Kansas Oil Production

Brian Hicks

Written By Brian Hicks

Posted May 13, 2013

Kansas is living it up as far as oil production is concerned.

oil drillingA recent report from the Kansas Geological Survey showed that over all of last year, oil production in Kansas was up 5 percent. At the same time, though, the cratering natural gas prices took a toll; many rigs remained idle due to surplus production, meaning overall gas production dropped by 4.3 percent.

Altogether, Kansas produced 43.7 million barrels of oil in 2012. That’s actually the highest volume in 17 years. Gas, in contrast, fell (in terms of production) to almost 298.7 billion cubic feet.

Overall, the value of oil production was up appreciably – to $3.7 billion over 2012 – an increase of $0.2 billion from 2011. Gas experienced a comparatively sharper drop, going from 2011’s $1.2 billion cubic feet to just $790 million cubic feet over 2012. Recall, though, that the price of natural gas was about $14 per thousand cubic feet in 2008. Currently, prices hover around $3 to $4.

Horizontal Drilling in the Mississippi Lime

Meanwhile, horizontal drilling has proven to be a worthwhile venture in Kansas. The Mississippi Lime shale play covers several counties toward southern Kansas, and the counties of Barber, Harper, and Comanche all saw big production increases in oil – 18 percent, 72 percent, and 71 percent, respectively.

However, horizontal drilling was still fairly small-scale as of 2012, accounting for just 5.9 percent of all oil and gas production operations. Given the dramatic numbers, though, expect horizontal drilling to draw more attention soon.

While some 162 wells were drilled over 2012, high-producing operations are not guaranteed. It turns out that, unlike the Bakken Shale, the Mississippi Lime isn’t nearly as consistently rich. That means Kansan drillers are currently engaged in trying to identify the hot spots where drilling can produce oil and gas in abundance.

Already, several wells have been drilled without much success – a wasteful move that needs to be avoided if possible. All those 162 oils are now operational and have actually discovered some 7,469 cubic feet of natural gas (on average) alongside oil.

While fracking and horizontal drilling have proven to be rewarding ventures, the sporadic nature of the Mississippi Lime and falling gas production are causes for some concern.

The largest natural gas field in the state is in the Hugoton Gas Area. Presently, there’s practically no new drilling activity there due to both the enormous national surplus of natural gas, as well as the drastically low prices gas currently commands on the market.

National Oil and Gas on a High

Meanwhile, in more optimistic national news, it turns out that the quantity of oil the U.S. is producing has nearly equaled the amount the nation imports. Current production levels are at their highest in over twenty years.

As a result of all this oil glut, the price spread between the Brent Crude and West Texas Intermediate has narrowed to below $7.72 per barrel. Indeed, it’s possible they could match up by the end of this year.

CNBC quotes an expert:

“I think we could go to parity by the end of the year. The logistics and the rejiggering of the supply distribution system is really remarkable. By the end of the year, on top of all the pipeline efforts, we’re going to have about 1.2 million barrels of oil riding the rails,” said John Kilduff of Again Capital.

Pipelines have been a major bottleneck, and things got to a point where enough producers and developers began to pay attention to it. As more and more pipelines, such as the Seaway, have been reversed or otherwise rerouted, more of the oil being produced is getting to refineries and other end points.

We could very well see a few months coming where domestic production will beat out imports – and then that could very well become the new norm as domestic production just keeps increasing and expanding.

According to the Energy Information Administration, U.S. oil production over Q1 averaged 7.1 million barrels per day, and that’s set to hit 8.5 million barrels per day by Q4. Alongside, imports for liquid fuels are expected to fall to 5.7 million barrels per day by 2014, down from 2012’s 7.4 million barrels per day.

And the Permian Basin production levels continue to rise, leading the EIA to upgrade short-term projections for production for the lower 48 states. All things considered, national oil and gas production is extremely healthy, and a bright future is indicated.


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