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OK Production Drops to 20-Year Low but Regulator Not Alarmed

June 15, 1998
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OK Production Drops to 20-Year Low but Regulator Not Alarmed

Statistics recently released by the Oklahoma Corporation Commission (OCC) show gas production in the state has slowed its decline in recent years, with last year inching downward to its lowest level since 1968. However, OCC Commissioner Bob Anthony said he sees no cause for alarm and expects to see little or no further erosion in succeeding years.

Last year's production was 1.713 Tcf, down from 1.737 in 1996, 1.775 in 1995 and 1.890 in 1994. Production in 1993 was 2.02 Tcf, and the highest level ever was 2.264 in 1990. "Recent data indicate for the last three years, production in Oklahoma has been flat," Anthony said. "For three years in a row, it's been essentially 1.7. I do not believe from this point forward that we will have declining production. There's no reason to believe that in an overall sense it will be declining."

Oklahoma's current moderately declining production is due to some of the state's exports being displaced by Canadian gas and coalbed methane production, Anthony said. Oklahoma exports about two-thirds of its production, a greater percentage than that of Texas and Louisiana. "The picture nationally is a growing or expanding market, and because of that I'm willing to state although our production has flattened out in recent years that it's still fundamentally strong and it's still a fundamentally important part of our economy in Oklahoma."

Bruce Bell, chairman of the Midcontinent Oil &amp Gas Association of Oklahoma, attributed the decline in production to a number of factors. Until about three years ago, gas production allowables were more stringent than they are now. For larger wells, production allowables are currently about 65% of open flow.

Oklahoma gas fields are mature, and producers are having to drill deeper to find the gas they're looking for. "These deeper gas wells are very expensive, and when you restrict production early in the life of the well, it makes it more difficult to justify the expenditure of the capital." Deeper wells are now eligible for tax incentives, but more is needed, Bell said. "We are also seeing certain key players in the state that are not as active as they had been in the past. Many of the integrated companies have sold off their Oklahoma production and are not doing new drilling. That is very definitely a significant component of our declining production."

That leaves the bulk of deep-well drilling up to smaller producers who have less access to the capital needed to drill deep wells.

Oklahoma is unbundling its upstream gas industry and plans to unbundle the downstream next. Unbundling is seen by the OCC as an opportunity to turn the state's gas supply into an economic development tool. Fertilizer manufacturing operations consume the greatest share of gas in the state. Lumber processing is another big end user, Anthony said. "I think because we have this resource base we're trying to encourage those types of industries.

"I think that our unbundling and competition rules will enhance opportunities for our Oklahoma producers. We have had producers and operators who have transmission or storage facilities or capabilities who have not necessarily participated in serving our gas utility industry. And now that we're having unbundling and competitive bidding, they're given greater opportunity to participate."

Joe Fisher, Houston

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