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HAYS — The steep drop in global oil prices has producers shutting in wells, storing crude, and hoping for better times.
On Friday afternoon, Mike Hertel was pumping a well on the Oldham lease south of Hays.
“During the boom, the phone would ring seven days a week, day and night,” he said. “Now you have to check it to see if it’s still working.”
Family owned Hertel Oil Co. opened its doors in 1980. A producer, operator and service company that is still family owned, the Hertels now maintain wells seven days a week, their own and others, from cleaning tanks and pumping salt water lines, to keeping up lease roads and pumping wells.
With more than 40 wells, Hertel Oil’s chemical costs alone can run to $6,000 a month, he said.
“Nobody can make money at these prices,” said Hertel of the steep drop in oil prices. “With some of these wells it takes $30 a barrel to make your operating costs.”
With Ellis County the No. 1 oil producing county in Kansas, many feel the pain.
Ellis County will lose about 50% of its oil valuation, according to Ellis County Appraiser Lisa Ree. Assessed value for 2019 was $32 million. For 2020, it will be more like $13 million to $14 million.
The county in 2019 had 2,597 wells and produced 2.53 million barrels of oil, according to the Kansas Geological Survey. That was 7.6% of the state’s total oil production.
Drilling on hold
The equipment yard at Discovery Drilling, 1029 Reservation Road, was quiet Friday. Trucks and trailers sat idle in the huge gravel lot, along with a drilling rig, drilling mud pumps and lots of other equipment.
“We’re just mainly trying to hold it together,” said Jason Alm.
Of the 50 employees the company has, about a dozen or less are coming in to work now, he said.
“We’re just maintaining equipment,” Alm said. “We’ve been painting a lot of stuff, and servicing equipment that maybe we didn’t have time to do before.”
Founded in 1984 by Alm’s parents, Tom and Glenna Alm of Hays, Discovery Drilling celebrated 25 years in October.
One of the larger privately held drilling contractors in western Kansas, Discovery’s last two wells were drilled in Rooks and Pawnee counties, finishing up just as Gov. Larua Kelly issued the stay-at-home order.
The 3,800-foot well in Rooks struck oil, while the shallower 2,500-foot well in Pawnee County was dry.
“I think we’re more or less playing the waiting game,” Alm said Friday. “We do have customers wanting to drill, but they want to wait until the virus clears up, and see what the environment is.”
It could take months to see how much demand there is relative to today’s high crude inventories.
Operators won’t just turn wells back on, though, it will be a gradual ratcheting back up, he said.
For now, Hertel sees more and more operators shutting in wells.
“I might be doing that too shortly,” he said. “It’s a really, really sleepless night right now trying to make the right decisions for family and investors. But I’ve been through this stuff before, and it’s gonna come back.”