Deep Drilling, Big Cars Drive Oil Boom
Energy search moves into new frontiers, boosting jobs and regional production.
You can see it in the shipyards of Brownsville, Texas, and Mobile, Ala., where ironworkers labor under a shower of sparks, rushing to fix up long-dormant oil rigs and send them back out to sea. You can smell it on the flatlands east of Houston, as drilling crews hit another tomb of natural gas. And you can hear it on Wall Street as investors sing, "We're in the money...."
It's an oil boom, and it's being driven by a combination of new technology and a refound love of bigger cars. While the surge is nothing like the J.R. Ewing days of the early 1980s, it is producing a substantial jump in jobs and energy production in select areas of the US, both onshore and off:
* The number of drilling rigs in the Gulf of Mexico has grown to more than 1,000 - double what it was five years ago. Oil production in the area is expected to rise from 1.1 billion barrels a day to nearly 2 billion within three years.
* Employment in the "oil patch" of North Dakota stands at its highest level in six years, and twice as many drill rigs are now probing the state's western plains as three years ago.
* Drilling activity in a six-state area of the West is up 12 percent over a year ago - particularly in Wyoming and New Mexico.
"I think we're in the early stages of what could easily be a three- to five-year boom," says Neal McAtee, an energy analyst for Morgan Keegan, an investment firm in Memphis. "Every time I pull up next to a big Dodge pickup with a V-10 engine, I get a warm feeling inside."
Unlike past booms, this one is not being driven by a spike in oil prices. True, at $19 a barrel, today's crude prices are far better than the $11 a barrel of the late 1980s. But they are also well below the historic high of $40 in 1981. What's notable about prices now is that they're steady - no small consideration for companies deciding whether to invest long-term in exploration.
At the same time, oil demand is rising, not just in America - where the sport utility vehicle is king - but also in the vibrant economies of Southeast Asia. More than anything, however, the latest boom is being driven by new technology. With three-dimensional seismic mapping and a new generation of deep-drilling rigs, oil firms are finding their production costs have fallen dramatically, in some cases to $4 a barrel.
"We can now drill down 3,000 feet and then go horizontal for 3,000," says Lowell Ridgeway, executive director of the North Dakota Petroleum Council in Bismarck.
Of course, Saudi Arabia is in no danger of sudden competition. Overall US oil production has been in decline since the early 1970s. Many of the country's most fecund fields, particularly Alaska's Prudhoe Bay, are producing less crude each year.
Indeed, US dependence on foreign oil, now above 50 percent, is at an all-time high. And the current domestic drilling boom is nothing like the early '80s. Then, 4,500 rigs were operating in the Gulf of Mexico - four times as many as today. Oil exploration and well-head production jobs, which peaked in 1982 at 754,000, now stand at about 321,000.
STILL, many companies are finding good profits - and creating jobs - in today's small-scale boom. This means more roughnecks are being hired back to maintain the "nodding donkeys" and oil derricks of the American West. Along the Gulf coast, there are more jobs than qualified applicants.
Take Diamond Offshore Drilling Inc. All of the Houston company's 47 drilling rigs are under contract somewhere in the Gulf, 31 of them in deep waters. The company could hire more workers than it already has, but many of the more skilled employees have left the industry or left the region. Some have set up their own companies.
Even so, business is good. Diamond can command $131,000 a day for the use of one of its semi-submersible rigs, the same type Shell used last year in striking oil in 7,600 feet of water, breaking the world record. "It's an exciting time to be in this business," says Caren Steffes, manager of investor relations for Diamond Offshore. "Technology is proving to be the factor that is driving this industry."
Perhaps the greatest advance in technology is the ability to see the large pockets of oil under the rock formations of the ocean floor. Using three-dimensional seismic mapping, drilling rigs have raised their rate of success from 10 percent to 50 percent. "The finding cost of oil has come down dramatically," says Jay Green, vice president of Houston-based Seitel Inc. "The industry average per barrel is between $5.50 and $6. Our finding cost is more like $2 per barrel."
But while the geologists and technicians of Seitel are crunching numbers in front of computer terminals, the 900 employees of American Oilfield Divers Inc. are often slipping into something less comfortable and jumping into the deep blue sea.
Diving as deep as 1,200 feet, they inspect and maintain everything from underwater oil pipelines to subsea oil wellheads. For deeper waters, technicians can do much of the welding, fitting, and repair work with remotely-controlled vehicles, which can go more than a mile down. The company's stock prices have doubled in the past four months.
With prosperity coming to small service companies and major producers alike, some folks on the Gulf coast are beginning to wonder how long the good times will last. But long-time observers say this boom may just be beginning. As long as "prices stay between $18 and $20 [a barrel], oil companies can make good profits," says Carol Lau, an energy analyst at Oppenheimer & Co. in New York. "We think it's a good time as long as it's tempered."