OIL BOOM

A piece of the oil action

It’s too early to call, but Central Montana may be sitting on its own oil boom
2011-03-06T00:10:00Z 2014-08-25T11:01:22Z A piece of the oil action

By JAN FALSTAD

Of The Gazette Staff‌

The Billings Gazette
March 06, 2011 12:10 am  • 

The secret has been well-kept until now, but Central Montana is sitting on an oil field that some suggest could be a mini-Bakken, the boom that turned western North Dakota into the country’s top oil play.

That was the tantalizing dessert served up recently by Tom Hauptman, an experienced independent oil and gas producer in Billings, during an economic conference luncheon speech in Billings. His petroleum pep talk was welcome news to business leaders who had been numbed by hours of sobering statistics and predictions of more years of slow economic recovery.

“If we have anything like the development in North Dakota, this town would just be rocking,” Hauptman said. “You wouldn’t be able to find a hotel room around Billings. The oil field workers would be buying up land and homes in the Heights and your restaurants would be full again.”

Over the past four years, a dozen regional and major energy companies have leased acreage in the Heath Shale Formation. The rock runs about 30 miles north and 30 miles south of the Musselshell River from Lavina straight east into North Dakota.

Tom Richmond, director of the Montana Board of Oil and Gas in the Department of Natural Resources and Conservation, said leasing has been busy, suggesting lots of drilling someday soon. But there also have been some problems, including the rock collapsing into the lateral pipes.

“We’re really on the early, early side of this Heath Shale play, and Tom

(Hauptman) is one of the early adopters,” he said.

The board has issued 28 drilling permits for the Heath, 12 in Petroleum County, 11 in Musselshell County and five in Rosebud County, and a handful of wells have or are being drilled.

Central Montana Resources, a privately held oil company with corporate headquarters in San Antonio, Texas, with a business office in Billings, holds eight permits to drill the Heath. With Halliburton as a partner, Central Montana has drilled two wells south of Winnett near Flatwillow and one 30 miles east toward Grass Range, and is drilling a fourth near Winnett.

“We’ve had results so far to encourage us to keep going, but not enough to make it commercially viable yet,” said Central Montana’s Chief Operating Officer John Koch in Calgary. “We are cautiously optimistic.”

By the end of this year, with 10 wells drilled and the lengthy testing period over, drillers will know if the Heath can be profitable or not, Koch said. Even so, the Heath is no Bakken.

“No. It’s not as big an area and it doesn’t contain as much oil,” Koch said. “But it could be a very interesting play for Montana.”

Big investment

After a 30-year absence, the Bakken has drawn major oil companies back to this region and are spending as much as $1.5 billion per month on exploration and drilling, Hauptman said. He has no economic interests in the Heath, but said he remains an interested fan because Central Montana could use a shot of crude.

“Some landowners around Williston are pulling in $1 million a month from one well. That is true rags to riches,” he said. “The Heath could revitalize the towns of Winnett and Melstone and Grass Range and give their kids a reason to come back home.”

Another interested bystander is Montana Petroleum Association Executive Director Dave Galt in Helena.

“There’s a lot of Heath chatter in the industry, but there hasn’t been a big producer yet,” he said.

Cirque Resources, a company formed in Denver in 2007, is getting ready to drill two wells east and west of Mosby.

And a month ago, Cabot Corp. finished drilling a well northeast of Melstone, Koch said, but there is no word yet on whether it is commercially viable.

The Boston company was founded in 1882 by one of America’s oldest families made famous in the ditty: “Boston, Boston, home of the beans and the cod. Where the Lodges speak only to the Cabots and the Cabots speak only to God.”

In 1915, Ohio Oil Co., now Marathon Oil, dug Montana’s first commercial oil well in Elk Basin along the Montana-Wyoming state line.

For half a century, geologists have known that the Heath held oil and natural gas formed from tropical forests and swamps about 320 million years ago, during the Mississippian period of the Paleozoic Era. Back then, North America and Eurasia were joined and the Great Plains lay under seawater.

“But nobody has been able to get the oil out before,” Koch said.

The horizontal drilling technology developed during the past decade made the Bakken revitalization possible and is now being applied to other shale deposits.

Companies are drilling for oil and gas north of Big Timber and near Cut Bank. And last month, China’s National Offshore Oil Corp., invested $1.3 billion with a U.S. company to develop the Niobrara Formation. Believers have dubbed this formation, running from Wyoming down to Denver and spilling east into Nebraska and Kansas, the New Bakken.

Hauptmann has spent 33 years in the oil and gas business, including living through the 1980s when the oil industry collapsed in Montana. Americans burn through 18.8 million barrels of crude oil a day while producing less than 5.4 million barrels, and that imbalance is creating economic opportunity, he said.

“It’s the first time in my three decades in the industry that we can look forward to seeing a steady path ahead, not just booms and busts,” Hauptman said. “We’re probably looking at steady work for the next 20 to 30 years.”

But the U.S. has no clear policy for energy independence, and events keep jimmying the math.

Crude oil prices have spiked above $100 a barrel again, thanks in part to revolutions across North Africa and the Middle East. British Petroleum’s disastrous Gulf Oil spill last summer shut down drilling there until the first permit to resume deep-water drilling was issued last week. Capping off the supply problems, U.S. demand for energy is expected to jump 44 percent over the next 20 years.

By 2020, production from the Bakken should be 1 1.5 to 2 million barrels a day, Hauptman said.

“Bear in mind, our demand in the U.S. is nearly 19 million barrels a day, so that is not the solution,” he said. “But it is part of the solution and maybe the Heath is part of the solution, too.”

Contact Jan Falstad at jfalstad@billingsgazette.com or 657-1306.

Contact Jan Falstad at jfalstad@billingsgazette.com or 406-657-1306.

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