- Associated Press - Saturday, October 11, 2014

GILLETTE, Wyo. (AP) - Dan Coolidge has been on this ride before.

“We have ups, we have downs. It all cycles through then comes back again,” said Coolidge, a Campbell County commissioner and third-generation oil and gas producer. “What’s happening with oil now I saw coming.”

How exactly to describe what’s happening with oil now in the Powder River Basin and across Wyoming is subjective. It’s hard to go a day around Gillette without hearing someone say oil here is “booming.”

After nearly a quarter century of continual decline in oil production, Coolidge is hesitant to utter the “B” word - but not by much.

“You know, that’s a fine line,” he said. “Are we booming? I think we’re in the early stages of a boom. Town is certainly busy, all the hotel rooms are booked, rental vacancy rates are down. So yeah, maybe we’re in it.”

Coolidge and his family have ridden the energy roller coaster before, first with oil in the late 1970s and mid-1980s, then again more recently with the coal-bed methane boom. This time, he said he thinks Campbell County and the state are in for a long and exciting ride.

Aside from the minuscule 0.7 percent vacancy rate for apartments in Gillette, hotels packed with oil-field workers and the daily convoys of trucks crisscrossing southern Campbell and northern Converse counties, the proof is in the numbers, said Bruce Hinchey, president of the Petroleum Association of Wyoming.

And the numbers are convincing.

Oil production topped out in 1985 at nearly 130.5 million barrels statewide with 26.8 million of those coming from Campbell County - the second highest on record with the Wyoming Oil and Gas Conservation Commission.

Production then went on a 24-year downward spiral. Since hitting an all-time low in 2009 - the county produced 7.4 million barrels that year - production has rebounded exponentially.

In 2013, production in the county was up to more than 13 million barrels - a 175 percent increase in four years - and is on pace to fill more than 18 million barrels this year.

Campbell County also has solidified itself as the clear leader in oil for the Cowboy State, accounting for 20.5 percent of Wyoming’s overall production in 2013 and nearly 25 percent for 2014 through July.

Those numbers “are certainly good for the county, good for the state,” Hinchey said. “The hotels are full, the restaurants are full, the industry is providing good paying jobs. It’s hard work, but they’re high-paying jobs, which means there’s a lot of spending capital.”

Hinchey is one who’s still hesitant to say “boom” out loud.

“It’s definitely on a rebound,” he said. “Is it a boom yet? That depends on your definition of what a boom is. I’ll say this: things are looking much better. . The more we produce the less we have to import. We used to import about 60 percent of our (nation’s) oil needs and now we’re at about 40 percent. I’d like to see that go down to about zero.”

With brisk oil production elsewhere across the United States in places like Oklahoma, Texas and Louisiana - along with the breakneck production in the Bakken in North Dakota, which recently topped the 1.1 million barrels per day mark - 2013 was notable for being the first time since 1995 that the United States produced more oil that it imported.

While nobody predicts Wyoming production will ever approach what the Bakken has become, many in the industry believe the upturn in production will be sustainable for decades.

“What we’re tapping into here are significant reserves,” Coolidge said. “These wells will have a 20-year life or more, whereas the coal-bed methane wells (of the most recent local energy boom) had maybe a two-year life.”

The major formations that make up the Powder River Basin - Turner, Frontier, Parkman and Niobrara - are all producing oil, and Coolidge said their potential hasn’t been tapped.

“Companies are able to drill out farther and stay in these formations,” he said, adding that southern Campbell and northern Converse counties represent “the sweet spot.”

“What they’re doing now is drilling the sweet spots, then stepping out and stepping out. It hasn’t even been delineated yet where the boundaries are,” he said.

There are two main reasons oil is surging again in Wyoming, said Mark Watson, supervisor for the Wyoming Oil and Gas Conservation Commission. One is the tanking of the coal-bed methane market as prices plummeted. The other is technology.

“The major difference between now and previous booms concerns new technology,” he said. “Horizontal drilling and high volume fracks are two major reasons we are seeing new activity in previously discovered areas.”

Although hydraulic fracturing - or fracking - has been around since 1949, it’s only been the last couple of years that technology has begun to help producers realize the extent of that fracking and extract oil, Coolidge said.

New equipment and techniques allow horizontal drilling in shallow reserves that weren’t accessible before.

“Now they’re able to go out farther and stay in these formations,” he said. “We’ve drilled through them for years, but could never get the oil out. You could drill through a formation vertically, but it may only be 5 feet deep. But if you drill horizontally for 12,000 feet, you can imagine how much of the reservoir you’re accessing.”

The technology has not only revived oil production, it’s evolved it. This recent oil renaissance is different from previous booms in that nearly all the drilling activity is for horizontal wells. Also, hydraulic fracturing technology has developed to a point where it can extract previously unattainable shallow oil pockets from already existing wells. One of the most telling numbers to show this evolution is comparing historic to current production numbers and amount of oil produced per well.

Wyoming’s highest yearly production of oil on record was 1978, when nearly 136 million barrels were produced. Done mostly through vertical drilling, that oil was accessed through 10,583 wells, an average of 12,727 barrels per well. Last year, 63.2 million barrels were produced with 34,418 wells, an average of 1,831 barrels per well.

Those advances in technology and confidence in the sustainability of the basin’s oil reserves has progressed to the point of attracting some of the country’s major energy producers.

Last month, Anschutz Exploration Corp. and Anschutz Oil Co. announced a deal where it traded about 8,000 acres of land in Colorado for about 30,000 acres in the Powder River Basin.

The trade was a deliberate play into the area’s oil production potential, said Joseph DeDominic, Anschutz president and COO.

“We see a lot of potential in that basin,” he said. “It’s geologically attractive, there are a lot of objectives and horizons to target. It’s a big area, a lot of vertical stacked horizons and it’s oil rich.”

DeDominic also said he likes doing business in Wyoming, a state he said is “friendly to the industry,” and he’s committed to “putting money and resources in the basin.”

While Anschutz has a target number of barrels it expects to pump out of the basin, DeDominic wouldn’t say what that is. What he did say is that the company sees the recent upturn in Wyoming oil as more than a blip on the radar.

“Our view is that it’s early in the development,” he said. “I don’t know personally if I’d call it a boom. It’s not that insane and it’s not like the ‘80s was for a period of time, but it’s definitely an uptick in activity. I think you’ll see that continue to grow and I think it’s sustainable.’

That’s an opinion shared by Oklahoma-based Devon Energy, already one of the basin’s largest oil producers. In its second-quarter earnings call released in August, Devon lays out its intention to expand production even more in the Parkman formation.

“We expect to add a fourth rig later this year and more aggressively develop the Parkman focus area in the second half of 2014 and 2015,” the report says.

Denbury Resources Inc. is another name hoping to expand in Campbell County, said Ross Campbell, the company’s manager of investor relations and corporate communications.

“We see the increasing opportunity to build out, particularly in Wyoming and Montana and up in that area,” he said. “We will continue to invest in Wyoming in the future, and specifically in Campbell County.”

As long as oil prices remain over $75-$80 a barrel, the commodity will be attractive to producers, Coolidge and Watson said.

“Oil production will continue to increase over the next two or three years as long as the price of oil stays about $80,” Watson said.

“The price has stabilized and the techniques they have now are pretty good, so I think you’re going to see continued drilling,” Hinchey added.

While producers like Anschutz, Devon and Denbury continue to make plays to pull more oil from below Campbell County, the impending boom also is good news for local businesses that support the industry.

For more than 30 years, Precision Well Service has helped keep wells and equipment running for its customers, vice president Bryan Lass said. He has more business than he can handle.

“We’ve seen booms and busts and more booms and more busts,” he said. “I can tell you that now we’re busy. We have more work now than we can get to. We’re at 100 percent utilization. All the equipment and personnel I have that’s capable of working is, and it’s been like that probably for the last six months.”

Precision has 12 service rigs - seven in Gillette and five in North Dakota - and Lass said he can tell the health of either the local oil or gas industries by how busy he is.

“Right now, the demand for service is high, which is indicative of a strong market,” he said. “We’re seeing the same thing with the competition. They’re just as busy as we are.”

While an oil boom will always be welcome for Coolidge, the commissioner said this one is beginning at an opportune time for Campbell County and the state.

With rail backlogs limiting the amount of coal that can be shipped and proposed EPA regulations on CO2 emissions from power plants, coal revenues in the nation’s largest coal producing area have waned over recent years.

That oil production has surged at the same time has been fortunate for the county, Coolidge said.

That the county could lose revenue from coal taxes but make that up in increase oil tax collections could be called fate by some, a happy coincidence by others.

Coolidge said it’s just part of riding the energy roller coaster. You may come down fast, “but you always go up again.”

___

Information from: The Gillette (Wyo.) News Record, https://www.gillettenewsrecord.com

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