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Pumping oil in the Illinois basin on rise
By TIM ALEXANDER
Illinois Correspondent

MOUNT VERNON, Ill. — Noble Energy, Continental Resources of Illinois, and Rex Energy may not be household names when it comes to business, but if you happen to live in southern or southeastern Illinois, chances are you’re familiar with their products.

Noble, Continental, and Rex, along with Citation Oil & Gas and Deep Rock Energy, are among the largest oil producers in the state, according to Brad Richards, executive vice president of the Illinois Gas & Oil Assoc. (IGOA) of Mt. Vernon. Thanks to higher crude oil prices worldwide, Illinois’ oil fields, which supplied one-third of the nation’s total oil production nearly 100 years ago, are again pumping crude.

More than 800 drilling permits have been issued in the state in 2005, a 25 percent increase over the previous year’s total.

“Without question, the price of oil is the primary driver with respect to the increased activity,” Richards said. “As recently as 1999, the price was below $10 a barrel, which meant that producers were operating the wells at a significant loss. This total collapse in prices followed about 15 years of mediocre (at best) prices and nearly took out the entire industry in Illinois.”

But thanks to higher crude prices they are again pumping in Bridgeport, speculating in Salem, and dusting off rusty pump jacks in fields surrounding other small, seemingly forgotten former “prairie boomtowns.”

Richards said “oil exploration companies” such as Noble and Continental approach farmers and other landowners regarding leasing land for drilling a stripper well, though occasionally farmers will undertake the risk and expense of doing their own drilling, such as the Oelze family of Nashville.

“About half of the production in the Illinois Basin is refined at the Countrymark Co-op refinery in Mt. Vernon, Ind., which is farmer owned,” Richards explained. “Most of the rest now leaves the basin via pipeline where it is purchased by Marathon.”

The Illinois Basin is a bowl-shaped bedrock depression in the earth that covers parts of southern Illinois, Indiana and Kentucky, and traps oil in its underground rock formations. More than 30,000 wells in Illinois are tapped into the basin, with most producing only one or two barrels of oil per day. However, in 1940 the state produced more than 147,000,000 barrels of oil, more than Iran and Iraq combined.

Recent estimates say around 4.1 billion barrels of oil remain in the Illinois Basin, but most of the wells were abandoned when gas prices fell in the late 1990’s. According to the IGOA, when oil prices for Illinois crude fall below $18.00 per barrel, operating costs outweigh profits in the state. So, recent spikes in crude prices have translated to good news for Illinois’ “wildcatters,” even though oil from the Illinois Basin brings about $7 less per barrel than other crude because it yields less gasoline.

‘There are very few wells in Illinois that produce more than 15 barrels of oil per day. Our production is older and the rate of production has declined to the current levels. It’s the nature of the business,” Richards said. “Initially wells produce at higher rates and as the reservoir pressure declines, the production goes down with it. “In fact, most of the production in Illinois is from waterflood operations, where produced saltwater is re-injected into the formation to maintain reservoir pressure and sweep the oil to the producing wells.”

A recent study published by the Interstate Oil and Gas Compact Commission indicates Illinois produced 12.75 million barrels of oil from more than 17,000 active wells in 2003, representing 15 percent of U.S. production (and 25 percent of production in the contingent 48 states). Illinois was the thirteenth largest producer of oil in the 48 states, and ranked sixth in stripper well production. Richards said a stripper well generally is one that produces less than 15 barrels of oil per day.

Next week: A look at Illinois’ oil boom of the 1930s, and a museum that celebrates Illinois’ long history as an oil-producing state.

This Illinois ag news was published in the November 2, 2005 issue of Farm World.

11/2/2005