Prices fuel rejuvenation of area oil, gas industry

Tennessee on pace to issue 48% more drilling permits this year, the most since the mid-1980s

By Naomi Snyder , November 17, 2005

Richard Love is a cattleman thinking about oil.

A few abandoned wells on his property in Overton County probably would remain abandoned, if not for the high price of crude oil lately.
The two wells he wants to reopen won't eke out more than half a barrel to one barrel each day, but with oil trading at $58 a barrel on the world market, that could still bring him a few extra thousand dollars a year, he estimates.

"It will never produce what the fields do out west," said Love, who used to sell chemicals for the oil industry in Western states. "But I think there is some good potential here."

Tennessee isn't exactly known for its oil, accounting for less than 1% of the nation's crude oil production, somewhere below Indiana and above Virginia. But there's a bit more interest lately in what lies beneath the surface.

People are digging new wells, reopening old ones and venturing deeper in search of liquid gold and natural gas. Oil and natural gas prices, which have moderated in recent months, continue to make seemingly unproductive operations look profitable.

If the trend holds true for the rest of the year, state geologist Ron Zurawski said, state permits for oil and has drilling will probably increase about 48% this year to 330, the highest level since the mid-1980s.

Oil production in Tennessee has slacked off since a flurry of drilling amid high prices in the 1980s. Back then, Tennessee companies were getting more than $30 per barrel, and oil flowed out of the ground at a rate of more than 1 million barrels per year.

Prices fell to an average low of $11 per barrel in 1998, according to state records, and production slacked off to lows not seen since the early 1970s.

"Even if we knew we had a prospect, it was very hard to find anyone who wanted to drill," said Bill Goodwin, president of the Tennessee Oil & Gas Association.

He thinks times are changing for Tennesseee oil and gas companies, many of them small, privately owned operations.

"Today, a small well is very, very profitable," Goodwin said.

A well making just 10 barrels per day could reap $182,500 in one year at $50 per barrel. Since it costs about $100,000 to $150,000 to drill such a well, it would quickly pay for itself.

More Exploration

New areas are being explored, and some wells are deeper than Norman.

Clay County on the Kentucky border northeast of Nashville was pretty much ignored for 20 years. So far this year, five wells have been permitted by the state there.

Goodwin thinks even Jackson and Macon counties are possibilities for future exploration.

"There are counties that are wide open that haven't been drilled," he said.

Tennessee traditionally has been a site for shallow wells. But recently Goodwin has seen companies hunting for natural gas in shale about 4,500 feet below the surface, whent eh norm for Tennessee drilling has been a depth of about 2,000 feet.

Natural gas prices have about doubled in two years, and one of the companies looking for it in Tennessee is new to the state.

"We like Tennessee because it's a virgin area," said Frank Carolas, executive vice president of Atlas America, a Pittsburgh-based company. "There's a lot of acreage that has not been tested."

Atlas is teaming with Knox Energy to drill 50 to 100 wells in Tennessee within the next 12 months. Fifty already have been drilled.

Automobile owners may not share the oilman's joy when crude oil prices soar, and Goodwin is OK with that.

"We just accept the fact that we're somewhere below lawyers," Goodwin joked. 'When the price of gas goes up, I'm the happiest man in the world."

Lynn Wagoner, CEO of Signature Oil Corp. in Lexington, KY, is taking his dollars and investing them right back in the company. He is drilling 25% more wells this year, or about 40 new wells.

"I've seen the good and the bad," Wagoner said. "It feels good right now, but we've had hard times."

With more exploration, though, comes risk. Zurawski predicts oil production actually could decrease this year, as exploration into new areas leads to more dry wells. All the excitement about oil could make for risky investments for individuals.

In recent years, the percentage of wells that hit some oil has been 57% in Tennessee, according to Zurawski, although that doesn't mean each well pumped enough oil to be profitable.

"There's probably more speculation going on," Zurawski said of today's activity. "Now we're getting into some deeper areas or into some new areas, so your success rate is going to be lower."

Signature Oil Corporation
3101 Clays Mill Rd., Suite 201 .. Lexington, KY 40503
859-224-0501 .. fax 859-224-0502 .. info@signatureoil.com

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