Friday, December 2, 2011

An Explanation of The N.D. Oil Rush

I had been wondering what caused the rapid rush to drill as quickly as possible, even while labor prices spike and resources are strained.  Here's part of the explanation:
On a plateau overlooking Williston, lifelong local resident John Schmitz shows me a couple of towering drill rigs. Schmitz is a land man — a person who procures leases for the oil companies — and not surprisingly, he's a boom booster. He explains that the current drilling frenzy is all about money. Leases bought cheap several years ago are about to run out.
"Leases that were taken in 2006 to 2008, and those would be the five-year and three-years that are expiring in '11, were bought for $100, maybe $200, and right now you could get somewhere between $1,500 and $2,000 per acre," Schmitz says.
That's a tenfold price increase. But those leases don't run out if an oil company starts drilling — ergo, the current frenzy to punch hundreds of holes in the ground as fast as possible. I asked Williams County Commissioner Dan Kalil if there isn't a way to slow things down.
"That's the question I struggle with every night when I'm trying to sleep," Kalil says. "What can we do?"
He says only the state can slow it down, but the state has a strong incentive to keep things cracking.
So they waited until the last minute to start drilling on many of the leases.  I just couldn't understand the economics of the boom-bust cycle.  I don't understand how companies can buy leases in southeastern Ohio for $5000 an acre when they could have bought the land for $1500 an acre just a couple years ago.  I just have a hard time believing there is that much gas available out there.  We'll see.

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