Kansas Prepares for Gold-Rush Style Oil Boom

Article by Associated Press:
 

Between the buttes and rolling terrain of the Gypsum Hills in south-central Kansas, a massive drilling rig grinds deep into the earth, seeking to reach the oil-rich Mississippian Lime formation buried some 5,000 feet deep. Just beyond the rig, executives intently watch the progress.

Natural gas, fossil fuels and domestic oil production have the potential to enrich production companies

Modern prospectors are punching holes across south-central Kansas, in a gold rush-style hunt for oil and gas that could yield big returns not just for oil producers but also for the economy of many US states.
The boom is occurring even as domestic natural gas exploration begins to slow nationally.  In county courthouses across much of Kansas, scores of researchers comb through dusty land records stacked atop folding tables set up in hallways for them, toiling for producers and speculators alike who are scrambling to snap up millions of acres of mineral rights. Leases which just three years ago went for $30 an acre are now fetching $3,000 an acre in drilling hotspots. Awe-struck real estate agents watch incredulously as mineral rights fetch higher prices than the land itself.

Drilling has only just begun as gas production spreads north across a wide swath of the central Kansas prairie.

Look hard and you can see the first hints of change wafting through once sleepy rural hamlets. It's already tough to find a hotel room for the night or a rental property to live in. There's talk of possibly setting up "man camps" outside towns to house the anticipated influx of oilfield workers. Restaurants now seem busier than usual. And the local traffic sure feels like it has picked up on those old rural roads.  Hutchinson-based Osage Resources, is among a handful of producers behind an emerging oil boom sparked by modern technologies using horizontal drilling and a technique known as hydraulic fracturing, or fracking to coax out oil and gas.  Energy companies have already reaped fortunes off the Mississippian Lime Play in Oklahoma and are now following the rock formation northward into Kansas, where millions of acres of mineral rights have been leased in the past two or three years.

If the Mississippian Lime Play unfolds as expected, the economic boost in Kansas could be enormous. Severance taxes will swell state's coffers.
Landowners will reap royalties. Oilfield workers will find hundreds, if not thousands, of good jobs typically paying $50,000 annually. Main Street business in countless small towns will thrive again.

Domestic oil and gas production represents an exciting opportunity for growing the Kansas economy while helping to secure greater energy independence for the country with more jobs and revenue kept in the United States versus American dollars sent abroad.
But with horizontal drilling still in its infancy in America, all those economic impacts have yet to be fully felt. Kansas locals, who have seen other oil booms come and go, remain wary.

The new-fangled wells are essentially vertical wells with a horizontal bend at the oil-rich lime formation. Fracking, a technique used in Kansas since 1947, pushes water and sand down the hole to open up natural fractures in the rock and increase permeability. That combination of old and new technologies allows producers to extract as much as five to 10 times more oil and gas from a horizontal well than a conventional vertical well.

The potential production from the Mississippian Lime Play — and its impact on domestic energy supplies — remains uncertain. But the use of horizontal drilling and hydraulic fracturing to unlock energy supplies previously unavailable in the United States is now in play in places like Pennsylvania, Wyoming, Colorado, New Mexico, Texas, Oklahoma and Louisiana.

Oklahoma-based SandRidge Energy a company that has already spent $350 million to acquire nearly 2 million acres of mineral rights in Kansas and Oklahoma — with a majority of those leased acres located across a vast swath of central Kansas.

This year alone, SandRidge expects to pour $700 million into developing the Mississippian Lime Play in those two states. The company now has 21 drilling rigs to drill 50 wells in Kansas and 350 wells in Oklahoma this year.
Next year the company plans to have 45 rigs drilling 675 wells. To hold on to its leases, the company must drill a well every mile or so.

Once that is done — something that could take five years — SandRidge will go back and drill more wells until they have three wells per square mile. Within the next dozen years or so, SandRidge alone expects to punch more than 5,000 wells in Kansas.

Shell Oil and Chesapeake Energy are also drilling in Kansas, along with smaller independent Kansas energy producers.

Shell said it has acquired leases in a seven-county area in southern Kansas and is just now drilling its second exploratory well in Harper County. It plans to run three or four drilling rigs this year. Osage Resources plans to drill 216 horizontal wells to fully develop its Barber County lease.

Reports indicate that many oil rig workers of are working many long shifts and also enduring long commutes with many hours of daily driving just to get to the drilling rig. Oilfield workers log 12-hour work shifts before driving back home. They often work seven days straight, seven days off. One of the concerns with working such long hours is fatigue and the greater risk for work site accidents or becoming injured at work. Many oilfield workers have been requesting workers compensation insurance quotes from leading insurance companies.    

The demand for oil field workers has skyrocketed in recent months and the amount of drilling and domestic natural gas exploration projects has also increased dramatically in 2012.
Each horizontal well costs about $3 million to develop and typically pays for itself within 18 months of production. The average rate of return on investment is 90 percent.

Domestic oil and natural gas production is quite attractive at this time as oil prices continue to pace at high levels. In past decades, Kansas punched some 7,000 conventional vertical wells into the Mississippian Lime.

Meanwhile, the Sierra Club said it is concerned about the impact of fracking on water tables and underground aquifers, while the fracking industry contends the wells are safe.  The Mississippian Lime, for example, is 5,000 feet deep, while groundwater typically lies 500 to 1,000 feet deep — with a lot of geological barriers separating the two. Environmentalists want safeguards such as a requirement that drillers provide a list of toxic chemicals they are using and submit a test of the water table for analysis before drilling to pinpoint the culprit if chemicals are later found in groundwater, says a spokesman for the Kansas chapter of the Sierra Club. 

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