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THE WALL STREET JOURNAL: Wildcat Producer Sparks Oil Boom On Montana Plains

After Majors Pulled Out,
Mr. Findley Drilled Anew;
Size of Find Still Unclear
A Rival Counts Tanker Trucks
April 5, 2006; Page A1

SIDNEY, Mont. — In the mid-1990s, major oil-exploration companies like Royal Dutch Shell PLC, Gulf Oil Co. and Texaco Co. were shutting down operations here on the remote high plains, abandoning hundreds of nonproducing wells and letting their leases to mineral rights lapse.
Federal and state agencies tracking exploration also considered the region a bust. “I thought my job was going to be turning out the lights,” says Jim Halvorson, geologist for Montana's Board of Oil and Gas Conservation. In 2000, his office predicted oil production would rapidly decline toward zero.
But Richard L. Findley, a graying geologist and “wildcat” producer, thought they were all wrong. He bought up leases on the cheap and helped spark a surprising boom in one of the most heavily explored oil regions in the country.
Mr. Findley discovered a new field that is now producing 48,000 barrels a day of high-quality crude oil from more than 300 wells. While oil companies have discovered bigger fields in Alaska and the Gulf of Mexico, this sizeable find is now the highest-producing onshore field found in the lower 48 states in the past 56 years, according to the U.S. Energy Department.
The high price of oil, coupled with the call to reduce U.S. dependence on foreign oil, has sparked debate among policy makers, executives and entrepreneurs about just how much untapped oil is still out there in the continental U.S., where it is, and how to get it. Hurricane damage last summer to vast U.S. oil operations in the Gulf of Mexico heightened interest in onshore fields.
For several years now, major oil companies have taken the approach that there are no more large fields left to find under American soil. U.S. oil production has dropped from 9.2 million barrels a day in 1973 to about 5.4 million barrels today, and the country now imports 60% of its oil.
David F. Morehouse, senior geologist with the U.S. Department of Energy's Energy Information Administration, contends there is more new oil to be found in the continental U.S. Finding it, he says, will “depend on people doing the data analysis and, quite frankly, people going in and drilling enough in the right places.”
Mr. Findley, who is 54 years old, did just that. Now production in this part of eastern Montana is growing, and new investors are arriving to explore the potential. At least one midsized firm, Marathon Oil Co., has begun buying leases. Halliburton Co., the big Houston-based oil-services company, has invested with Mr. Findley. The state says the proven oil find in the area will likely be in the range of 150 million barrels, hardly what oil-patch hands call an “elephant,” but nevertheless boosting the nation's proven oil reserves by about 1%.
Some oil folks think there's even more around here. Drillers are finding evidence of a similarly sized field in western North Dakota. Geologists say both fields are part of a 200,000-square-mile formation known as the “Bakken,” which lies under parts of Montana, the Dakotas and Canada. No one yet knows how much oil can be extracted from it, but some estimates are sky-high. One federal geochemist who analyzed the formation estimated it contains 400 billion barrels of oil, while a North Dakota state geologist said 200 billion. If even the lower estimate is true, and if 10% can be recovered — a conservative rule of thumb used by geologists — the Bakken could eclipse Alaska's Prudhoe Bay as the largest recent U.S. oil find.
Staying Away
Thus far, the lofty predictions remain unproven, and skeptics remain. Most of the biggest oil companies are staying away. “Nobody has a good solid fix on this yet,” notes Mr. Morehouse, who says it will take more drilling to determine the true extent of the Bakken.
While many people associate big oil finds with big companies, over the years about 80% of the oil found in the U.S. has been brought in by wildcatters such as Mr. Findley, says Larry Nation, spokesman for the American Association of Petroleum Geologists. Wildcatters search for oil, nail down drilling rights, then seek money from banks or bigger companies to extract it.
Mr. Findley grew up in Corpus Christi, Texas, the son of an accountant for a chain of grocery stores. A brother-in-law, a geologist, hired him as a field assistant to hunt for oil in west Texas. “I just fell in love with geology,” he recalls. He graduated from Texas A&M University in 1975 and got a job as a geologist with Tenneco Oil Co. In 1983 he left to found his own Montana-based consulting and exploration company, a one-man operation.
Three years later, world oil prices crashed, and fluctuating prices dogged Mr. Findley as he tried to stay in the business. In the 1990s, the majors left the area in the belief that it was played out. Mr. Findley felt there was more oil to be found and began putting together small exploration deals.
His income had dropped by more than half to $45,000 a year, and he wasn't sure how much longer that would last. “Many times, my wife and I sat down at the kitchen table and said, 'What are we going to do next?' We always came to the same conclusion. [Geology] is what I know. This is what I love. So we just kept going.”
Mr. Findley decided to scrutinize the Bakken formation, which consists of a thin layer of silt and broken rock sandwiched between two layers of oil-bearing shale. The majors had assumed that oil could be extracted from the shale, but after finding only modest amounts, they gave up.
Mr. Findley was interested in the middle layer they had ignored. The majors had figured this rocky layer was so tightly packed that whatever oil resided there could not be extracted economically. So they drilled right through it. Reviewing old drilling records, Mr. Findley concluded the “middle member” held an underground sea of high quality crude at least 50 miles long and 12 miles wide, which could be tapped using a different extraction technique.
With help from a real-estate agent named Bob Robinson, Mr. Findley quietly began buying drilling rights for thousands of acres. Mr. Findley figured that by drilling down the old holes and then injecting water and sand to make the rock layer more porous — a process called “fracking,” or fracturing — the trapped oil would be released. But the job was too big for his tiny company, which normally explored fields of 300 acres or less. This job involved at least 300 square miles.
Mr. Findley put together a partnership with Bobby B. Lyle, who heads Lyco Energy Corp., a small Dallas-based oil-exploration company. In exchange for financing and drilling expertise, Lyco received a 75% stake. Mr. Lyle says his company was so taken with Mr. Findley's theory that “none of us had thought much about what to do if it didn't work.”
It didn't work. After drilling down 10 old “dry holes,” Lyco found that the process was releasing oil, but not enough to justify the new drilling. In 1997, when oil dropped to $8 a barrel, the partners stopped drilling.
“We concluded that we were sitting on a lot of oil,” says Mr. Lyle, but that conventional vertical wells couldn't handle the job. “The question was: How do you extract it commercially?”
He approached Halliburton, which had expertise in a relatively new drilling technique called horizontal drilling. Using computer-controlled rigs and motorized, directional drill bits, Halliburton could drill 10,000 feet down, then maneuver the bit to work horizontally. Messrs. Findley and Lyle figured the process would allow a much bigger fracking operation. Halliburton decided to take a stake, which none of the partners will quantify.
Cash from the Halliburton deal allowed Lyco to buy drilling rights to more than 100,000 acres. In May 2000, drillers bored a 10,000-foot vertical well called Burning Tree State 36-2H. That May 26, a fleet of trucks carrying water, sand and diesel engines for fracking clustered around the drilling rig. Technicians, watching their laptops, turned the drill horizontally and waited for it to move across the rocky layer. After several hours, one of them flipped a switch and the oil began flowing up the pipe.
“We watched that well from April to December just to be sure this wasn't a fluke,” recalls Mr. Lyle, an engineer and former dean of Southern Methodist University's business school. Meanwhile, he was working out plans with Halliburton to drill more horizontal wells and to buy more drilling rights.
They weren't the only ones watching. Engineers from Headington Oil Co. LP, another small Dallas-based drilling company working in the area, had hired college students to count the tank trucks hauling oil from the well. Headington, which had arrived in Sidney in 1997, was also pondering records of the supposedly dry holes drilled by the majors. But Headington was drilling into a less productive field than Lyco's, and had had relatively little success.
When the big Lyco tanker-truck counts came in, Headington began buying more leases. New oil production in the region “had been dead for so long that we were able to keep prices very reasonable,” recalls Gary Polasek, a Headington geologist and technical manager.
Under Montana law, six months after the Burning Tree well began producing, Lyco had to disclose its methods to the state, which caused further scrambling at Headington. “When their first well came in, we felt we could improve upon it,” says Mr. Polasek. His company hired Schlumberger Ltd., Halliburton's major rival, to work out a way to tap the Bakken using horizontal drilling and fracking.
There are currently 225 rigs drilling for oil in North America, according to industry records. Twenty are drilling in the Sidney area and more are coming. Montana records show 13 oil companies drilling in the Bakken. “They're drilling [wells] as fast as 20 rigs can drill. We'll probably get 150 new wells a year at this rate, and there are very, very few dry holes,” says Tom Richmond, administrator for Montana's Board of Oil and Gas Conservation.
What's unusual about this boom, says Mr. Richmond, is that small companies like Headington and Lyco have most of the key acreage tied up in leases. “There's not a lot of room for other people to get involved,” he says. Still, “there are others trying to buy around the edges in hopes the play will get bigger yet.”
A 1999 study by Leigh C. Price, a highly regarded geochemist who worked for the Denver office of the United States Geological Survey, suggests that it might. Mr. Price examined 107 old wells in North Dakota and found evidence of unextracted oil in the broken-rock layer of all of them. He estimated that there were 413 billion barrels of high-quality crude to be found between the two layers of shale — right where Mr. Findley found it. But the study by Mr. Price, who died in 2002, was never published.
Julie LeFever, a geologist for the North Dakota Geological Survey, reviewed the same material used by Mr. Price. Taking a more conservative forecasting approach, she estimates the Bakken has 200 billion barrels.
Untapped Potential
Some bigger oil companies are hearing the message. “This entire region of the Rockies holds untapped potential that can contribute much needed supplies to help meet U.S. demand,” says Marathon spokesman Paul Weeditz, though he won't elaborate on the company's plans for its recent Bakken lease purchases.
In August, Enerplus Resources Fund, a large Canadian investor in oil and gas properties, bought Lyco and set plans for investing in new wells in the Bakken. Halliburton retains its stake in the venture.
Shell, which left Sidney in the 1990s, says it is not coming back. “In the 1990s, Shell exited many onshore properties in order to dedicate resources to the exploration and development of the deepwater Gulf of Mexico,” says a spokeswoman, Kelly op de Weegh. Since then, she says, Shell has resumed some onshore exploration, but is only looking for natural gas.
Mr. Findley and his wife, Lynn, still have long discussions over the kitchen table, but they're no longer about the survival of his tiny Billings company, Prospector Oil Inc. They're about remodeling their house, which they bought in 1978. That's about the only sign his neighbors will see that he has become a wealthy man. The rest goes into the bank, he says. “I'm going to build an estate for my family that will last for a long time to come.”
Write to John J. Fialka at [email protected]

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