Renaissance & Revolution

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Independence.

In Oklahoma, the word has particular relevance. In carving out the modern state from what was once a dry, arid, desolate part of the country, Oklahoma’s early settlers found themselves having to be self-reliant, cut off as they were from the bustling American development on the east and west coasts. Depression-era advancements that created many of today’s waterways were an improvement, certainly. But, by and large, early Oklahomans – white and Native American alike – found themselves needing self-reliance to survive, to thrive, to create from nothing the state that today is among the most economically viable in the nation.

Along the way the economy, powered by local entrepreneurs and labor that drove the development of the state, was led by aviation, oil and gas and agriculture – with each having a turn in the top spot.

Today, though, there is no real competition with the energy sector as the state’s leading industry. And in light of new technologies and tremendous advancements in old technologies, Oklahoma’s energy sector is positioned to play a vital role in a new type of independence – a style of independence that each and every president of the United States for years has claimed to aspire to: North American energy independence.

Talking About A Revolution

As recently as 10 years ago, the idea of energy independence was mocked, considered a fool’s dream or else reliant on energy sources that were then under attack as openly as petroleum products are today – primarily nuclear power, which today has been all but stopped from expanding because of federal regulation. The nation’s supply of oil and natural gas had simply been depleted so much that only a few decades’ supply remained available to extract.

Those prognosticators, as is often the case, simply couldn’t account for new technologies suddenly opening up access to resources so expansive that today, experts in the field say there is no reason that North America couldn’t be energy independent until new sources of power are developed over the next century.

In the center of this new reality is Oklahoma, a state where some still remember what independence is all about.

“Oklahoma has always been one of the top producers of crude oil and natural gas – I believe we’re fourth or fifth in oil and third or fourth in natural gas, and certainly in the top five in both categories,” says Mike Terry, president of the Oklahoma Independent Petroleum Association (OIPA). Founded in 1955, OIPA represents more than 2,500 individuals and companies from Oklahoma’s oil and natural gas industry.

“If you look at the opportunities in Oklahoma, one of the great things you’re seeing is a lot of old fields that can produce now because of new technologies,” Terry says. “It isn’t just a couple of new fields – it’s the ability to go into huge old fields where it was thought extraction was impossible or cost-prohibitive. That’s a huge advantage. Because of new and the improvement of older technologies, we’ve been able to hit the reset button. It has really rejuvenated production in the state and also the economy.”

It isn’t particularly arcane technology that today can provide access to subterranean petroleum resources long believed out of reach.

“When you drilled in the past, you would drill in a geological feature that would possibly trap crude oil and natural gas,” says Pete Brown, chairman of OERB’s public education committee. “You were at the mercy of nature. Wildcatting is usually successful in one in 10 sites; that is one of 10 places you drill will become commercially viable.”

In 1993, leaders representing Oklahoma’s oil producers and royalty owners, worked with the State Legislature to form OERB – the Oklahoma Energy Resources Board. Oklahoma’s natural gas producers joined soon after. Its mission: “To use the strength of Oklahoma’s greatest industry to improve the lives of all Oklahomans through education and restoration.” A good portion of its efforts is directed at cleaning up former drill sites, with the remainder of the organization’s resources devoted to educating Oklahomans about the reality of the industry and its impact on the state.
Brown says that the wildcatting formula was forever changed around 2004. At that time, Oklahoma City-based Devon Energy had purchased Mitchell Energy, a smaller holding in Texas that had been experimenting with advanced drilling techniques in the Barnett Shale for decades. By 2004 Devon had improved on these techniques with help from Tulsa-based Helmerich & Payne, and, for the first time, extraction from so-called “tight shale” formations was financially viable.

“Once it was established in 2004 that you could pull [resources] out of shale, a great deal changed,” Brown says.

The two primary advances that helped energize Oklahoma’s oil and gas industry were advances in horizontal drilling and advances in hydraulic fracturing. While some unfamiliar with the technologies may define these practices as new, neither is.
“Horizontal drilling is not new – it has been used offshore all of the time,” Brown said.

Nor is hydraulic fracturing – or “fracking” – a new technique. As in the case of horizontal drilling, it is simply a technology-based application that has been improved. Experts in the field cite some of the general advances in both technologies. Horizontal drilling, long-used offshore, has seen advances in “navigation” and drill bits, as well as the advance technology of identifying the “course” for the drilling.

In hydraulic fracturing, advances have come in the form of the fluids – mostly water – used in the process, in recycling of that water and in more exact application of the process.

Brown points out that there have also been advances in vertical drilling, which already has the advantage of being less expensive than horizontal drilling.

“Vertical drilling costs about one-third or one-fourth as much as horizontal drilling,” Brown says. “Conventional reservoirs don’t lend themselves to horizontal drilling anyway. Still, there have been new technological advances, such as a PVC bit. Technologies are out there and are always going to be developed.”

It is a combination of advances in these longtime practices and in other technology that has allowed drilling for shale oil – long thought out of reach of traditional practices.
The result has had a lasting impact on the industry, on Oklahoma and in the alleged goal of North American energy independence.

“The result [of the technological advances] is that more wells become commercial,” Brown says. “It’s opened up huge reserves, and especially in Oklahoma.”

New Fields For Newfield

New fields, rejuvenated fields and ongoing exploration are all keys to Oklahoma’s burgeoning role at the heart of the quest for energy independence. But they aren’t the only factors that have helped the state achieve its new, important position.

“Look at the companies headquartered in the state,” Terry says. “You have companies like Devon and Chesapeake among many others that have chosen to locate in, relocate to and seriously invest in Oklahoma. These are the largest companies in the field, and they chose Oklahoma.”

All of Oklahoma’s assets and benefits as an energy state are familiar to Lee K. Boothby, chairman, president and CEO of Newfield Exploration Corp. Newfield is set to celebrate its 25th year in business in December. It was founded in 1988 with an initial tight focus on the shallow waters of the Gulf of Mexico. It grew from being jokingly called “No-field” to being one of the largest operators in the Gulf by 1999.

“Our second decade in business was about diversifying,” says Boothby. “One obvious option at the time was deep water, but it wasn’t something we wanted to do. Instead we wanted to move on shore and predominantly in the U.S. We looked at moving into the mid-continent.”

There was certainly competition from other energy-rich areas of the country. Instead, Newfield opted for Oklahoma when it acquired a private, Tulsa-based company in January 2001.

“We got an initial work force and 60-65 million cubic feet of natural gas production,” Boothby says. “When we looked at Oklahoma what we liked was that while there were longer-lived assets, we also got entry into an area with a rich heritage in the oil and gas industry. The energy industry in Oklahoma is really a story of evolution, of entrepreneurs taking risks – but also of people coming together to solve problems.

“Oklahoma’s influences range outside the actual state borders,” Boothby continues. “There are a lot of Oklahoma natives who live and work in other parts of the world but who are working in the industry. We’re using knowledge gained in Oklahoma all over the United States. There’s a strong production base. As of today, oil has grown each of the last four years – the only time in my career I have seen that. When thinking about that growth rate, you can see the impact, less reliance on foreign oil.”

Of course, it isn’t just oil. Low prices on natural gas might have prompted a number of companies to refocus on crude oil for the time being, but Boothby doesn’t downplay its importance.

“The greatest gift to the nation was the realization that there more than 100 years’ worth of natural gas in the U.S.,” says Boothby. “Now we’re seeing the same types of discovery when it comes to oil. “There is no magic energy bullet. There has to be some kind of bridge and Oklahoma is playing an important role in constructing that bridge to the future.”

Experts cite the impact of Oklahoma’s role in the sector using various parts of the state’s geography as an example.

“You’re really seeing it all over the country where there is drilling going on, and certainly you can see it in places like southeast Oklahoma in the McAlester area,” Brown says. “It used to be that the prison and the ammunition depot were the only large employers there. Things have changed because of oil and gas drilling. The boom in western Oklahoma is something that can affect whole parts of the country.”

If Newfield’s first decade was about building its initial offshore business and its second decade was about diversifying and moving out interests to on-shore, then its third is all about the U.S.

“We’re halfway through our third decade,” Boothby says. “Today we’re moving to focus all corporate energy onshore in the United States. Whatever people think, this has always been a high-tech industry and this [new energy source discoveries] has been driven by quality people and technology.”

Local Support

Among other aspects propelling Oklahoma to the heart of what could be the solution to a major national problem, according to industry insiders, are a legislature that understands the industry and regulators who make sure companies are responsible for their impact but which aren’t oppressive or looking to harm the industry.

“Regulation in Oklahoma is not adversarial,” Brown says. “They want you to drill and do well for Oklahoma, but they want it done right. If you do something wrong, they will sit you down and make you do it right. That’s the way good regulation should work.”

But general factors are important as well, such as Oklahoma’s workforce and its business-friendly environment. Terry points out the polls and studies that continue to rank Oklahoma high on the charts of states in which it is easiest to do business.
Experts also reject the claim that oil and gas interests are holding back the development of alternative energy sources.

“The oil and gas industry doesn’t condemn alternative energy sources,” Brown says. “We have a need for alternative energy sources in the future.”

In the meantime, Brown says oil and gas must be a part of the energy sector.

“It’s economical, and it’s relatively safe,” Brown says. “There’s never even been a demonstrated case of fracking poisoning water in the United States. We’re also improving fracking to minimize the necessary water and to recycle it. The industry is constantly looking to improve.”

The Unconventional Renaissance

But, even given the importance of Oklahoma in the overall oil and gas industry, is sole reliance on North American oil and gas resources a possibility, and if so, what would it require?

Brown, for one, believes it is possible. Furthermore, he says it’s one of OERB’s goals to get that information out to the public.

“OERB wants people to know that there is a light at the end of the tunnel – we can achieve it,” he says. “I feel confident that our reliance on Middle Eastern oil will diminish. As technology continues to advance, it helps everyone. France has just completely outlawed fracking at the same time they rely more on nuclear power than anyone else – and they do a good job at it. Ultimately, we will have to develop more nuclear power, or develop hydrogen systems somehow or some hope cold fusion could be the answer – it works in theory but no one has been able to get it to work in practice.

“Oil and gas are still the next 100 years, but we all need to consider our great-great-great grandchildren, so OERB also promotes conservation,” Brown says.

Terry points out that the U.S. is still 40 percent dependent on overseas oil, and he isn’t sure what the percentage will be in years to come.

“Who knows where it will go from there?” Terry says. “But I think the change will be positive. We are producing more crude oil but still importing it, too. It’s foolish to predict when independence can be achieved. Remember, Oklahoma actually has more natural gas than it does crude oil, even though companies are focused on oil right now. But the prices for natural gas are historically low. You see more and more natural gas being used to produce electricity. CNG is increasing on the demand side. As demand increases prices will go up and we’ll continue to be a leader.”

“Natural gas is plentiful and cleaner burning – I think it has a bright future,” Terry says. “Oklahoma is one of the absolute leaders in the drive to energy independence.”

Brown says that talk of energy independence has been circulated for “a lot of years.”

“Until this unconventional renaissance, most people thought it was a pipe dream,” he says. “For the first time in my life, I feel like energy independence is feasible. The biggest risk factors the industry faces aren’t based on the industry or geology. It’s above-ground risk based on misinformation and environmental extremism. Everything we all care about starts with a strong economy.”

Brown points out that the energy sector provided a disproportionate number of new jobs created at times during the global recession – and that’s energy as in oil and natural gas, not windmill manufacturing or the construction of solar cells.
“You can see the effects of the [oil and gas industry] in small towns and in Middle America, and obviously it is easy to see here in Oklahoma,” Brown says.

Brown does not feel that many people around the United States, particularly states that do not have experience with the sector, understand the oil and gas industry. He says if more people understood the nature of the industry, its economics, benefits and long-term legacy – as well as its relative safety – there might be less misinformation in the public consciousness.

“I think, at the end of the day, unconventional oil and gas from Oklahoma and in North America will win,” adds Brown. “It has a lot more benefits than cost. There’s a lot the average citizen doesn’t understand.”

To clarify, North American energy independence includes all of North America – the U.S., Canada and Mexico. While many are aware of shale oil being produced and sold in Canada, fewer people might know that Mexico sits on top of resources that haven’t even been identified yet.
Maximizing the potential for North American energy independence is no easy thing, Terry point out.

“It would take a mix of a lot of things to maximize the possibility,” says Terry. “Fortunately, Oklahoma has been in this business a long time. It’s part of a culture and it is an industry that’s welcomed here. If and when independence is achieved, Oklahoma will be in the middle of it.”

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