June 6, 2010- By buying its two biggest competitors, Enervest produces 20 percent of state’s oil, natural gas
The white-haired Texan might be the closest thing Ohio has to an oil baron.
After $460 million worth of purchases in the past year, John B. Walker’s company owns more than 20 percent of the state’s oil and natural-gas production.
This isn’t exactly “big oil.” It’s more like “smart oil,” to hear Walker describe it.
His Houston-based firm, Enervest, has been able to accumulate assets in Ohio at relatively low prices because the big players in the industry are focusing on raising money to explore offshore and in shale formations.
Drilling in Ohio has its risks and its critics, but nothing approaching those associated with the BP oil spill in the Gulf of Mexico.
“Ohio has a vibrant oil and gas industry, and it has for over 100 years,” Walker said in an interview during a recent visit to Columbus.
The state was once the center of the U.S. oil industry, with activity dating to 1814.
Lately, though, Ohio has settled into a pattern of modest but dependable production, the kind of output that is appealing to long-term investors.
Licking County in central Ohio has been a hub of recent activity. Last year, 58 wells were drilled there, the most in the state.
Low volume is one of the reasons that Ohio’s oil industry is mostly a collection of small businesses. In this context, Enervest represents something different: a company with more resources for drilling and the ability to single-handedly increase the state’s oil and gas output.
The company owns more than 7,700 wells in Ohio that produce 1.2 million barrels of oil and 18 billion cubic feet of natural gas a year. The numbers in all three categories are by far the highest in the state, according to the Ohio Department of Natural Resources. (Enervest lists 8,700 wells and higher totals for oil and gas, numbers that include affiliated companies that are listed separately in the state tally.)
That annual oil output represents about four times the amount of oil spilled by the Exxon Valdez, but these days, it’s not enough to fill the largest supertankers.
Enervest was already among the oil-and-gas leaders last year, and it added to its presence through two purchases in the past year. It bought the Ohio assets of Exco Resources in November for $130 million, and the Ohio assets of Range Resources in January for $330million. The acquisitions united the state’s top three producers.
The next-largest producer is now Artex Oil in Marietta; its production represents only 12percent of Enervest’s oil output and 28 percent of its natural-gas output.
Jerry James, Artex’s president, sees Enervest’s growth as a good thing. “You’re happy to see that people are willing to invest capital in Ohio right now, because that is the thing that concerns us all: getting investments back in Ohio,” he said.
Even Artex is a giant compared with many of the state’s small operators. Of the 800 companies that own wells in Ohio, about half own 10 or fewer, and about 150 own only one, according to state regulatory figures. The numbers include some, but not all, of the homeowners who use wells to generate energy for heating.
Buckeye black gold
At one time, Ohio was an oil epicenter. One of the first, if not the first, wells in North America was drilled in 1814 in Noble County in southeastern Ohio. The state’s first commercial-scale well was drilled around 1860, according to the Ohio Oil and Gas Association, a trade group.
The industry entered a two-decade boom in the 1880s with the discovery of large oil and gas reserves in the Lima and Findlay areas. Ohio rose to become the leading oil-producing state for the last few years of the 19th century. This helped nurture corporate giants such as John D. Rockefeller’s Standard Oil in Cleveland. Inevitably, though, the boom was followed by a bust.
Today, Ohio is, at best, an afterthought in the country’s oil and gas industry, ranking about 18th in oil production and 20th in natural gas, according to the Energy Information Administration. The top producer of both resources is Texas, with more than 60 times Ohio’s oil output and 80 times its gas output.
Texas is home to promising shale reserves: natural gas that is held in vast underground rock formations. New technology has allowed companies to extract the energy more efficiently, opening a new domestic supply and helping to push down the price of gas.
Pennsylvania is another hot spot for shale exploration.
Offshore drilling also has drawn much of the industry’s attention and investment. Even the oil leak in the Gulf has done little to diminish interest in these resources.
What does this mean for Ohio? The big players are focusing much of their attention offshore and on shale, where the costs involved in retrieving the resources are high. To raise money for these ventures, companies are selling assets in other regions, which is what happened with Exco and Range in Ohio.
Meanwhile, Ohio laws governing oil and gas wells got a major update this year. State legislators passed a measure that increases funding for oversight of oil drilling and wells, revises safety regulations and outlines new rules for drilling in urban areas.
“Anytime you drill a hole in the ground that may contain oil and gas, you take a risk,” said Tom Stewart, executive vice president of the Ohio Oil and Gas Association. “What’s important is that you have a regulatory scheme managed by experts to manage that risk.”
Some critics of drilling had wanted many more restrictions, particularly in urban areas, where neighbors sometimes complain about the industry’s sights, odors and dangers.
One of the most notable incidents was in 2007 in Bainbridge in northeastern Ohio. Natural gas bubbled up through a water well and led to a freak explosion.
But key players in the industry and in environmental groups say the bill was a fair compromise.
“Are we guaranteed that we won’t have any spills? I don’t think we can say that,” said Trent Dougherty, an attorney with the Ohio Environmental Council who worked on the measure. “But we are satisfied that we have more protections than we had before.”
Among the protections, drillers are required to have more insurance, and they have broader liability for leaks.
More drilling?
Walker has spent his entire career in the energy business, starting as an analyst on Wall Street in the 1970s. He moved into oil production in 1982 when he started Walker Energy. The timing was poor, at the beginning of an oil bust, and he sold the business a few years later.
“I had brown hair until we went through that process,” he quipped.
In the early 1990s, he helped start Enervest, a company designed to be an investment vehicle for large institutions such as pension funds. Although the oil industry is prone to boom-and-bust cycles, Enervest’s shareholders valued stability above all else.
The company is active in 12 states, almost all of them in the Southwest and Great Lakes regions. It has $3.5billion worth of assets and more than 600 employees.
And now, Enervest has more of a presence in Ohio than in any of its other states other than Texas. It has 165 workers and a regional office in Ohio handling day-to-day management of oil and gas wells.
Looking ahead, the company has the resources to single-handedly increase the state’s number of wells, which will lead to more production. Ron Whitmire, an Enervest spokesman, said his company’s wider reach in Ohio will almost certainly lead to more drilling. This is partly because of economies of scale, he said. Enervest expects to get lower prices from drilling companies in exchange for providing more work.
Stewart, from the trade group, is one of many industry veterans who hope that Enervest will follow through on such talk. If there is more drilling, that will mean higher incomes and, ultimately, jobs.
“We’re going to have to simply watch them and see what they do,” he said.
Original source: http://www.dispatch.com/live/content/business/stories/2010/06/06/texas-firm-bulks-up-with-ohio-acquisitions.html?sid=101
