Fuel and Gas Prices and Gas and Energy & Environment and Oil and Environment

Oil companies drill in Indiana fields thought to be 'played out' a century ago

July 14, 2008

Sky-high oil prices have rekindled an industry in east-central Indiana that many thought had run its course a century ago.

The evidence played out earlier this year on YouTube. An image of a pump jack seesawing over an oil well in Greg Losh's back yard in Selma, just east of Muncie, caught the eye of the national media.

It wasn't long before TV news crews from around the nation had flocked to the well to tap a gusher of populist, little-guy-sticks-it-to-the-Middle-East sentiment.

The Losh well, drilled early this year, and its three barrels-or-so a day doesn't seem like anything more than a novelty. The so-called Trenton oil and gas field a thousand feet below is a long-forgotten chapter from Indiana's early industrial history.

"The Trenton is considered to be 'played out,'" said John Rupp, assistant director of research at Indiana Geological Survey in Bloomington.

But a handful of wily prospectors motivated by oil prices approaching $150 a barrel aren't so sure.

Among them is Tom Young, a partner in the Losh well and principal of Plymouth-based Young Oil Co.

Young recently sold to investors a package of four wells being drilled on 368 acres in Delaware County. According to permits filed with the state Department of Natural Resources, Young and R&S Drilling, of Selma, are aiming to go down about 1,300 feet into the Black River formation, as geologists know it.

"We just finished drilling the first well in that package and it was a dry hole, so we will move on to the next well. The dry holes are all part of it but not much fun," Young said.

Of course, "the best part of investing here in Indiana oil and gas wells is an investor can drive out to watch the drilling or see their well once it's completed."

Young's company touts that it has produced 5,000 barrels of oil and 350 million cubic feet of natural gas since 1985 in areas of known production that are mostly overlooked.

Production in the area northeast of Indianapolis peaked at 11 million barrels of oil around 1905 and soon trickled off as the action shifted to new finds in southwestern Indiana. In modern times, much of the remaining gas and oil is tapped for use by local farmers.

Young thinks ignoring the area is shortsighted.

"I will be going back into an area in northern Indiana that I'd produced oil wells in and plugged over 10 years ago. With today's high [oil] price, they would be very profitable," Young said.

He isn't the only one smelling cash from crude.

DNR records also include a permit by an "Eel American Energy" to drill at a site in Delaware County. The address listed for Eel matches a retail store fixture manufacturing company in Grabill.

Someone at the firm provided the cell phone number of an unidentified man heading the effort.

"We're not interested in sharing any information. It's exploration-only. ... It's proprietary technology," said the man, who declined to elaborate.

"It's kind of a cloak-and-dagger game," said Herschel McDivitt, director of the DNR's Oil and Gas Division.

It's hard to gauge just how many landowners are being approached to lease land to oil or gas producers, McDivitt said. Producers often don't file for drilling permits until they've acquired a significant number of leases. It's a tactic to avoid tipping off others.

Leasing activity up

And it appears "others" are interested. McDivitt estimated that 60 percent to 70 percent of the phone calls he takes from private individuals involve questions about land leasing for oil and gas exploration. Officially, the DNR does not keep track of acres leased nor does it regulate terms of the deals.

"There has been a lot of leasing, not just in the southwestern part of the state, which you would expect," McDivitt said.

For example, Oklahoma-based Deka Exploration has filed a permit to drill 2,700 feet for oil in Steuben County, in the far-northeastern corner of the state.

"We're actually getting calls from landowners from all over the place," said Indiana Geological Survey's Rupp.

In the Illinois basin--the oil- and gas-producing corner in southwestern Indiana--annual lease costs have generally run between $10 and $100 per acre per year, with some prospective areas commanding "significantly higher" lease costs, according to Indianapolis-based Citizens Gas. The utility has been drilling more than 30 years in the Plummer Oil field in Greene County. Citizens said the $40 million generated in oil income since 1969 helps keep rates low for its 266,000 natural gas customers. Its average well costs $110,000 to drill and equip.

"Lease costs for exploration in the Illinois basin have increased dramatically during the past five years, spurred by rising oil prices and the prospect of New Albany shale gas development in the region," said Dan Considine, a spokesman for Citizens. This year, the utility plans to sink at least four new oil wells into 350 million-year-old Salem limestone.

Costs in the Trenton field are not so high, according to Young, who will say only that he usually offers landowners a 12.5-percent royalty from any oil and gas sold.

Among the benefits of drilling in northern Indiana are low lease and acquisition costs and relatively shallow depths, he said. The rising cost of steel pipes and the fuel that powers the drilling rigs have eroded some of that advantage, however.

For landowners, however, cost shouldn't be the only issue, said Gerald Harrison, a Purdue University agricultural economist. Harrison said they also should make sure they're protected in the event of environmental damage, such as the potential for saltwater to damage cropland.

Production growth pales to past

Oil production in Indiana rose 7.5 percent in the first quarter of this year, to 468,169 barrels, according to the most recent DNR data.

In 2007, a total 1.7 million barrels of oil were produced in Indiana, only a sliver of the 1.9-billion-barrel total U.S. production.

In 1956, Indiana produced 12.6 million barrels, considered the state record. Most was from southwestern Indiana, with the Trenton field that year trickling out only 40,000 barrels, according to Indiana Geological Survey.

As late as 2006, the field was pumping a mere 3,223 barrels.

But since the first barrel of oil was drawn from Trenton sometime in the late 1880s, more than 105 million barrels have flowed from east-central Indiana, from more than 24,000 wells, although records from the early days are sketchy. The deepest well recorded was 3,996 feet.

According to Rupp, the Trenton was "America's first giant oil field."

Much of the oil went to Chicago and spawned the Chicago area's refining and petrochemical industries. John D. Rockefeller's Standard Oil--now BP--built its Whiting refinery in 1889 largely in response to Trenton.

In 1876, natural gas was discovered in Eaton, in Delaware County. The gas reserves fueled east-central Indiana's manufacturing industry, including the Ball Glass Co. and numerous automotive factories.

Rupp said the boom quickly ended at the start of the early 20th century, with many of the gas reserves depleted by burning at the surface. Poor drilling practices cut short the viability of oil by allowing water to contaminate wells.

New technology could allow some of the remaining oil to be recovered cost-effectively. There also are "many thousands" of feet of potential reservoir at greater depths, particularly in southwestern Indiana, Rupp added.

Currently, the hottest play is for natural gas reserves in what is known as New Albany shale, the rock that stretches from Harrison County in the far south to Vermillion County in western Indiana.

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