What’s holding up drilling on the ANF?
Slowdown in nation’s economy might be the biggest culpritBy BRIAN FERRY bferry@timesobserver.com
What's holding up drilling operations on the Allegheny National Forest?
Is it lawsuits, environmentalists, and bureaucracy?
Or basic economics?
In January, in response to several lawsuits, the U.S. Forest Service decided to have all ANF development applications sent to Milwaukee for review.
Since then, the Forest Service has not issued any notices to proceed on development projects and has been criticized and urged to begin issuing the notices.
So developers can't drill new wells. Would they, if they could?
Developers, local economic development agency leaders and a congressman have all chastised the Forest Service for holding up well development and inflicting heavy damage on the regional economy. Those groups have also been pointing fingers at several environmental groups and a lawsuit filed by them.
According to the Allegheny Defense Project (ADP), neither environmental groups, lawsuits, nor the U.S. Forest Service is ultimately responsible for holding up oil and gas development on the Allegheny National Forest (ANF).
"The reality... is that the slowdown in drilling is related to the drop in oil and gas prices since last summer," ADP Forest Watch Coordinator Ryan Talbott said. "It is basic economics."
According to an April 3 story on CNNMoney.com, prices have caused producers in western Pennsylvania to "pack up their rigs and stow their jacks."
That story was forwarded to the Times Observer by the staff of Congressman Glenn Thompson (R-5th).
The story quotes Willard Cline of Cline Oil Company and Shawn Keane of Keane and Sons Drilling Corp., both of McKean County.
"Once oil dropped below $75 a barrel, the economics just don't make sense for the wells we have around here," Keane told CNNMoney.com.
American Refining was buying Pennsylvania grade crude for $44 a barrel on Tuesday.
"We're not drilling right now," Cline said. "The low price of oil is slowing it up."
Cline reported reducing production by about 50 percent and Keane said he recently laid off 20 employees, about a third of his workforce, according to the CNNMoney.com story.
ADP said speculative contracts based on high oil prices could have landed drillers in deeper economic trouble.
"Those companies possibly would be losing thousands of dollars if they had been required to drill under the current economic conditions," ADP Board Member Tom Buchele said. "Instead of attacking ADP and other conservation groups for simply trying to enforce the law, maybe the drilling companies should be cutting them a check."
According to officials in the oil and gas industry, there are nuggets of truth in the CNNMoney.com story.
Pennsylvania Oil and Gas Association President Steven Rhoads said production is down from the days when oil was selling for $147 a barrel.
However, slowing production does not mean companies aren't working to drill wells.
"This is wishful thinking on ADP's part," Rhoads said.
"The price of oil and gas can get low enough that it doesn't generate sufficient capital... and you can't afford to drill a well," Rhoads said. "We are not at that point. Not by a long shot."
Until the price drops to that threshold, drilling will continue, he said.
"The nature of this industry, the shallow oil and gas industry, is you have very marginal production," he said. "In order to ensure the continuity and continuing operation of your company, you must drill wells. That's how you ensure cash flow."
A Forest Service settlement agreement would allow 54 projects representing almost 600 new wells go through.
"That fact that you have so many projects in the pipeline shows very clearly that the threshold that would prevent future drilling has not been reached," Rhoads said. "We are not there yet."
If the agreement moves forward, there will be new wells on the forest.
"If they are approved, those wells will be drilled," Rhoads said.
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Milkman
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04-17-09 12:24 PM
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My best guess is that the "real" checks are being written by the oil producers to POGAM and POGAM is writing checks to G.T. Thompson.
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thinkaboutit
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04-17-09 8:31 AM
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The problem with ADP’s argument is that it takes a lot of time to drill and frac a well. Most oil companies continue to drill with the anticipation of oil prices to increase again. Another problem with their argument is that many of these companies have a lot of money tied up in environmental studies and permits for new wells. A well permit is only good for a year at which time the company has to file for a renewal of the permit or for a new permit if too much time lapses. As far as the oil companies writing ADP a check it should be the other way around. ADP should be writing a check to oil companies for loss of production and costs for permits that have expired due to their litigation.
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