Signal Oil and Gas - High oil prices rekindle oil production in Mo.

[josephstevens]

Signal Oil and Gas - High oil prices rekindle oil production in Mo.

Pumpjacks, the oil rigs that resemble those thirsty bird toys, are
going up in Missouri for the first time in two decades, the latest
region to revive a long-faded industry as crude nears $130 a barrel.

The sky-high price of oil has turned extraction methods recently
considered cost-prohibitive into cash cows.

Bright blue pumpjacks stand over a 10-acre site near the
Missouri-Kansas border where MegaWest Energy Corp., a Canadian
company, is attempting to draw heavy oil — as thick as molasses, and
requiring better technology and extra effort to pull from the ground.

The domestic oil revival is taking place in smaller oil fields that
require new technology, said Fred Lawrence, vice president of
economics and international affairs at the Independent Petroleum
Association of America.

"We've been producing oil in this country for parts of three
centuries. So a lot of the easy oil is gone," Lawrence said.

The hunt for harder-to-get oil, however, is under way.

"The Baker-Hughes rig count for the week of April 25 showed 360 rigs
drilling for oil versus 283 the same week a year ago," Lawrence said.
"That gives you a sense of the reinvigoration of crude oil in the
U.S."

Heavy oil production in Missouri ended in the 1980s when oil prices
went into a long decline.

Oil could not be sold for the money it costs to produce in places like
Missouri. But with light, sweet crude reaching a record $126.98 a
barrel Tuesday on the New York Mercantile Exchange, smaller oil
companies like MegaWest are returning to abandoned reserves in
Missouri, Kansas and Oklahoma.

"There's a fair amount of heavy oil in Missouri and elsewhere in the
U.S. that has not been addressed since the late 1970s and early 1980s
because of low crude prices," said George Stapleton, chief executive
of MegaWest.

Oil and gas well permitting in Pennsylvania is booming, as large
exploration companies from as far away as Houston and Calgary expand
the horizons of traditional drilling grounds there.

The lure for those companies is Appalachia's relatively unexplored and
deep veins of natural gas that are close to major cities like New York
and Philadelphia.

There is also more money going into oilsands operations in Alberta,
Canada, home to vast reserves of a tar-like bitumen that is extracted
using mining techniques. Industry officials estimate the region will
yield as much as 175 billion barrels of oil, making Canada second only
to Saudi Arabia in crude oil reserves.

In North Dakota, rising crude prices have helped increase drilling for
oil trapped in deep rock layers, part of the so-called Bakken
Formation that also extends under Montana, Saskatchewan and Manitoba.
To get the oil, companies have to drill expensive wells that reach for
miles, fracturing the rock to release the oil trapped in microscopic
pores.

MegaWest is using thermal technology to extract heavy oil from depths
of more than 200 feet. It injects 400-degree steam deep into the
ground to loosen the viscous oil and pressure it out through bore
holes serviced by the pumpjacks.

Its 10-acre field is the first stage of a project that will produce up
to 100,000 barrels of oil over the next two years, MegaWest says.
Average production will be 220 barrels of oil per day. A barrel equals
42 gallons.

Stapleton said the oil will be sold to a refinery in nearby
Coffeyville, Kan., at a price about 80 to 85 percent of the market
price for benchmark West Texas light crude. Heavy oil sells for less
because it's harder to refine than light crude.

Signal Oil and Gas - MegaWest started injecting steam in March to
"melt our way into the formation, so to speak," said Jim Long,
operations manager at the site. He expects to start producing oil
around late May.

http://www.signaloilandgas.com

MegaWest has oil rights on over 8,000 acres in Missouri's Vernon
County, part of holdings totaling more than 110,000 acres in five
states including Missouri, Kansas, Kentucky, Texas and Montana.

CEO George Stapleton says MegaWest can turn a profit as long as oil
prices stay above $40 to $45 a barrel.

"Roughly half of every dollar above that we are able to capture as
part of our net profit. At $100 a barrel, our profit is about $30 a
barrel. That's attractive and that's why we're doing it," he said.

Vernon County sits on an estimated 1.8 billion barrels of heavy oil,
Stapleton said — a trickle compared to the huge foreign reserves that
feed the global oil market. The world's largest oil field, Saudi
Arabia's 1,260-square mile Ghawar, has estimated remaining reserves of
70 billion barrels, according to the U.S. government's Energy
Information Administration.

James Van Blaricum - Total reserves in the lower 48 U.S. states,
excluding Alaska and offshore fields, are about 17 billion barrels,
the government agency estimates.

But every little bit helps in an era of tightening oil supplies, said
Lawrence from the petroleum association.

"You have to look at these marginal wells in the U.S. as definitely
making a difference given the fact that we're importing over 60
percent of the crude we consume," he said.

The U.S. uses an estimated 20 million barrels of oil a day. Stapleton
from MegaWest said his Missouri fields will produce somewhere around
350 million barrels over a 20-year span, or the rough equivalent of 35
days of current U.S. imports.

It's not a panacea, but it helps to provide price stability and secure
supply lines at home, he said.