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Rising prices drive drilling

Driven by high natural gas and crude oil prices, gas and oil prospectors are operating in Western Pennsylvania at levels not seen in more than a decade.
/ Source: Pittsburgh Business Times

Driven by high natural gas and crude oil prices, gas and oil prospectors are operating in Western Pennsylvania at levels not seen in more than a decade.

Statewide there is a 20-percent surge in the number of drilling permits issued for the second year in a row. The Department of Environmental Protection has issued almost 3,000 oil and gas well drilling permits already this year, the vast majority of them slated for Western Pennsylvania.

Permits have been issued in nine of the 10 counties in southwestern Pennsylvania, for a total of 1,273. So far, there haven't been any issued in Beaver County.

In Penn Hills, according to principal planner Chris Blackwell, gas developers descended on the municipality in droves five years ago and more than doubled the number of wells. "We had 70 drilled in the last five years and the other 50 are from the turn of the century."

Just a year ago, there were seven drilling rigs operating in Pennsylvania. In late July, there were 19, according to statisticians for Baker Hughes Inc., the Houston, Texas-based drilling bit manufacturer that tracks operations on a state-by-state basis.

That makes Pennsylvania 11th in the country in terms of active rigs, though it's far behind No. 1 Texas, which has 621, or No. 2 Oklahoma, which has 148.

The only thing limiting the drilling boom here and nationwide, according to industry experts, is the scarcity of oil and gas field labor. Although such jobs typically pay at least $40,000 per year, few young people are willing to put in the long hours, travel time and hard work needed to pull home a paycheck in the industry.

"We're seeing much more activity now, but there is not enough men or equipment to satisfy demand," said Jim McElwain, president of S.W. Jack Drilling in Indiana, Pa., which employs 300 people. McElwain hired 200 people in the last year and saw 100 of them quit, many in a matter of days.

He said the recent boom is only a partial recovery of what was once a much larger industry. There were roughly 5,000 rigs operating in the United States in 1983, he said, compared to 1,100 now.

Although there is a lot of activity, those involved are loathe to talk about what they're doing or where they're doing it. Almost none of the local oil and gas drillers or well owners contacted for this story returned calls. One who did, Joel Phillips, president of Campbell Oil & Gas Inc. based in Indiana, Pa., said high demand has sent the cost of drilling a well skyrocketing from about $156,000 in 1999 to around $260,000 this year. He said with that kind of expense, those making a play for gas or oil don't want to telegraph their moves.

"You hold your wells tight, and you keep your cards close to your vest," said Byron King, a Pittsburgh lawyer and oil investor who was trained as a geologist and once worked for Gulf Oil. "It's an under-the-radar economic story."

King has made a study of the history of oil exploration and has written extensively about a man they called the "Crazy Colonel," a former railroad conductor who got it all started just south of Erie in 1859.

For decades, local Seneca Indians and white settlers had noticed a brown substance oozing from the soil near Titusville, Crawford County. Those early oil users sopped up the stuff to caulk their canoes and light their lamps, but it was Col. Edwin Drake who first dug a successful well large enough to put the oil in barrels.

After the toehold was established, oil derricks sprung up in Crawford and surrounding counties. The rest of the story is still unfolding, as companies and countries continue to jockey for the best remaining oil supplies.

Consumption of oil in the United States has by far the biggest impact on world markets, with increased consumption in China and India now getting more attention. According to data from the Central Intelligence Agency, the U.S. consumed 19.65 million barrels per day of oil in 2001 and produced 7.8 million barrels per day in 2004.

An energy bill passed by the U.S. Congress last week, however, didn't address tighter fuel restrictions on American automobiles. And with increased consumption, prices continue to rise.

With the uncertainty caused by the death this week of Saudi Arabian King Fahd Bin Abdul Aziz, the price of oil went over the $62 per barrel mark. Saudi Arabia is the third-largest exporter of oil to this country, behind Canada and Mexico, according to the U.S. Energy Department.

The latest price jump is good news for Cliff Hardt of Shaler, whose father left him more than a dozen oil wells in Venango County years ago. Hardt, whose family once owned the Hardt Gas Co., says he grew up riding his bike to read gas meters for his father's company.

Hardt said the Venango oil wells that a few years ago weren't worth worrying about are now making noticeable money. "I think three years ago we sold a tank of oil for $900 and the last one we sold went for $4,000," Hardt said.

Hardt said he might be able to ship four tanks this year. But like McElwain, Hardt said one of his biggest problems in the near future will be finding someone to maintain his wells.

"The toughest when the older gentlemen retire is finding somebody to do it."