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Ohio Utica Shale

Shale drilling boom is fading across Kansas

By Bob Downing Published: December 2, 2013

From the Associated Press:

By Roxana Hegeman

The economic future seemed so tantalizing just two years ago as the nation’s big oil firms rushed into Kansas. They snapped up mineral leases from landowners for high prices and drilled horizontal wells to extract unknown riches from the same Mississippian Lime formation that had spawned an oil boom in neighboring Oklahoma.

Things have changed. Most of those big out-of-state players are gone. The biggest blow came when oil giant Shell Oil Co. halted its Kansas exploratory drilling program in May and has since put up for sale 625,000 acres of leases it owns in the state.

Life here has for the most part settled back to normal in the rural farming communities in Harper and Barber counties which were once ground zero for the oil and gas exploration frenzy.

Exploration is ongoing, and derricks still rise above the buttes and rolling terrain of the Gypsum Hills in south-central Kansas. Yet the activity is growing more modestly, driven by the Kansas producers who for decades have drilled here and the few out-of-state die-hards like SandRidge Energy of Oklahoma City who stayed with scaled-down operations.

“Everybody is kind of in neutral right now, seeing what is going to happen,” said Greg Esping, owner of Vantage Construction in Harper.

Esping and his wife, Marie, have been living in a fifth-wheel trailer on a few acres outside of town since selling their Harper home to a Shell executive, who has since put it back on the market where it remains unsold after his company’s pullout.

The Espings built a community center in Harper they had geared for Shell’s use, and which they now sporadically rent out to community groups. The couple also once drew up plans and dreamed of building a huge complex with 24 apartment buildings housing 100 units, but ended up putting in just six buildings with 28 units in Harper that they now struggle to fill.

“It hasn’t turned out to be as big a thing as I thought it was going to be — but it is not over yet,” Greg Esping said.

The short-lived Kansas boom was sparked by a confluence of technologies using horizontal drilling and a technique known as hydraulic fracturing, or “fracking,” to coax out oil and gas out of fields once believed tapped out from conventional drilling. Companies have reaped fortunes off the Mississippian Lime Play in Oklahoma using it and believed they could do the same here by following the rock formation northward into Kansas. The Mississippian Lime is a porous limestone formation underlying parts of northern Oklahoma and southern and western Kansas.

“All of the resources in oil are still there and I think you will still get exploration, but it is going to be done at a much more humble level — very consistent with what the Kansas oil and gas industry does historically,” said Art Hall, executive director of the Center for Applied Economics at the University of Kansas.

The differences in the geology of the two states dates back more than 250 million years, when shallow seas covered Kansas as rocks in the Mississippian lime play were deposited. But in the area that now encompasses Oklahoma the seas during that period were far deeper, forming the widespread and homogenous formation there that today holds vast oil reserves. By contrast, the lime formation now underneath much of Kansas is thinner and tends to undulate, experts say. That makes it more difficult to find the “sweet spot” of oil when the horizontal lateral off the well is drilled.

“Even though this thing hasn’t been as big a thing as everybody thought, it is still a significant play,” said Rex Buchanan, interim director of the Kansas Geological Survey.

Independent Kansas oil producers squeezed out by the initial rush to Kansas are now mulling over whether to buy some of those unwanted mineral leases — at a fraction of the price paid by their bigger counterparts.

Among them is Bob Murdock, president of Hutchinson-based Osage Resources, whose company just finished drilling three wells last month in Barber County that it is now bringing online. Osage Resources is currently in an “expansion and acquisition mode” given that the price of oil and gas leases in Kansas has fallen to 10 or 20 percent of what they were fetching at the peak of the exploration frenzy.

“The resource that is in the rock is the same resource that has been there for the last seven decades as oil and gas companies have attempted to develop it,” Murdock said. “The companies that came in three to four years ago and made miscalculations just fundamentally misunderstood the resource.”

Chesapeake Energy, Encana and Apache have been gone from the state for more than a year. Tug Hill Operating, Reeder Energy and Midstates Petroleum filed their last intents to drill earlier this year.

“We miss the hustle and bustle,” mused Anthony real estate agent Brandon Gerber. “It was kind of fun having the extra traffic around town and such.”

In addition to SandRidge, other out-of-state players who have stayed active in Kansas include Source Energy Mid-Con of Highlands Ranch, Colo., and Unit Petroleum of Tulsa, Okla.

Among those grappling with the emerging reality are businesses like Vap Construction, which built 52 new apartments in Anthony to handle the anticipated influx of oil field workers in south-central Kansas. The boom built up — and then deflated so quickly — that the company slowed down on finishing the interior of most of the apartments when the influx of workers never came, said LeRoy Leland, the construction project manager for the Anthony apartments.

But construction has picked up again as the company slashed rents to attract local families before an influx of temporary pipeline workers in recent weeks began filling some of them. About 28 apartments are now rented.

Vap Construction was not the only business that hoped to profit from the anticipated oil boom. Two new hotels also were built in Harper County.

“It was just too much propaganda that got everybody tanked up and hyped up,” Leland said.

Several Kansans have noted that Shell told communities not to build anything because of them because they were just looking.

“Shell was pretty honest with us,” Leland said. “But nobody seemed to listen.”

When his firm couldn’t compete with the exorbitant prices the big oil companies were paying for mineral leases in Kansas, Wichita-based Woolsey Petroleum began drilling in Illinois. Its owner, Wayne Woolsey, said people need to understand that when large companies like Shell come into a state they have a lot of criteria to meet to cover their large overhead. Shell did everything right, he said, but just couldn’t get the economics to work for them in Kansas.

“It has been a good thing that they were here. It certainly is going to have an influence by them leaving,” Woolsey said. “And yet I think it has been such a good influence to kind of get it started that there will be continued development and continued growth.”

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