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Independent oil producers still profiting

Marketplace Staff Apr 13, 2010

Independent oil producers still profiting

Marketplace Staff Apr 13, 2010


Kai Ryssdal: Crude prices slipped a little today. On the one hand, traders seem worried oil producers could pump more crude than we’re going to need. On the other, they’re thinking if oil goes much above $85 or so a barrel, the recovery could stall. It is an uncertain time.

But some energy companies thrive on that uncertainty. Independent oil and gas producers are used to risking everything on a single drill. Wildcatters pioneered the business of dragging fossil fuels out of the ground. And they are still at it today, despite big oil.

From Shreveport, La., Kate Archer Kent of Red River Radio has the story.

Kate Archer Kent: Jack Everett’s one of the oldest men in the oil business. He’s 81, and he reckons he’s drilled about a thousand oil and gas wells in his lifetime.

JACK EVERETT: I’m just an old land man that hustles. Got to drill a lot of wells to find the right one.

Everett drills as many wells that he can finance each year in hopes that a handful will pay off. And he does it the old-fashioned way. He doesn’t use banks. Instead he gets his money from a group of trusted investors. These “old time-y wildcatters,” as he calls them, have been sponsoring Everett for decades.

EVERETT: I take people that I deal with on their word. Handshake means more to me than anything you can put in writing. You can tear that letter up.

You might think the big oil and gas companies would have killed off wildcatters like Everett by now. But there are thousands of independent operators just like him.

KEVIN BYRAM: We’re very small. We’re very quick. We’re very nimble.

Kevin Byram is one of the new generation of wildcatters. Thanks to technology, his laptop computer can serve up and crunch exactly the same data that the big players get. And many independents like him are scientists. Byram spent years studying geology before he set up his own business, Heritage Energy.

Right now, he’s prospecting for natural gas in a discovery called the Haynesville Shale, just outside of Shreveport, La.

I climb several stories to get to the driller’s control cabin of Byram’s rig. It gives a skybox-like view of the drill pipe boring three miles down into the earth.

The height is the least of a wildcatter’s worries. It costs $9 million to drill one of these wells — $60,000 a day.

And a lot can go wrong: The drill pipe can break. The mud lubricant may not work right. Or worse yet, a sudden pressure change can trigger a deadly blowout.

Delays from accidents or equipment failure can easily bankrupt an operator. But perhaps the biggest risk of all is not finding enough natural gas to make the well pay off.

ARCHER KENT: Do you have, as a geologist, any indication how good this well will be at this point?

BYRAM: No. It’s all mechanical now. One, you’ve got to get it drilled, which is not easy. There’s not a whole lot of geology anymore.

Byram is prepared to take big risks with his balance sheet, pouring his own money into his drilling program. Because he’s an independent operator, he can gamble in a way publicly-traded heavyweights can’t.

Joe Colonnetta invests in pipeline operations for HM Capital Partners, a private equity firm. He says the wildcatters’ ability to move quickly and make big bets often get them to the sweetest drilling spots first. But the big guys soon catch up.

JOE COLONNETTA: There tends to be a lot of intrigue and espionage that occurs in the dark of the night. And so the bigger companies that have the manpower to spy and scope out who’s doing what in the independent community are able to go in and lease up a bunch of acreage.

And once the big oil and gas firms open their checkbooks, the whole game changes. Byram says it turns into a land grab.

BYRAM: In the north Louisiana basin, we bought leases for $100/$150 an acre. And in a period of six months, we went from $250 an acre to $25,000 an acre. I mean it just got totally out of hand.

Wildcatters like Byram often can’t match that kind of money. So they usually sell up and take their profits. And then move on to the next prospect with little more than their instincts, an honest handshake, and a firm hope that all that newfangled geological drilling data is on the money.

In Shreveport, La., I’m Kate Archer Kent, for Marketplace.

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