American Oil and Gas Reporter - February 2016 - 83

ConventionSection: Illinois Oil & Gas Association

Illinois Producers Run Lean
During Uncertain Times
By Del Torkelson
MT. VERNON, IL.-A conversation
with leaders of the Illinois Oil & Gas Association may be likened to the 1964 illustrated children's book, Fortunately, by
Remy Charlip.
In that book, readers receive alternating
good and bad news about the protagonist.
At one point, the character escapes a
burning airplane, but finds his parachute
has a hole. Soon it looks like he will land
on a haystack, but: "Unfortunately there
was a pitchfork in the haystack. Fortunately
he missed the pitchfork. Unfortunately
he missed the haystack. Fortunately he
landed in water. Unfortunately there were
sharks in the water."
IOGA Executive Vice President Brad
Richards and President Bryan Dicus, a
consulting petroleum engineer, whose
company, BJ Dicus & Associates LLC,
is located in Carmi, Il., could spin a
similar yarn about Illinois' oil and gas
industry as the group prepares for its
2016 convention and trade show, March
3-4 at the Old National Events Plaza in
Evansville, In.
To paraphrase: Unfortunately, oil prices
are weaker than they have been in years.
Fortunately, most Illinois Basin wells are
vertical and relatively shallow. Unfortunately, many of those wells also are very
mature. Fortunately, many producers in
the Illinois Basin are efficient, low-cost
operators. Unfortunately, that means companies have little or no obvious cost
cutting targets. Fortunately, they can shift
some of their capital budgets toward improving existing wells.
Back To Basics
Although the factors swing back and
forth, the consideration that Dicus says
most justifies long-term optimism amounts
to the timber from which IOGA members
are carved. And when times get tough,
he says, those people stick to the fundamentals. "It is a return to the bread-andbutter," he reasons. "Operators with long
histories in the Illinois Basin know staying
in business means getting back to where
they started. I think people are dusting

off their maps, looking at trends and
going back to the old way of looking for
oil, instead of getting carried away with
buzzwords and cutting-edge processes."
"The folks operating in Illinois run
pretty lean, and they are resilient, to put
it mildly," Richards reflects. "We operate
in a cost-effective manner, so I cannot
imagine there is a lot more folks can do
to operate more efficiently."
The vast majority of Illinois Basin production comes from mature marginal oil
wells, many of which yield an average 1.52.0 barrels a day and are in various stages
of enhanced recovery, he continues. Today's
market, he suggests, may prompt a number
of companies to pause their drilling plans
and use that money elsewhere.
"In our basin, the price environment
provides opportunities to direct dollars
into maintenance and workovers, which
these older wells require," Richards reflects. "People have to get their heads
around these prices. If prices stabilize, I
think we will see renewed interest in
conventional drilling prospects."
Dicus concurs. "Would it be good
news if we knew with certainty that oil
was going to be no better than $30-$45 a
barrel for the next 18 months?" he poses.
"No. But could we alter our plans, adjust
accordingly and survive? Absolutely."
Yesterday Versus Today
Despite the uncertainty, the mood
among many IOGA members has not
surrendered to gloom and doom, Dicus
assesses. Even so, he readily enumerates
a few key differences between the front
and back sides of the price slope. It may
be true that producers' collective mood
was far more enthusiastic in January
2004, when West Texas Intermediate
crude also stood at about $30, he concedes,
but many in the industry at that time had
relatively fresh memories of single-digit
oil prices. Moreover, he indicates, most
costs are significantly higher in 2016.
"Today's dollar-a-foot drilling cost rivals that of the 1980s," Dicus acknowledges. "But look at the entire cost of
doing business. Labor costs-which tend
to be everyone's largest expense-are sig-

nificantly higher, as are some associated
costs, such as insurance. Regulatory costs
are much higher, as are the costs for
many materials, such as tubing.
"I would hate to think what the basin's
overall lifting cost is," he adds. "You may
afford to work on old waterfloods and
find additional barrels in these old fields
for $8-$10 a barrel, but it is hard to make
the numbers work for drilling projects."
Dicus says that seems especially true
of horizontal wells, which mark a divergence for many of the industry's youngest
generation. Dicus recalls speaking with
a job-seeker with five years' experience
that does not include work on a single
vertical well. Dicus says he may have
deemed that an aberration, except for another conversation he had with a friend
and fellow engineer who travels the country offering technical presentations.
"When he asks a college student to
draw the belowground portion of an oil
well, the kids almost exclusively draw
horizontal wells," Dicus relates. "We always said the Illinois Basin was 30 years
behind the rest of the country. In many
ways, that helps at times like these because
continuing our businesses does not depend
on costly processes."
Plays In Waiting
It is not that Illinois has been devoid
of horizontal drilling. Although the possibility of Illinois Basin resource plays in
the New Albany Shale and Mississippian
Lime remains in the theoretical stage,
Richards acknowledges, some other innovative projects have gotten off the
ground. "Higher prices allowed a considerable amount of horizontal drilling, even
if it was not accompanied by high-volume
hydraulic fracturing (HVHF)," he describes.
"Horizontal drilling allowed us to exploit
many of the area's thick sands, which
have an oil column above an aquifer."
The plodding pace at which Illinois'
legislators passed and its regulators enacted
an HVHF bill kept the prospective resource
plays in the starting gate initially, Richards
reflects, and lackluster commodity prices
have helped keep them there. "Illinois
has not issued a HVHF permit," he relates.
FEBRUARY 2016 83

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