Illinois oil producers gushing with signs of a comeback
by Jim Suhr
As a third-generation Illinois oilman, Chris Mitchell knows well the uncertainty of trying to make a consistent
living in an industry known for its ups and downs.
When oil prices crashed in the mid-1980s and late 1990s, this time sending the price of a barrel below what it took
to produce it, the domestic oil industry suffered and many small independent producers were squeezed out. But
Mitchell's George N. Mitchell Drilling Co. near Carmi on Illinois' eastern edge held on, hoping for better days.
That time has come.
After years of decline punctuated by rusting, motionless pump jacks on Illinois farmland, the state's oil industry is
staging a comeback, thanks largely to higher crude prices. Underscoring that rally, the state Department of Natural
Resource's regulatory oil and gas division issued 544 oil-drilling permits in 2003 and 599 last year. So far this
year, that number has spiked to more than 800.
"Today, people would say we're enjoying a boom; it's more of a recovery," said Jeff Eshelman, a spokesman for the
Independent Petroleum Association of America, a trade group representing most of the companies responsible for the
nation's oil production.
Nationwide, Eshelman's group says 33 states produce oil and natural gas, with Illinois ranking 12th among drilling
states or regions, just behind the Gulf of Mexico. Oil drilling is going on in about 40 of the state's 102 counties,
mostly by independent operators.
Recent hurricanes that interrupted oil production in the Gulf of Mexico "in all likelihood won't have any impact on
our market" in Illinois, unless storm damage cuts Gulf production enough to force refiners to lean more on the state
and other markets to make up the difference, said Brad Richards, the Illinois Oil & Gas Association's executive
director.
Most wells in Illinois put out about 1.5 bpd, according to the group. Since 1989, the amount of crude retrieved
state-wide has dropped by half to about 11 mm barrels a year -- less than 1 % of the total produced nationwide --
because the large price declines in the last two decades pushed people out of the business, Richards said.
At the company founded by his grandfather in the 1940s, Mitchell looks to add 10 to 12 more workers and another
drilling rig -- big stuff for a business that went from about 150 workers and seven rigs about 20 years ago to just a
few dozen employees and one rig. Lately, Mitchell Drilling has bulked up to about 65 employees and three drilling
rigs.
"It's pretty much just survival," said Mitchell, the company's president. "I don't want to get the violin out and
have everyone feel sorry for us. We could have gotten out at any time. But we just stayed in there, hoping the price
would improve."
It did. Crude oil futures have traded recently at more than $ 66 a barrel on the New York Mercantile Exchange.
Much of Illinois' oil richness is traced to a huge underground reservoir known as the Illinois Basin, which sprawls
across southern Illinois and parts of Kentucky and Indiana. By some estimates, there still are billions of barrels
remaining in the basin. Oil from that basin tends to fetch about $ 7 less per barrel than other crude, partly because
it yields slightly less gasoline.
Despite the boom in crude prices, challenges remain for oil producers. There's a nagging lack of available drilling
rigs and the labour to work them. It's hot, grimy work that's often unappealing to would-be recruits and not enticing
enough to people who left the business during a downturn and settled into different jobs. Nationwide, just 60 % of
the jobs lost in the oil-price crisis of the late 1990s have been recovered, according to Eshelman's group.
"We're trying to encourage people to get back into the business, and it's difficult," Mitchell, 53, said.
According to the state's DNR and the Illinois Petroleum Resources Board, the hunt for oil dates to about when others
flooded California in search of gold. Illinois' first wells are believed to have been drilled in 1853 near Champaign,
yielding plenty of "swamp gas" but no bubbling crude. Drillers had better fortune over the ensuing decades and the
state was cranking out 181,000 barrels of oil by 1905 and 33.1 mm barrels just five years later.
The state ranked third nationally in oil production for six years until 1913, when the output slid as wells were
drained below levels where the oil could be brought up. Over the next decades, the state's oil production fluctuated
until 1938 with the discovery of an oil field near Salem.
By 1939, Marion County's farmland gave up 93 mm barrels of oil and many farmers who leased their land to oil
companies became instantly rich. Just a year later, Illinois' production was 147.6 mm barrels a year -- at the time,
more than some Middle Eastern countries.
By the 1980s, conflict between Iraq and Iran squeezed supply out of the Middle East, feeding demand for domestically
produced crude in the states. About that time, corporate petroleum giants such as Texaco and Exxon pulled out of the
basin in pursuit of bigger fields and profits overseas.
Still, there's enough left over if people can find it.
Now, "there's no question people can make money at these prices if they have existing production," said Richards.
"But you still have to find it to make money. You don't make any money drilling a dry hole."
Mitchell has grown weary of the stereotype that his line of work is replete with gusher-finding Jed Clampetts or J.R.
Ewing-like barons.
"Small independents do one thing and try to do it well enough to make a living, feed their families, raise their
children and set themselves up to retire someday," he said. "This is kind of the last bastion of free enterprise --
go out and risk things to maybe be a big winner."
On the net:
Illinois Petroleum Resources Board, http://www.iprb.org
Illinois Oil & Gas Association, http://www.ioga.com
Illinois State Geological Survey, http://www.isgs.uiuc.edu/oilgas/oilgas.html
Independent Petroleum Association of America, http://www.ipaa.org
