Oil-Drilling Boom Under Way

CUERO (Dow Jones Newswires), Feb. 10, 2011

Oil-drilling activity in the U.S. has accelerated to a pace not seen in a generation as energy companies, oilfield contractors and landowners rush to exploit newly profitable sources of crude.

The number of rigs aiming for oil in the U.S. is the highest since at least 1987, according to Baker Hughes. The 818 rigs tallied by the oilfield-service company last week are nearly double last year's count and about 10 times the number in the late 1990s.

While the drilling surge is unlikely to yield enough crude to alter the global oil-supply picture, analysts predicted that the new activity, centered on so-called unconventional reservoirs, could greatly boost domestic oil production and help offset declining output in Alaska and the Gulf of Mexico.

These reservoirs, trapped in tight shale-rock formations, were deemed too hard to crack a decade ago. But in the past two years, breakthroughs in drilling technology, combined with high oil prices, have led companies like Chesapeake and Petrohawk to switch rigs formerly devoted to drilling for natural gas to emerging oilfields like the Eagle Ford shale formation, which stretches from the outskirts of Houston and San Antonio, Texas, south into Mexico.

In this sun-scorched cattle country, prolonged drought and financial strain gave way to prosperity when the oil-patch leasing agents began pouring into town three years ago. For struggling ranchers the proceeds from the subsequent land deals and royalties from the intense oil drilling that is now under way are "pennies from heaven," says real-estate broker and oil-and-gas producer David Phillip. "All these newtrucks you see ranchers driving," he says, "it wasn't from cattle."

The Eagle Ford experienced a more-than-tenfold increase in the number of wells drilled last year over the 94 completed in 2009 and is slated for even more development this year. And the trend is playing out nationally, in formations such as the Bakken Shale in North Dakota and the Monterey Shale in California.

Oil production from these sources is expected to reach 1.5 million barrels a day by 2015 from fewer than 500,000 barrels a day now, according to energy consultancy Wood Mackenzie. That is similar to the amount of crude produced in the offshore Gulf of Mexico, and the equivalent of nearly 30% of current U.S. production. That extra million barrels per day could help replace some expensive oil imports as conventional oilfields in the rest of the country decline.

To extract the rock-bound crude, explorers and producers will boost spending this year by an estimated 8.1% to $93.6 billion, according to a Barclays Capital survey of 210 companies.

Copyright (c) 2011 Dow Jones & Company, Inc.

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