Permian again abuzz with oil boom

Dec 18, 2004 01:00 AM

by Loren Steffy

Even in the unfiltered afternoon sunlight, the welding torches in Mike Cowan's yard sparkle like lights on giant iron Christmas trees.
Cowan's company, M.D. Cowan Inc., builds oil and gas rigs on a dusty field in northwest Odessa, and higher oil and gas prices have spurred a demand for new rigs the likes of which the industry hasn't seen in two decades. Cowan has orders that will keep his crews busy well into next year, and more come in weekly.

Companies that want to drill new wells have to wait for rigs to become available, and companies that have rigs have to wait for trucks to move them from one well site to another.
"The drilling contractors now are booked up through the first quarter," says Morris Burns, executive vice president for the Permian Basin Petroleum Association. "If you wanted to drill a well, it would be late April or early May before you could get a rig."

The effect of higher oil and natural gas prices may seem muted in Houston, but across the state, the hot spots of the past are rejuvenated. Rigs are in short supply, and workers -- from geologists to motor men running derricks -- are "as busy as they want to be," says Ray Knox, a consulting geologist in San Antonio and acting president of the South Texas Geological Society.
"We're actually in demand again."

In South and East Texas, property sales have picked up amid of flurry of drilling activity, and Knox says many companies in his region are working over low-producing gas wells because higher prices have made them profitable. In Midland, there's a community-wide sense of relief born of familiarity, like sliding your foot into a comfortable old shoe. For years, Midland and Odessa tried to diversify their economy, with some success, but oil remains the twin cities' raison d'etre.
"People here in Midland were saying the oil business is dead and we've got to diversify," Burns says. That all began to change in the last few years.

In 2002, the total payroll for the energy business acrossthe Texas part of the Permian Basin topped $ 1.6 bn, according to the Texas Workforce Commission. Since then, those numbers have gone up, Burns says, although new figures aren't yet available.
The demand has sparked an increase in housing sales and consumer spending in the region, and the mesquite-choked fields of West Texas are once again catching the world's wonder. While reporters like me have come here from across the state, stumbling around drill sites in our city-slicker shoes, Burns says he's received calls from news crews as far away as Italy who want to document the region's resurgence.

You can see signs of the area's renewed popularity at the Midland International Airport, where planes are coming in full. The total number of passengers through the airport rose by 9.5 % in November from a year earlier. This time, though, the boom is being viewed through the prism of past busts. Everyone knows it won't last. The Permian Basin has been drilled for 70 years, and its production, like other regionsof Texas, are in decline.
Oil, once the state's biggest economic engine, no longer drives our economy. Overall, Texas is about 85 % less sensitive to oil price fluctuations than it was in the 1970s, according to a study by the Federal Reserve Bank of Dallas.

That doesn't matter here in the Permian Basin, though, where the rise in drilling activity has been an answer to long-offered prayers. And in keeping with the promise that accompanied those prayers, companies are using this boom to invest in the future instead of drilling all they can to make a quick buck while prices are good.
In Cowan's yard, Lariat Services, the Midland-based drilling unit of Amarillo's Riata Energy, has two rigs under construction. Most of the work being done by Cowan involves refurbishing old equipment -- taking pieces of old rigs and making new ones. The technology behind traditional jack-knife rigs has changed little in more than 50 years.

The Lariat project, which will include seven rigs in all, is different. For Lariat, Cowan is building from scratch "super-single" rigs that operate at about half the cost of conventional derricks. While conventional rigs require four men to operate, the super singles take only two.
Instead of loading pipe by hand, the rigs use an "iron roughneck" that hydraulically loads drill pipe. The process eliminates some of the most dangerous jobs on the rig, cutting not only labour costs but insurance expenses as well, says Henry McElroy, Lariat's drilling division manager. The two workers operate the rigs from a control panel using joysticks.
"These rigs are built for the XBox generation," McElroy says.

Not only are they safer and cheaper to operate, they're also smaller and less expensive to move. Transporting a conventional rig from one well site to the next can cost as much as $ 15,000. The super singles can be moved for about $ 6,000 says Ron Smith, Lariat's marketing manager.
Cowan notices another difference. Many of his customers are financed by local banks. Banks in the Midland area and across Texas were burned in the oil bust of the 1980s, but now, many are willing to bet on the business again.
"The oil business doesn't have the black eye that it did," Cowan says.

For folks here in the Permian Basin, there's only one sentiment to follow up that statement:
Amen.

Loren Steffy is the Chronicle's business columnist. Contact him at loren.steffy@chron.com.

Source: Houston Chronicle
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