Resource Revolution

In western and northern Oklahoma and elsewhere in the region, often far from the eyes of most residents, oil and gas rigs are popping up in numbers unseen in decades and often in places long thought devoid of accessible resources.

In many cases, they’re new types of rigs – many times more efficient and with a more conservative impact on the environment. Their job is the same as in the past, but these days they are being more successful at it than ever before. While much of the media focuses on the potential of alternative energy sources, those in the real-world energy industries know that there is already major news from the sector – and it’s good news for those who support U.S. energy independence.

“This story is tremendous,” says Mike Cantrell, president of the Domestic Energy Producers Alliance (DEPA) and chairman of Cantrell Energy Corporation.

“There has been a paradigm shift in the energy industry.”

“I’d say it’s a boom,” chimes in Brad Foster, Devon Energy senior vice president, Central Division. “When you look at oil and gas operations in the U.S., and try to explain it to a layman, it’s analogous to the iPhone-iPad type advancement.”

What those in the industry are talking about and what Foster dubs “the biggest development in the energy industry in the last 50 years” is the boom, occurring over just the past few years brought about by new technology and new and innovative application of existing technology.

“I’d say it really started in the Barnett Shale around 2002,” Foster says.

Around that time, Mitchell Energy had developed a hydraulic fracturing, or “fracking,” technique that showed limited success in fracking resources from shale – the density of which typically made capturing oil and gas from it cost ineffective, if not outright impossible. Devon purchased Mitchell Energy, and the technique continued to be built on.

“We took that technology and also applied it to horizontal drilling, and it has ramped up to where it is today,” Foster says. “It unlocked the Barnett, and it has just transformed the industry.”

Fracking has been used in the on-shore energy industry for some 60 years. It involves increasing the permeability of rock and stone by concentrated exposure to a high-pressure solution of predominantly water and sand.

Horizontal drilling, also known as directional drilling, developed largely in conjunction with offshore drilling. Unlike vertical drilling, horizontal drilling permits a single descent into the ground to then “turn” and access resources along a horizontal plane.
Combining the two with various specific techniques and machinery has opened up energy resources long thought out of reach.

“Wells that were vertically not economically feasible can now be drilled horizontally and with a large stimulation on them can be very productive and economical,” says Steve Dixon, executive vice president and chief operating officer of Chesapeake Energy.

“This isn’t about exploration. We knew these resources were there…We just couldn’t get to them.”

“This isn’t about exploration. We knew these resources were there. They just couldn’t be produced economically. We just couldn’t get to them.”

The development of the process opened or re-opened known resource sites around Oklahoma and elsewhere in the U.S. and expanded the potential of others already being utilized, including Oklahoma’s Cana and Woodford Shale, among others.

Cantrell says it isn’t just energy giants such as Devon and Chesapeake who are benefitting from the recent advance and resource boom.

“More and more companies are able to participate because the technology has made it economically viable for them,” Cantrell says.

Foster says that states such as Oklahoma, Texas and Louisiana are and will benefit tremendously from the rush of activity.

“At Chesapeake, we’re ramping up activity in Oklahoma, and we’re really pleased,” Dixon says. “We’ll probably drill twice as many wells this year as we did in 2011, and it will only continue to expand.”

Chesapeake is currently operating 35 drilling rigs in Oklahoma. Their current daily natural gas production in Oklahoma is 900,000 cubic feet per day, and oil production is 32,000 barrels per day.

Foster says that Devon has spent a billion-plus dollars in Oklahoma since the new technique opened up so much more of the Sooner State’s resources.

Industry experts cite the economic advantages to the state from the revitalized drilling.

“There will be a huge windfall for the states, from employment, mineral rights and taxes,” Foster says. “School districts get the biggest chunk of ad valorem taxes, so it can be a lot of money for schools in the area.”

Foster also points out that the activity in Oklahoma is mostly in remote small towns and rural areas, well outside of high population centers.

“It’s a huge deal for rural western Oklahoma,” he says. “A lot of towns that were dying are now surviving and even thriving because of this activity. Most people we find out there are happy about it. Some aren’t. But it’s having an incredible effect on a lot of small towns where the populations had plummeted.”

The greater economic impact isn’t lost on industry insiders, either.

“Just this year, shale gas has grown to 30 percent of U.S. production,” Dixon says. “It didn’t even exist a few years ago. And I think liquids could displace foreign oil.”

New access has also increased the official position on the quantity of retrievable oil and gas in U.S. territory. In 2007, the Potential Gas Committee (based at the Colorado School of Mines), estimated the U.S. natural gas resource base to be 1,321 trillion cubic feet. That was four years after Devon coupled horizontal drilling and hydraulic fracturing in the Barnett Shale, but it was still before the shale gas revolution fully was underway. This year, the Potential Gas Committee raised its estimate to 1,898 trillion cubic feet – a 44 percent increase over the 2007 estimate.

“Over the past 10 years there has probably been a four-fold or five-fold increase in estimated (recoverable resources),” Foster says. “There is tons and tons more natural gas than people imagine. Natural gas is revolutionary. It’s cleaner and it will probably be the fuel of choice in the future. It just takes time for people to realize it. At the current demand level, and based on finding no more than what we have already found, there is a 100 year supply.”

Cantrell says that by the time official estimates are revised, they are already obsolete because of the rapid rate of change in the industry.

“It’s very good for Oklahoma because the state is rich in resources and we will better be able to (access) them,” Dixon says.