Skip to comments.Tapping Missouriís Crude Oil Economy: an unknown amount with a lucrative potential
Posted on 01/20/2006 12:03:59 PM PST by rface
VERNON COUNTY (Missouri) In a flat, grassy prairie 200 miles southwest of Columbia, oil pumps teeter day and night, extracting hundreds of gallons of water beaded with tiny globs of crude oil.
A couple hundred feet below these pumps and the nearby farms and small towns in this rural corner of Missouri, there are millions, possibly billions, of barrels of heavy crude oil.
Yet there are only a few working oil pumps in Vernon County, where experts say the states largest oil deposits lie.
For decades, companies such as Carmel Energy, which owns the pumps, have been trying to harvest oil from Vernon County. But the areas most noted natural resource remains the wild pecans advertised on billboards along Highway 71.
Missouri is not known as an oil-producing state, and there are distinct disadvantages to drilling for oil. Nonetheless, Carmel Energys pumps wont be alone for long. Todays high oil prices are attracting more oil companies to Missouri and the conditions might even be right for an oil boom. Through the years
Historically, Missouris oil production has risen after a jump in oil prices.
The last time that happened was nearly 25 years ago.
For much of the 1970s, oil prices were less than $10 a barrel. Companies produced only about 60,000 barrels of oil per year from Missouri.
But when oil prices soared, reaching $20 a barrel in 1980 and then $30 a barrel a year later, investment groups poured into Vernon County, hoping to cash in by selling the heavy, tar-like oil at premium prices.
This mini-oil boom peaked in 1984, when companies produced 286,000 barrels of Missouri crude but ended abruptly just two years later when oil prices crashed below $10 a barrel. Investors were burned, and some companies that spent heavily in Vernon County went under before they could even begin production.
Between 1.4 billion and 8.3 billion barrels, according to Bruce Netzler, the states former oil and gas geologist.
The skeletons of these failed projects are scattered along Vernon Countys back roads. Rusty oil storage tanks and battered boiler sheds sit beside livestock pastures. Farmers plant their crops around capped oil wells in the middle of their fields.
But there are signs that these skeletons might soon come back to life.
The oil price jumps during the past three years are similar to the increases in the 1980s. The average price of a barrel of oil went from $28 in 2003 to $37 in 2004. On Wednesday, oil was selling for more than $55 a barrel.
Once again, companies are taking a look at Vernon County.
The investment groups are very actively seeking to re-enter western Missouri, said Shari Dunn-Norman, an associate professor of petroleum engineering at the University of Missouri-Rolla and a member of the states Oil and Gas Council.
Dunn-Norman said she has been getting more calls recently from companies wanting to drill for oil.
Its no wonder. In a 1990 report, Bruce Netzler, a geologist for the Missouri Department of Natural Resources, said Missouris oil was worth between $14 billion and $85 billion. With todays higher oil prices, the oil is likely worth much more.
There are billions of dollars worth of oil here, Netzler said, calling Missouris oil fields a vast resource.
But for Missouri to go back to the boom days in the early 1980s, or perhaps produce on an even larger scale, companies will have to overcome several hurdles that have tripped up projects in the past:
* The oil in southwest Missouri has not been extensively mapped, meaning theres a lot of speculation and guesswork when drilling. * Missouris mineral-rights laws can discourage drilling. * The oil is thick and difficult to produce in large quantities. * Missouris oil infrastructure collapsed when oil prices crashed in the mid-1980s.
The lure of untapped oil and high profits might be enough to spur a new oil industry here.
The oil is out there, said Jeff Jaquess, the DNRs oil and gas geologist. Hopefully, now, with the prices the way they are, well see it starting to pick back up. Crude estimates
No one knows how much oil is under southwest Missouri, but there have been many educated guesses.
A DNR report from 1977 estimated 287 million barrels. An earlier estimate put the amount at 75 billion barrels in western Missouri, eastern Kansas and northeastern Oklahoma. Netzler, the states former oil and gas geologist, said in his report there could be between 1.4 billion and 8.3 billion barrels under western Missouri.
At the states current oil consumption rate, even 1.4 billion barrels would last Missouri more than 10 years, according to the federal Department of Energy.
Since Missouris oil resource has not been precisely quantified by the state or private companies, its difficult to predict how much crude oil companies would be able to produce.
Dunn-Norman said she thinks the state could produce at least 5,000 barrels a day, which would easily top the 1984 production record.
Jim Long is much more optimistic. Long, a mining engineer, has been drilling test wells for a landowner with 4,700 acres in Vernon County.
From his tests, Long thinks the state could be producing 20,000 barrels of oil per day, and he said thats his conservative estimate.
That much oil production would far surpass anything Missouri has ever produced.
Missouri is 29th in production out of 31 states that have oil production, according to the energy department. But if Longs estimates are correct, the state could jump to somewhere in the middle, near neighboring states Illinois (11 million barrels per year) and Arkansas (7 million barrels per year).
The distance between Dunn-Norman and Longs estimates underlines the fact that considerable uncertainty remains about the extent of the oil under western Missouri.
The state is partially to blame for this lack of information.
In his 1990 report, Netzler said the state should research and better quantify its crude oil resources so companies would have the information they need to quickly restart production.
But Netzler said that hasnt happened. Instead, he said, the state does more regulation than promotion of its oil. He said the state could be doing a lot more to help companies that want to drill here.
We could package the data that is in existence and have a drilling program to go out and core drill and find out whats there, he said. We could find the limits of the oil and put it in a report thats open for everybody.
Some states do much more to help oil companies. Kansas, for example, has a wealth of information on the states geological survey Web site including detailed interactive electronic maps of Kansas oil fields.
The Missouri DNRs Web site, on the other hand, offers little more than the drilling laws and a downloadable fact sheet with a brief history of oil production.
The document isnt likely to stir interest in drilling for oil in Missouri as it includes the statement, Missouri does not boast of large, undeveloped deposits of oil and gas, but exploration and speculation continue. Mineral rights
Finding out where the oil is and how much is there is only one part of the process. Gaining the right to drill an oil well in Missouri can be a legal tangle.
The mineral interest laws in this state do not promote any kind of production whatsoever, Dunn-Norman said.
When land is sold in Missouri, the seller can choose to sell only the surface and retain ownership of the minerals underneath the property.
On some property in western Missouri, mineral ownership was split from the land above it long ago. These mineral rights were handed down from parents to children for several generations until the mineral rights for a single piece of property were split between dozens of relatives.
This situation becomes a problem when a company wants to acquire a lease to drill for oil on these properties because it has to find every relative with mineral rights.
Long said divided mineral rights are common in Vernon County.
You have a lot of acreage down in this part of the world with split mineral ownership, he said. Big, big blocks of land are not readily available down here.
Dunn-Norman said Missouri could enact a more drilling-friendly mineral rights law similar to the laws in other oil-producing states, such as Oklahoma and Louisiana. In those states, if the mineral-rights owner is not actively developing the underground resources, the rights are automatically reattached to the surface after several years.
Then, companies who come in seeking a drilling lease only need to get permission from the surface owner, rather than potentially dozens of mineral rights owners who might not even know they own mineral rights in rural southwestern Missouri.
There has not been a strong push to change Missouris mineral rights laws. Dunn-Norman said the state legislature should consider such a change because the hassle of acquiring mineral rights is a disincentive for companies that might want to drill in Missouri. Ornery oil
Even when the legal red tape is cleared away, prospectors in southwest Missouri have found that the tar-like oil there will only come out under its own demanding terms. Much of the oil has two characteristics that make it particularly difficult to get out of the ground: Its shallow and extremely thick.
The oil in Vernon County is a couple hundred feet deep, versus thousands of feet deep for a typical oil reservoir. While this might seem like an advantage, in oil drilling, deeper reservoirs are better.
When oil is deeper, formation pressure naturally pushes the oil to the surface when its tapped by a well. With shallow deposits, prospectors have to use other methods to get the oil to flow from the rock and then use pumps to lift it to the surface.
Creative prospectors tried some unusual methods to get Missouris ornery oil flowing. In his report, Netzler describes some of the tests.
He writes that in one ill-fated attempt, a prospector tried to get the oil moving by blasting jet engine exhaust down a well hole. Another group thought jolting the oil with an electrical current might loosen it up, but Netzler writes that they ended up with only a hefty electric bill.
One method that has been successful in Missouri is called steam injection. Using this process, oil prospectors push steam down a well to heat the oil and build pressure, making it easier to pump. But steam injection is costly because operators need a fuel, typically natural gas or their own oil, to boil the water. Thus, steam injection is really only economical when oil prices are high.
These strategies hint at the fact that there hasnt been much research money poured into developing the oil in Missouri. Most of the research on pumping oil in Missouri has been done by individuals or small companies that dont have large budgets for research and development.
Larger companies generally spend their research money overseas, where oil is easier to harvest and there is greater potential for big profits, according to testimony earlier this year in front of the U.S. Senate Energy and Water Subcommittee.
Federal funding for petroleum research has helped compensate for the lack of private funding in Missouri.
For example, Dunn-Norman recently conducted research in Vernon County to find out if dropping microbes into oil reservoirs would reduce oil viscosity and get the oil flowing. She said the test results werent promising.
About half of the $1.3 million in funding for the study came from the federal Department of Energy. But even federal funding for research projects in places like Missouri is on shaky ground. President Bushs proposed budget for 2006 eliminated funding for domestic oil research. The energy and water subcommittee later restored the funding after hearing an outcry from the research community.
All the disappointing tests havent stopped people from trying new ideas in southwest Missouri.
Carmel Energy, which operates the pumps in Vernon County, is shooting microwaves into the ground to get the oil to flow on its small project site.
A new out-of-state investment group plans to revisit steam injection in Vernon County, but the investors plan to use a cheaper, regional fuel source such as hay, corn or coal to heat the water.
Another technology that might have an impact here comes from Phoenix-based Deluge Inc.s CEO Brian Hageman, who spent nine years inventing and testing a new type of engine. This year, Deluge started using the engine to pump oil in Parsons, Kan., just west of the Missouri-Kansas border.
Hageman said his engine can pump oil at a tenth of the cost of traditional pumps. So far, Deluge has nine pumps running in Parsons, but Hageman expects to install about 4,500 pumps in the next five years across the Midwest.
Hageman said he wants to exploit what he see as an open market in the generally neglected oil fields in places such as Missouri.
Were not trying to compete with the big oil guys with the bigger fields. Were going into these older, shallow, small fields that no one else is working, he said. We see it as a huge opportunity for us to extract oil out of these fields that nobody else wants to mess with. Extra costs
Even with todays high oil prices, the extra costs of producing oil in Missouri can pinch a companys profits.
There are no crude oil refineries in Missouri, and companies have to pay to truck their oil to refineries in other states.
Colt Energy, which produces oil in the Kansas City area, pays $6 to $7 a barrel to truck its oil to a refinery in Coffeyville, Kan.
Were not getting the full increase because our costs have gone up, and that squeezes our margins, said Nick Powell, president of Colt Energy. So yes, were making a lot more money, but were not making as much money as one might think.
Finding replacement parts for broken oil rigs also can be a hassle. Right now, it can take months to get parts imported for broken pumps. Higher oil prices have caused a renewed interest in pumping oil around the world and equipment suppliers are swamped with orders.
A few years ago you could go out to any junk yard and get the old pumps, Hageman said. Right now, it takes months to get new above-ground equipment for an oil well.
Colt Energy, has to order parts from as far away as Asia, said Colt engineer John Amerman.
Just to get some oil wells pumping, we have to get supplies shipped from China, and some of those supplies have a six-month waiting time, he said.
The state had an infrastructure to support an oil industry in the 1980s, but when prices went down and production decreased, these companies were forced out of business.
In the 80s, a lot of those left and never came back, Amerman said. So theres a limited amount of supplies and service companies.
In addition, companies coming to Missouri will have to compete for experienced oil workers, who are in short supply in the state.
Dunn-Norman is trying to help fill the need for more petroleum engineers in Missouri by recruiting more prospective engineers into UMRs petroleum engineering program. But even with starting salaries in the $70,000 range for a petroleum engineer, she is only expecting modest growth in enrollment. Just getting started
After decades of trying and a lot of frustration, only a small portion of Missouris oil has been harvested.
Since the state started tracking oil production in 1966, only 4.5 million barrels have been taken from the state. That leaves hundreds of millions, possibly billions, of barrels of oil under western Missouri.
Theres some pretty good size heavy-oil reserves, and thats a potential growth area in the state of Missouri, Powell said.
With so much oil, and so much money left to be made, companies seem destined to find a way to make Missouris oil profitable. When that happens, even those who dont own property in southwest Missouri could see a benefit from greater oil production. Having companies harvesting and selling oil could bring in tens of millions of dollars in tax revenue for the state, Dunn-Norman said.
The average Missourian could say, Well, it may not be that much in my pocket, but if it keeps taxes lower, its a great benefit, she said.
I am originally from that area and had no idea there might be oil there! Coal and sulfer yes. I guess with all the coal and asphalt ground it shouldn't be such a far reach.