Jared Ritz
Havre Daily News
jritz@havredailynews.com
Editor's note: This is the first of several stories about the impact of the oil and gas business on the local economy.
For John Brown, owner of J. Burns Brown Operating Co. in Havre, 1998 wasn't the best year.
After the end of a 26-year relationship with another oil and gas company, Brown started the year with only 20 of the 350 or so producing gas wells he had worked with the year before. His company worked through the setback slowly but steadily. Brown kept adding wells and seeking out new ones, turning those 20 wells into the 106 he has now.
Thanks to an industry boom in the Havre area brought on by high energy prices, slowly can no longer describe his company's growth. Already this year, J. Burns Brown has nine new wells drilled and ready to go, with another 21 slated for this fall and winter. That's 30 new wells in one year, nearly a 33 percent increase in business, something his company has never done before now, he said.
That's peanuts compared to what he has planned.
"We're planning on drilling at least 50 wells next year," he said. "We haven't seen this much activity, ever."
Other companies are benefiting from the expanding gas and oil industry as well. Not only are companies drilling a growing number of natural gas wells, but they've also renewed the search for oil. Their efforts are providing revenue for local support companies and all the other businesses that keep the oil and gas workers housed, fed and entertained. The end results are more tax revenue, more good-paying jobs and overall economic growth.
"I think it's a bona fide boom," said Cole Chandler, local operations manager for Klabzuba Oil and Gas Inc.
The Havre Klabzuba office now has 11 full-time employees and at least 100 contract employees working in the area. Compare that to the three full-timers and 25 contractor employees Chandler said were on board pre-boom.
The oil and gas were always here, but the ability to profitably extract them wasn't. Most of the area's gas fields are small, and therefore have lower returns and are more difficult and more expensive to drill. According to Tom Richmond, administrator for the Montana Board of Oil and Gas Conservation, the spike in prices "allows people to develop smaller reserves." Basically, the reserves that operators used to stay away from have become profitable.
It's a classic case of: If you make it profitable, they will come. And they have.
According to the Montana Board of Oil and Gas Conservation, 54 gas permits were issued in Hill County in 2000. The total for Hill County in 2004 was 110 gas permits. As of June 30, 68 permits had been issued, on track to match or exceed the 2004 numbers, Jim Halvorson, petroleum geologist with the board'soffice in Billings.
The trend has emerged in the past few years. Phillips, Blaine and Hill counties were the second, third, and fourth largest producers of natural gas in the state, respectively, in 2004. In 2004, Hill County had 70 gas wells completed, and Blaine had 69. Phillips had 82.
Although gas is the industry's main moneymaker in the area, many companies are undertaking oil exploration and production. With the price of a barrel of oil jumping higher with every slight shock to the market, north-central Montana is getting more attention.
Brown said he has big plans for oil in the second half of 2005. J. Burns Brown will be drilling three oil wells - two in Blaine County and one in Hill County - sometime this fall or winter.
Brown has been active in the oil business since he came to Havre in the 1970s to work with his father. Right now, his company has an interest in about 20 oil wells in Blaine County, but operates none of them. The last time Brown's company drilled a producing oil well was seven years ago, right before the split.
Now, purely because of the high price of oil, J. Burns Brown is going to take a stab at it again. Most oil drilling in the area has been in the form of developmental wells, where a well is drilled at an established field. Brown is going to be drilling wildcat wells, "where you go to try to establish production where there never has been production," he said. Relying on seismic testing and a little luck, Brown will try to be the first to start pumping at a new field.
Other companies in the area have also felt the effects of an expanding industry.
Klabzuba has drilled a new oil well in Blaine County that should be ready to produce within a month, Chandler said. The Texas-based company has plans to have three other new oil wells up and running by the end of the year. Two of those will be in Blaine, and one will be in northern Hill County, he said.
Klabzuba will be wildcatting as well, he said.
"That's our business," Chandler said. "It's the way the game works. You take a chance, and hopefully you hit something."
Chandler owned his own roustabout company for 23 years and did a lot of contract work with Klabzuba when the company moved into the area in 1975, he said. In 1998, he took over the reins as operations manager in the Havre office, Klabzuba's only office in the state.
At the time, the company was operating 40 gas wells in the area. Klabzuba now has more than 200 producing natural gas wells in Hill, Blaine, Chouteau and Fergus counties. Klabzuba was producing 6,000 mcf (mcf stands for 1,000 cubic feet) of natural gas per day in 1997; so far this year, it's producing 25,000 a day, he said.
He thinks the industry is expanding for two reasons: increase in demand and increase in profitability.
The demand is coming from an increase of energy use around the world, Chandler said. The Chinese economy is playing a large role, as is the rest of the developing world, where industry and people are consuming more energy.
The demand helps raise prices, which helps to motivate production.
Also, improvements in technology have made the exploration end of the business more exact, enabling the industry to profitably extract oil and gas where it couldn't be done before.
Devon Energy, one of the nation's largest oil and gas companies, also has its only Montana office in Havre, completion foreman Herman Handstede said. According to Handstede, who has been in the business since 1966 and in Havre since 1975, Devon has 23 full-time employees working out of the office, four more people than it had two years ago, when Oklahoma City-based Devon merged with Ocean Energy.
Devon plans to add about 50 new gas wells this year, just as it has in the past, he said. That's been true for the last couple of years. Handstede was hesitant to say that a boom was taking place in the area, adding that Devon has taken a consistent approach to drilling.
The company has 950 producing wells spread throughout Hill, Blaine and Chouteau counties, he said. Right now, they are producing about 50,000 daily mcf out of our area.
Encore Operating started its operation here just over a year ago, and in 2005 has plans to drill 50 gas wells, Havre office field supervisor Ward Rikala said. Rikala was sent to Havre in July 2004 by Encore to be the sole full-time employee in one of the state's busiest gas areas.
Encore has drilled 33 wells so far in Hill County, but only nine of them have turned out to be anything more than a deep hole that needs to be plugged, he said. This ratio isn't as bad as it may sound, due to Encore's newcomer status.
Since this is the company's first stab at drilling in the area, all wells being drilled are wildcat wells.
With this sort of guessing game, nine out of 33 is just about right, Rikala said.
"That's pretty much what they were expecting," he said.
The company is almost finished with its activity in Hill County, he said, and will soon be moving into Chouteau County, where it has land ready for drilling southeast of Big Sandy.
Rikala said he is happy with how his first year has gone, and is excited about his prospects in 2006.
"We are optimistic the operation up here will be a success," he said. "It should be another busy year."
