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State issuing more oil drilling permits

HELENA (AP) — Montana is on pace to issue a record number of oil drilling permits this year while natural gas development has nearly come to a halt, state officials said.

The state issued 228 oil permits through June, or one more than it issued in all of last year, the Montana Board of Oil and Gas said.

Tom Richmond, the board's division administrator, said he expects oil permitting to remain steady in central and north-central Montana.

"We still have a high level of interest in the central Montana Heath formation, and there's still a pretty high level of interest up in Glacier, Toole, Pondera and Teton" counties, Richmond told the Great Falls Tribune. Montana issued a record 311 oil drilling permits in 2005.

Meanwhile, Montana Petroleum Association executive director Dave Galt said natural gas drilling has fallen off, likely due to low natural gas prices.

"Gas drilling is more than a little off," Galt said. "It just doesn't exist."

The state has issued just one gas permit in 2012 and hasn't issued a new coal-bed methane permit in more than two years. Montana has issued just seven coal-bed methane permits in the past four years combined, compared with 577 coal-bed methane permits in 2005. Montana issued a high of 518 natural gas permits in 2007.

The discovery of large shale gas formations in the eastern and southern parts of the country have led to falling natural gas prices, as has the production of oil well gas being captured from oil wells in the Bakken formation and in parts of eastern Montana

"The Bakken produces a fair amount of gas called associated gas or oil well gas, and that gas is also captured and sold," Richmond said. "That gas is going to the same market as conventional natural gas, and there has been a lot of gas discovered. Consequently, the price has dropped."

The costs of drilling for coal-bed methane are about double for natural gas wells, Richmond said, making the break-even price on coal bed methane between $3.50 and $4 per thousand cubic feet. The U.S. Energy Information Administration said wellhead prices for natural gas were down to $1.89 in April, but Richmond said those numbers are now closer to $3 per thousand cubic feet.

"Conventional natural gas started to go away basically in about 2009," Richmond said. "I think that's the thing you can directly attribute to shale gas discoveries back east, where it's closer to the market."

Richmond said oil production in the Bakken formation in eastern Montana continues to grow as drilling rigs from North Dakota move into the state.

"As people drill up their prospects in North Dakota, we'll see a few more rigs coming into Montana," Richmond said.



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