Boom for 'wildcatters' in America's Oil Patch

Five years ago, Hollis Sullivan scoffed at someone who said he was too busy to return calls. How could anybody be that busy, he wondered.

Now he gets it. "We're maxed out," he says, bumping along a dirt road toward his latest project. Amid the spotted cows and purple thistles that dot the ranch land of northern Texas sits a massive drilling rig, its workers pulling up almost 12,000 feet of pipe once the drilling is complete.

As oil prices top $42 per barrel and natural gas hits $6 per million cubic feet, Mr. Sullivan is one of thousands of small, independent producers from California to Wyoming stepping up exploration and production. Five years ago, he was drilling no more than four new wells a year. This year, he'll drill nearly 35. "There are so many ups and downs in this industry," says Sullivan. "After a couple of roller-coaster rides, you get tired. But it seems like we're moving into a new climate of higher prices, and producers are getting more comfortable."

Across Texas, marginal stripper wells are pumping again, rigs are searching for new resources, and college kids are taking a second look at the industry. Ivanhoe Energy, a California-based firm, plans to drill up to 65 new wells this year in California, Wyoming, and Texas, up from about 14 last year. Experts say it may be the start of a new oil boom, stimulating the faltering industry and lessening US dependence on foreign oil.

But while record prices are creating happy wildcatters, they point to a growing likelihood of sustained high prices as the chief incentive to step up production.

"Record high prices are nice, but sustainability is what allows these guys to stay in business," says Mark Baxter, director of the Maguire Energy Institute at Southern Methodist University (SMU) in Dallas.

Nationwide, the rig count grew by 12 percent this year, with 1,373 rigs drilling for oil or natural gas. It's a far cry from the record 4,500 rigs of 1981. But it's a significant change from just five years ago, when only 488 rigs were drilling - an all-time low.

It's been a slow ramp-up, say experts, because so many workers had to be laid off and rigs shut down during that time, and it's taken a few years for producers to pay off mounting debt.

"Producers can't immediately start drilling again," says Bill Stevens, executive vice president of the Texas Alliance of Energy Producers. "And because it takes a lot longer to get rid of debt than to collect it, a lot of people are just now reemerging after the 1998/99 downturn."

Back then, oil dropped to $12 a barrel - less than it costs many small producers to extract it from the ground - causing a lot of worn-out wildcatters to finally leave the business for good.

"But anybody that's left after these wild price swings since the 1980s is very, very smart," says Charles Matthews of the Railroad Commission of Texas, which regulates mining and mineral rights. "They are the survivors."

Texas, with about half of all US active rigs, is key to understanding the industry - and companies are seeking hundreds of new permits here each month.

But what's even more significant is the number of wells that are being completed each month, says Mr. Matthews. In February, for instance, there were 680 gas-well completions - a 30-year high. In March, there were 705. "We are seeing companies [being] much more productive than they were before," he says. "The difference is that they don't have the large staffs they used to have. Now they hire consultants and subcontractors."

But even that's become difficult; worker shortages have been a growing problem. But experts are hopeful. For the first time in years, interest at colleges is up. Mr. Baxter, for instance, advises the Energy Club at SMU's Cox School of Business, and says more students are asking him about careers in energy. "For a long time, fathers, uncles, aunts that had been laid off were not encouraging their children to go into the industry. But that seems to be turning around. I'm sure the news of these high prices is making a difference."

The Energy Club was revived last year after a long dormancy, and it's grown to 25 members - many with stories like club president Jonathan Parker's. He'd planned to use his MBA in banking or consulting, but as he learned of the industry's opportunities he changed his focus to energy. "The opportunity for MBA students is enormous," says Mr. Parker, who will graduate next May.

The shift is even clearer at larger Texas universities. During the heyday of the '80s. schools like the University of Texas (UT) and Texas A&M graduated 1,000 and 400 petroleum engineers a year, respectively. Last year, UT graduated 40; A&M graduated 30. This fall, 140 UT freshman are enrolling as petroleum engineers - "the largest freshman class in years," says Matthews. His job as railroad commissioner includes speaking to high schoolers about the business. "For the first time in a long time, we're beginning to see young people take a second look."

Sullivan's youngest son, now in high school, talks of getting into the industry as well - though his older siblings, more aware of the ups and downs, chose other careers. Sullivan says $40 a barrel is nice, but he'd be happy with a consistent $30 - as it's been for the past 18 months. "It drives you crazy. You can't plan or budget. You just have to be adaptive because at any moment, your paycheck could be cut in half."

He's not your stereotypical wildcatter. Shy and unassuming, he admits to crying at his daughter's recent college graduation. But like any small producer still left in the business, he's smart. Even before oil prices reached $40, he was drilling for more - and branching out, exploring for more environmentally friendly natural gas. He survived the last downturn without much debt and took advantage of high prices faster than most. He's increased his staff from seven employees four years ago to 21 today. Asked if all the ups and down are worth it, he nods. He can't explain why, but he loves the business. Maybe because he's good at it.