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.”
Local producers also are benefiting from stronger oil prices.
West Texas Intermediate oil — priced in Cushing — added $2.61, or 2.5 percent, Wednesday to $106.14, up from $85.93 one year ago.
The oil price has jumped about $10 over the past week because of both domestic and international factors, said Gregg Laskoski, senior petroleum analyst at GasBuddy.com.
“One of the things driving this is the concern about Egypt and the uncertainty about who's in control there,” Laskoski said. “There's also a lot of concern about the security of the Suez Canal. You have 3 million barrels per day of crude oil headed to Europe that has to travel through that canal.”
Domestically, the improving economy has caused demand to increase, driving down the country's inventories by almost 20 million barrels over the past two weeks even as domestic production is soaring.
While strong prices are good for producers, they can hurt consumers. Soaring oil prices are likely to soon lead to higher gasoline prices, Laskoski said.
“I can't give you a mathematical formula, but more often than not, when crude oil prices go up — especially continuously and for a prolonged period — it's inevitable that wholesale gasoline prices and retail prices would follow. The key question is how long will the run-up in crude oil continue.”
The average price pergallon of gasoline in Oklahoma was almost $3.32 Wednesday, up 8 cents over the past week, according to GasBuddy.com. Nationwide, gasoline averaged $3.53 a gallon, up just more than three pennies over the past week.