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Southwest Nebraska experiencing mini oil boom

Southwest Nebraska experiencing mini oil boom

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Jim Gohl has seen oil booms before in Nebraska.

The early 1960s brought a big boom, and there was another one in the late 1970s and early 1980s, said Gohl, who lives in the Hitchcock County town of Culbertson and is a commissioner with the Nebraska Oil and Gas Commission.

What's happening in his neck of the woods these days could be the best thing to come along for the state's oil industry since the last boom ended.

"I guess this would be the next best thing since that," Gohl said.

While hydraulic fracturing, commonly referred to as fracking, is spurring oil booms in North Dakota, Texas, Colorado and Wyoming, the oil boom in southwest Nebraska is of the more traditional variety.

Companies are using a technique called three-dimensional seismic imaging, which bounces sound waves off underground rock structures to reveal areas that might contain oil and gas.

That allows oil companies to see previously hard-to-find deposits of oil.

Bill Sydow, director of the Oil and Gas Conservation Commission, said the 3-D seismic technique has played a big role in the increase in oil exploration and production in southwest Nebraska.

"The prices have helped, but I think the success of the 3-D is a big part of it," Sydow said.

Sydow did not have final statewide production numbers for 2013 as of last week, but he estimated there were around 2.8 million barrels of oil produced in the state. That would be a more than 10 percent increase over 2012 and the best year for oil production in Nebraska since 2001.

"It's pretty amazing," Sydow said.

What's even more amazing is that half of all that production is coming from two small counties in the southwest corner of the state.

Hitchcock and Dundy counties, which border Kansas and, in Dundy's case, Colorado, are seeing unprecedented amounts of drilling and production.

In 2013, companies applied for more than 100 drilling permits in those two counties, more than 40 percent more than in 2012.

Hitchcock County has been the state's top oil-producing county since 2011, with more than 750,000 barrels annually. That number grew by one-third, to more than 1 million barrels in 2013, thanks to a large oil find in the Burntwood Canyon field near Stratton.

Berexco, a company from Wichita, Kan., started producing oil from the field in July. It quickly grew to become the top-producing field in the state, yielding 87,000 barrels of oil in November and nearly 125,000 in December, an average of more than 4,000 barrels a day, Sydow said.

By contrast, the best-producing field in the state in June produced 350 barrels a day.

"I've never been around anything like this in Nebraska... nobody has," Sydow said. "It's almost unbelievable."

Berexco officials did not return a message seeking comment.

While Dundy County hasn't had a big oil find like the Burntwood Canyon field, it actually has seen more growth, on a percentage basis, than Hitchcock County.

Wells in Dundy County produced 405,000 barrels of oil in 2013, Sydow said, a nearly 60 percent increase over the 254,000 barrels produced in 2012 and more than double the 193,000 barrels in 2011.

Forestar, a publicly traded company based in Austin, Texas, applied to drill more than 40 wells last year, most of those in Dundy County, and Sydow said he expects Forestar to more than double that rate this year.

Forestar did not respond to a request for comment, but in a conference call discussing its earnings earlier this month, Forestar CEO Jim DeCosmo said he expects the company will drill 120-130 wells in Kansas and Nebraska combined this year.

To keep the state's oil boom in context, the growth in Nebraska oil production has been phenomenal, but it barely moves the needle in terms of national production. The U.S. Energy Information Administration estimates Nebraska's total crude oil production for the last quarter of 2013 at less than 1 percent of North Dakota production.

But it is changing the landscape of southwest Nebraska. 

Grohl said the increased drilling activity in Hitchcock and Dundy counties is readily apparent by the number of drilling rigs in operation. Traditionally, you'd see one, maybe two rigs in operation from day to day, he said, but for the last six to 12 months, seeing three or four rigs operating at any time is not unusual.

While Hitchcock and Dundy have seen the biggest boost in oil production, activity is not limited to those two counties. Farther east, a dozen wells were permitted in Harlan County last year, and Sydow said oil was found for the first time ever in Franklin County.

The activity has been a big boost for the counties along the Kansas border, adding taxes and increasing economic activity for restaurants, hotels, construction companies and other businesses.

But it also has been taxing on infrastructure. Sydow said the best-producing well in the Burntwood Canyon field does about 700-800 barrels of oil a day. It could do more, he said, except that there's not enough electrical capacity in the area to handle a bigger motor for the well.

The increased production also means more truck traffic to transport the oil. Sydow said virtually all oil produced in Nebraska is transported on tanker trucks to refineries or pipeline unloading stations in other states, and much of the oil from southwest Nebraska goes to Kansas.

Because of that increased production, a Kansas company wants to build a facility in Holdrege where crude oil could be unloaded from trucks directly into a pipeline.

The National Cooperative Refinery Association, based in McPherson, Kan., has applied to build a truck unloading facility at its existing pipeline station in Holdrege.

The station, constructed in 2001, receives crude oil from the Platte Pipeline, which transports oil from Wyoming to Holdrege and continues to Wood River, Ill. Crude oil also is shipped from Holdrege via the Jayhawk pipeline to the NCRA refinery in McPherson.

The NCRA said in a statement that construction of the truck unloading facility will provide an opportunity for Nebraska-produced crude oil to get into the pipeline and be transported to McPherson for processing in its refinery.

"New production west of Holdrege along with increased drilling activity in southwest Nebraska is the motivation for constructing the unloading station," an NCRA spokeswoman said.

When fully operational, the facility would handle up to 20 tanker trucks per day.

The Phelps County Planning Commission has already recommended approval of the NCRA application, and the Phelps County Board has a public hearing scheduled for March 11.

With all the activity, you would expect optimism from the state's top oil official, but Sydow has a decidedly gloomy view of the future.

Oil is being sucked out of the ground so fast on both sides of the Nebraska-Kansas border, he said, that he said many of the fields will dry up before the end of the year.

"It will probably begin to drop off pretty fast," Sydow said.

To try to ensure more of the oil gets pumped on the Nebraska side, the commission suspended rules in some areas that require wells to be spaced on 40-acre parcels, instead allowing them to only be 10 acres apart, which is what Kansas allows.

Reach Matt Olberding at 402-473-2647 or molberding@journalstar.com

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Business reporter

Matt Olberding is a Lincoln native and University of Nebraska-Lincoln graduate who has been covering business for the Journal Star since 2005.

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