Penn label and to private label accounts.

One of American Refining's suppliers, Bradford's Minard Run Oil Co., started turning drill bits again in 2000 after a 14-year hiatus linked to low prices. The company traces its roots to 1875, when it was founded by businessman and former state Sen. Lewis Emery Jr., and claims to be the world's oldest independent oil company.

During those 14 years, Minard Run President Frederick Fesenmyer said the family-owned firm spent a fortune plugging up about 2,500 idled wells to meet state environmental standards. "Millions and millions of dollars were put into the plugging of operations," he said. "I was ready to give the keys to the state and say, 'Thank you very much.' "

But rising prices and the discovery of some oil deposits outside of Minard Run's original 10,000-acre field has since put the company on a drilling schedule of about 40 new wells a year.

Jack Master, a smaller independent from Oil City in Venango County, said he is excited about higher prices that are making his collection of older wells worth running. But he has yet to drill a new hole.

When prices went below $14 a barrel in the 1987, Master shut down oil wells that he had operated for years. He turned to cutting timber for about a year and a half to make a living.

Back in the oil business since 1999, Master today tends about 30 wells, called strippers because of the low amount of oil they produce. Many are old and shallow and average only four to five gallons of oil a day. "They do make you money when the price is right," he said.

Master said he is considering spending his hard-earned cash on a used spudder -- or drilling machine -- to take a crack at finding new reserves.

"If I was all caught up and had a few more runs at $40-a-barrel oil, I would seriously be considering a new well," he said. "A new well has to be in our future at some point."


Jim McKay can be reached at jmckay@post-gazette.com or 412-263-1322.


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