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Backyard gushers: Prolific Plummer oil field profitable for Citizens as crude prices rise

December 12, 2005

They've also pumped up revenue for Citizens Gas & Coke Utility, thanks to the soaring price of oil this year. The utility's oil revenue for the fiscal year ended Sept. 30 nearly doubled, to $4 million from $2.26 million in fiscal 2004.

Since 1969, the Oil Division has generated income of nearly $40 million. In fiscal 2005, income of the Oil Division rose 160 percent, to $2.6 million, vs. $1 million in 2004.

Although $2.6 million is not a huge return for a gas utility with an operating income last year of $25 million, oil money helps reduce the bills of Citizens' 266,000 natural gas customers.

Citizens sunk five new wells in Greene County this year and plans to drill another five in 2006. All 82 wells produced 108,690 barrels of crude from under 350-million-year-old Salem limestone.

Extraction has become more difficult since Citizens' Plummer oil-well field opened in 1969. Then, wells produced Indiana Tea steeped at a 10-to-1 ratio of oil to water. Today, it's more like two parts oil and eight parts water.

"We don't make any money off of water," said David W. Busch, director of underground storage for Citizens. But, "the higher the price of oil, the more attractive some of these less-robust prospects become."

The boom time for the Plummer field was in 1982, boosting Citizens' operating income $4.4 million. Then, as now, world oil prices had spiked.

The field went bust in the mid-to-late 1990s, when a barrel of oil fell to $8-compared with around $60 today. There was talk whether Citizens would even continue to operate the Plummer field. Had Citizens been a publicly traded utility instead of a public charitable trust, it might indeed have faced shareholder pressure to shut it down.

"Now we have plans to drill five more [wells]-as soon as we can find a rig," said Busch, adding that Citizens has been waiting since August for an available rig. "The oil business is either boom or bust."

Unexpected discovery

The Plummer field sits on the northeastern rim of the Illinois oil basin. It's part of the same geologic structure Indiana oil producers have tapped for decades farther southwest in Indiana and in parts of Illinois.

Citizens never expected to find much oil to speak of this far north.

In the late 1960s, the utility was drilling holes in Greene County to find rock strata ideal for storing natural gas. Geologists found a sponge-like rock that appears to have been formed by an ancient sea-corallike, "very similar to what you'd see in modern-day Bahamas," said Busch, a geologist.

But in a small patch of the Marion County-size exploration area, a machine that shoots sound waves deep into the Earth picked up a reflection of rock that looked favorable for oil.

Sure enough, about 750 feet down, drillers found a pool of oil under a cap rock of Salem limestone that predated the dinosaurs.

Decaying plants and microorganisms formed this oil. Why the oil is confined to a relatively small patch is anyone's guess.

Another layer of oil, accounting for about 20 percent of the draw from Plummer, was found at 1,700 feet and dates back 390 million years.

So oil drilling and gas storage have gone on side-by-side for 36 years. Most of the work performed by the Oil Division's 34 employees is done to maintain the gas storage wells. There are now 160 such wells sunk to about 1,750 feet and injected with gas from a nearby Texas Gas Transmission pipeline. Citizens sits on a staggering 7 billion cubic feet of natural gas under Greene County, where one must be very careful where one smokes.

Storing natural gas underground was cheaper than building huge storage tanks and liquefying it. Pipelines link the wells to stations that remove moisture and hydrogen sulfide-the flatulence from underground organisms that eat petroleum vapors.

From there, stored gas flows to a compressor station near Worthington that shoots it through a pipeline to Indianapolis, 80 miles away.

So far, Citizens hasn't found naturally occurring gas at Plummer, even though natural gas is usually found alongside oil deposits. Most gas is found in the southeast corner of the state.

Prolific field

But there's lots of oil here; in the last 36 years, more than 6.25 million barrels have been extracted-1.75 million more than geologists once thought would be practical to extract.

Busch said careful management and new technology is to thank for the productivity. A key strategy was striking a revenue-sharing agreement with landowners that essentially unifies the entire oil field. Otherwise, Citizens would have had to comply with state regulations that limit well spacing to no closer than one every 20 acres.

A unified field also does away with the need to build as many water-separating tanks and water reservoirs on farmers' land.

"We can economically produce oil more efficiently than most people in this area. ... It allows us to make a profit," Busch said.

But perhaps what's most extended the field's life is new horizontal drilling technology. Where before a well might exhaust a pool of oil 10 feet deep, drilling sideways and down from the same wellhead allows oil to be pulled from a chamber that rolls downhill. Before, the company would have to sink another well some distance away-at a cost of $75,000 to $100,000 for a typical well.

How much longer this field will last nobody knows. A couple of borings have been made to 5,500 feet, but no oil was found.

"It doesn't mean it's not down there. It just wasn't where we drilled," Busch said.

When the oil does run out, the wells can always be converted to gas storage.

Income from Citizens' Oil Division went into a big pot of cash generated by its other unregulated divisions. The pot totaled $5.3 million in fiscal 2005.

Citizens'board then decided how much of that should go back to ratepayers and how much to reinvest in the company.

This year, $1.5 million was allocated to gas bill reductions. The rest went to cover Gas Division expenses and for programs such as weatherization and gas bill discounts for low-income customers.

As for the rest of Indiana's oil industry, production appears surprisingly flat despite the worldwide spike in oil prices.

Through September, oil companies reported they extracted 1.3 million barrels in Indiana vs. 1.33 million for the same period in 2004.

"I've been a little perplexed," said Jim AmRhein, assistant director of permitting and compliance at the Oil and Gas Division of the Indiana Department of Natural Resources.

He noted that production numbers predate devastating hurricanes that helped spike oil prices and inland oil production. Lately, AmRhein added, oil "personnel and equipment is hard to come by."
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