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Higher energy prices benefit producers, hurt consumers

The price for natural gas is up more than $1 over the past year while local producers are now receiving more than $100 a barrel for oil. The stronger prices are providing a boost to local energy producers.
by Adam Wilmoth Published: July 11, 2013

Stronger energy prices are creating new opportunities for producers like Oklahoma City oilman Pete Brown.

“We've been talking about drilling some vertical prospect wells that at today's prices would be profitable,” Brown said. “In the past, we couldn't drill them because the price of natural gas was too low.”

Brown is co-owner of Oklahoma City-based Cimarron Production Co. and Kingfisher-based operator Brown and Borelli Inc. Brown and his companies focus on conventional, vertical wells.

“The unconventional plays and horizontal drilling are so expensive that mostly it's a big-company game,” he said. “You're drilling wells that cost anywhere from $5 million to $12 million. The reserves are adequate over a period of time to justify that expense, but the recovery time is often long and slow — sometimes it's a five-year payout. That makes a lot of sense to big companies, but for little guys like myself, if we don't get a three-year payout, it's not economical to drill.”

Just one year ago, even the vertical wells weren't worth drilling.

The price of natural gas hit a 14-year low in April 2012 at $1.87 per thousand cubic feet. The price increased to $4.33 one year later. It has since slipped a bit, but is still much stronger than one year ago. The price was unchanged Wednesday, closing at $3.66 per thousand cubic feet.

Energy marketer Tony Say said he expects natural gas prices to remain between $3.60 and $3.90 through the fall.

“Natural gas really isn't moving much. We'll just see it fluctuate a little here or there,” said Say, president of Oklahoma City-based Clearwater Enterprises.

“There's not an abundance of drilling going on that is going to bring on a bunch of new gas into the marketplace anytime soon. However, having said that, there are wells that are waiting to come online and are still in the queue,” Say said. “There's not going to be any kind of shortage. We have a happy balance here with supply and demand.”

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by Adam Wilmoth
Energy Editor
Adam Wilmoth returned to The Oklahoman as energy editor in 2012 after working for four years in public relations. He previously spent seven years as a business reporter at The Oklahoman, including five years covering the state's energy sector....
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