'Forests' of oil rigs may reappear as US tries to hike domestic output

It was a hurly-burly time in the oil business. Rural areas were cluttered with drilling rigs just a few feet apart.Even in some towns, houses had huge pumps in their yards. Louisiana, Oklahoma, and Texas were chaotic, exciting places for oilmen early in this century.

Finally the states decided enough was enough -- and passed laws regulating how far apart wells could be drilled. The rules varied, but one oil rig per 40 acres and one natural gas rig per 640 acres was not uncommon.

Today these rules are increasingly being waived by the states as companies seek to return to old fields and produce more oil by drilling wells closer together.

This process could be speeded up, says Sam Hammons, director of the Oklahoma Department of Energy, if the oil pumped from such wells were taxed less.

The idea is one of a number of energy proposals being packaged by a commission formed by a group of Southern states.

Congress failed to include Mr. Hammon's idea to lower taxes on oil from existing oil fields when it passed the windfall profits tax bill last year. As world prices continue to climb, oil pumped from known reservoirs was seen as a fair target for the highest tax under the bill. Among other factors, it was assumed there was less risk involved in drilling in existing fields.

But the risk can be great, says William L. Fisher, director of the Bureau of Economic Geology at the University of Texas. Just because one rig produced oil doesn't mean a nearby one will, he says.

Dr. Fisher agrees that oil drilled near previous wells should be subject to a lower tax.

Mr. Hammond and Oklahoma Gov. George Nigh would like to see the entire issue of oil taxes reopened. And if the windfall profits tax can't be abated in any other way, they propose a federal tax credit to the oil companies on a portion of that tax.

On natural gas, Oklahoma would like to see a faster decontrol of prices than is occurring under current federal law.

Up north in the states that consume Southern energy, "we tend to be fairly suspicious of efforts to water down the windfall profits tax," says Thomas Cochran, director of the Northeast/Midwest Institute, a nonprofit organization that analyzes the impact of federal policies on those regions. "The incentives [to companies to drill for oil] are huge already" due to rising world oil prices , he says.

"Outside of our region, there's going to be a great deal of opposition to the recommendations we're coming up with," says Art Wacaster, who does the staff work for the energy task force of the Southern Growth Policies Board's Commission on the Future of the South. The board is a nonprofit research organization sponsored by most of the Southern states. Hammons is the energy task force chairman.

Regarding oil oil fields that could support new wells, Hammons says: "We know the oil is there. It can be recovered very rapidly." But the high windfall profits tax is discouraging more rapid exploration of old fields, he says.

Increased oil and gas prices have pushed drilling in Oklahoma to an all-time high in 1980, admits one state official.And some of the new drilling is in previously drilled fields.

But some activity in old fields is "tantamount to wildcat drilling," says Dr. Fisher. The oil left in the ground near an existing rig may be in a separate compartment from that previously pumped out, he says. Strategic drilling and a variety of unconventional methods are often required for further exploiting an old oil field, he explains.

Only about 40 percent of the oil is recovered from a reservoir by initial drilling, he says. Some oil can never be profitably extracted. But "about half" the potential recoverable oil remains after initial drilling, Fisher says.

Given the uncertainties of recovering such oil, it should be taxed at a lower rate, he says, to encourage exploration for it.

Whether a new Congress and a new administration will go along with such a proposal remains to be seen.

Some of the other Southern energy proposals being developed by experts for the Commission on the Future of the South include:

* State tax incentives to encourage more use of wood as an industrial fuel.The prime source would be the wood left from logging operations, currently considered uneconomical to use, Mr. Wacaster says.

* Make construction of passive solar features in homes eligible for federal subsidy.

* Make greater use of existing old dams for generating electric power by exempting such projects from many state environmental restrictions. ("I think an environmental review is necessary, but I don't think it should take a year," Wacaster says.)

The commission's energy and other reports will be completed soon and made public in February.

You've read  of  free articles. Subscribe to continue.
QR Code to 'Forests' of oil rigs may reappear as US tries to hike domestic output
Read this article in
QR Code to Subscription page
Start your subscription today