Oil Patch Comes Back to Life as Natural Gas Prices Climb

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December 16, 2000 Oil Patch Comes Back to Life as Natural Gas Prices Climb By JIM YARDLEY

WOODWARD, Okla. — No Lear jets are parked at the local airstrip anymore. The toys of the oil boom days disappeared when prices collapsed nearly two decades ago. Only the wild memories remain, like the time one oilman flew his friends to New Orleans for lunch because he wanted fresh oysters.

The bust destroyed every corner of the beleaguered oil patch, from West Texas through Oklahoma into southern Kansas, but it never quite killed the hope that the good times would come again. There was even a bumper sticker that pleaded, "Dear God, please give me another oil boom and I promise" not to blow it all this time around.

Their prayers may now be answered.

With winter approaching and natural gas prices hitting all-time highs in December, the oil patch is coming alive again. The rest of the country is probably not celebrating the rise in natural gas prices, since energy officials are predicting 50 percent increases in home heating bills. But many people here believe that the nation's growing appetite for natural gas is reviving an area once left for dead.

"I don't know how long it will last," said A. J. Jacques, whose company, Cheyenne Drilling, is operating at full capacity, "but it's the closest I've seen to a boom in 20 years."

Even as people here are daring to be optimistic, the memories of the bust temper any premature exuberance. The days of highflying, conspicuous consumption are remembered fondly, yet no one expects to see them again.

But the brick storefronts on Main Street are nearly all occupied. Many of the trucks and cars parked outside are new. For now, that is more than good enough.

"There have been some lessons learned," said Rodney Myers, a vice president with the Apache Corporation, one of the nation's largest independent oil companies, which is aggressively exploring for natural gas outside Woodward. "I don't think we're at a point in time where people are buying helicopters or ranches or taking big trips to Las Vegas with their 57 best friends."

No one is saying — yet — that this could rival the crazy boom days of the late 1970's and early 1980's, when a peak of more than 4,500 drilling rigs operated in the United States. Then, the derricks were searching primarily for oil. Now, many of those same derricks are drilling again, this time for natural gas. Since January, the price of natural gas has quadrupled, in part to meet the demands of a new generation of electrical plants that run on gas, which is considered a "clean" fuel.

Until recently, the price of natural gas was so cheap that companies could not justify drilling new wells. Now, with some experts predicting that production will need to increase by 25 percent to meet demand, the number of rotary rigs operating in the United States has more than doubled in the past 18 months, to 1,090, more than 800 of them in search of natural gas.

In Kansas, the number of drilling permits has nearly doubled in the past year. Employment in the Texas oil field town of Odessa has increased by almost 6 percent in the last three months. Here in Woodward, oil field equipment once sat rusting like junked cars. Now every drilling rig for miles is booked in advance. Roughnecks are in such demand that some companies have raised salaries from about $11 an hour to more than $16.

"I can't keep but thinking that we're going to have at least two to five years of good times," said Kerri D. Martin, president of Diamond Services Company, which has seen gross revenues nearly double in the past year. "I can't see any reason it's going to go south."

Bill Gilmer, a senior economist with the Federal Reserve Bank of Dallas, said the level of domestic activity was the highest in a decade. For the most part, huge multinational companies like Exxon Mobil have largely left the oil patch to concentrate on larger, more lucrative fields overseas. But rising gas prices have attracted independent producers like Apache and others.

"They are making a ton of money," Mr. Gilmer said. And the money is trickling down. Service companies in towns like Woodward or Elk City, Okla., or Perryton, Tex., are thriving.

Inside his shiny new pickup truck, Bobby Alexander drove through the huge, brown prairies of the Oklahoma panhandle last week. In the distance stood a derrick, then a mile or so later, there was another one and then another. Mr. Alexander began as a roughneck in the 1970's but left the oil business in 1986 at the very bottom of the bust.

In February, though, he bought into Cheyenne Drilling with Mr. Jacques, and his timing has been impeccable. All 12 of Cheyenne's drilling rigs are under lease by production companies. Only last year, the price of natural gas was less than $2 per million British thermal units. This month, the price went higher than $9 before falling slightly.

"We had no idea that prices were going to go like they are," Mr. Alexander said, smiling as he drove. He said companies were optimistic that they could be profitable even if prices fell to half the current level. "It looks like this could last a little bit longer."

In the late 1970's and the early 1980's, the high price of oil attracted thousands of people from Missouri and Louisiana, all looking for work. They slept under bridges or in tents at the nearby state park. Money seemed to be everywhere. At the height of the boom, more than 100 aircraft were based at the tiny local airstrip, quite a fleet for a town of less than 20,000 people.

"We had a pretty good Air Force for a while," Mr. Alexander said.

But everything began collapsing in 1983 when the combination of bad bank loans and plummeting prices crushed the oil economy. The migrants who had come to work in the oil fields disappeared, almost overnight. The town went years without issuing a permit for a new building or home.

"Our city budget went from about $10 million to about $3.5 million in four and a half years," said Dr. John Hawkins, an optometrist who serves as the town's part-time mayor. Now, he reports, local sales tax receipts have risen steadily all year, a reflection of improving times.

It is the memories of those hard times that are shaping the more restrained attitudes today toward the record natural gas prices. There is a stubborn pride shared by those who survived. For years, Mr. Jacques, of Cheyenne Drilling, scoured auctions and junkyards to piece together the equipment to build drilling rigs and stay in business.

Mr. Martin, 41, the president of Diamond Services, need only consult with his father, Kenneth (Buster) Martin, who once placed his last $25,000 on his banker's desk as collateral to keep the company running. The senior Mr. Martin cut wages, sold equipment for 20 cents on the dollar and recalled that his company survived literally week to week.

"No one knows what depressed is," the senior Mr. Martin recalled. "I got up depressed in the 80's. And I went to bed depressed."

The younger Mr. Martin added: "He keeps me pretty well grounded. I'm more of a go, go, go type. He keeps me in check."

The most immediate problem is finding enough workers. Many people are reluctant to return to the boom-and-bust oil economy, particularly at a time when jobs are plentiful in other sectors of the economy. "You almost feel like you're recruiting for a pro team," the younger Mr. Martin said of competition for new employees. "There are some companies I've heard that have a sign-on bonus."

One old-timer who may be unable to resist the promise of more good times is J. D. Hodges, now 63. Before the bust, Mr. Hodges owned a helicopter that he landed on a pad atop his office building. He also bought a Lear jet with a crew, and was known to take friends on impromptu trips to New Orleans and Las Vegas when the mood struck. He lost it all in the bust, then re-emerged in the trucking business. In recent days he bought a drilling rig.

He has not decided whether he will sell the rig for a profit or go back into business himself.

"Natural gas is in vogue and it will be for decades to come," he predicted.

As yet, everyone is optimistic but maybe not ready to buy a Lear. There is a custom-made motorcycle in the window of Cycle City, a local Harley Davidson store. It is painted orange and costs $60,000.

The buyer, by the way, is in the oil and gas industry.

http://www.nytimes.com/2000/12/16/national/16GAS.html?printpage=yes



-- Martin Thompson (mthom1927@aol.com), December 16, 2000

Answers

If a boom is around the corner, why are all these oil companies merging?

-- David Williams (DAVIDWILL@prodigy.net), December 16, 2000.

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