Before an oil or gas company can search for resources, they must first obtain a valid lease from the owner of the property where the potential minerals are located. In Utah this owner may be the federal government (BLM or Forest Service lands), State of Utah, School and Institutional Trust Lands Administration (school trust lands) or a private owner. The private owner may own the minerals and the property's surface, or they may just own the minerals.
Leases from public lands are typically done by competitive auction. Anyone may nominate certain lands to be put to auction. The land management agency then does an initial assessment as to the appropriateness of potential oil and gas leasing. The leases are then awarded to the highest bidder. BLM typically holds an oil and gas lease sale quarterly. Rents and royalties from leases on public lands go to the federal treasury. 50% of that revenue is then returned to the State of Utah in the form of mineral lease payments. Mineral lease monies are distributed by statutory formula and mostly go to local governments around Utah to support local infrastructure, with special emphasis on the mineral producing areas of the State.
Leases from private mineral owners are a private contractual agreement. A lease typically specifies all terms associated with the lease including payment of royalties, access, etc.
Leasing a property to an oil or gas company does not guarantee that wells will be drilled there. It only begins the process towards possible development. The company will assess the geologic and economic potential and then decide whether or not to drill. If they do decide to drill a well, a long series of regulatory requirements must be met that include a rigorous public process.
Developing an educated guess is an important part of the initial stage of the search for oil or gas, because while there is a lot of science involved, there is still plenty we don't know yet about what's deep inside the earth and how it works.
Our industry has a range of technologies to help us locate oil and gas reservoirs deep underground, but the search remains a complex business. Success is never certain.
In the early days of exploration, oil companies and prospectors really had no idea what they were looking for. They focused their search on areas near seepages, where oil bubbled up naturally in pools. Then they sunk a drill and hoped for the best.
The rate of success has improved greatly since those early discoveries, from 10% or less to more like 50% and higher in many areas. New technologies recently developed may improve the odds even further.
Drilling is still the only sure way to find out whether there’s oil or gas down there. But drilling is expensive, so before we drill, we do as much planning as possible.
The process starts with what we can see. Both geologists and geophysicists provide crucial insights at this stage in the exploration process. Geologists look at what rocks are made of and the formations they make in the earth. Geophysicists use physical characteristics, such as magnetic and gravitational properties, to guess the type and shape of subsurface rocks.
Aerial photography from aircraft and satellites can be revealing. The same tectonic shifts that formed mountains and other topographical features above the earth’s surface also shaped the rock formations down below. To the trained eye, these photographs can say a lot about what lies beneath the soil.
The most powerful tool available for improving our educated guess is the seismic survey. Geophysicists use a number of methods to fire acoustic pulses down through the rock. The sound waves bounce back like echoes, revealing different layers and depths.
This data gives our experts the information they need to map reservoirs and identify whether they’re filled with oil, gas or merely water. A key benefit of seismic studies is that they are much lighter on the land and environment than random drilling.
When a company has enough confidence that there may be sufficient oil or natural gas to justify drilling a well, they must apply for and receive a drilling permit. All Applications for Permits to Drill (APDs) go to the Utah Division of Oil, Gas and Mining (UDOGM). UDOGM reviews the application and makes sure the application meets all the appropriate requirements regarding safety and best industry practices.
When all the experts have been consulted, the risks have been assessed, the environmental studies have been carried out and the data has been compiled into workable maps of the exploration site, it’s time to send in the drilling crew.
Traditionally oil and gas wells are vertically drilled. Technological advancements, however, have allowed operators to save time, reduce operational costs, and lessen their environmental impact by sometimes employing new drilling technologies. A few of these new drilling technologies include the following techniques:
Horizontal drilling starts with a vertical well that turns horizontal within the reservoir rock in order to expose more open hole to the oil. These horizontal "legs" can be over a mile long; the longer the exposure length, the more oil and natural gas is drained and the faster it can flow. More oil and natural gas can be produced with fewer wells and less surface disturbance. However, the technology only can be employed in certain locations.
Extended Reach Drilling allows producers to reach deposits that are great distances away from the drilling rig. This can help producers tap oil and natural gas deposits under surface areas where a vertical well cannot be drilled, such as under developed or environmentally sensitive areas. Wells can now reach out thousands of feet from the surface location. Numerous wells can be drilled from a single location, reducing surface impacts.
Complex Path Drilling creates well paths with have multiple twists and turns to try to hit multiple accumulations from a single well location. Using this technology can be more cost effective and produce less waste and surface impacts than drilling multiple wells.
Attacks on American oil and natural gas producers on the grounds that existing federal leases are not being developed ignore the realities of the leasing, exploration and permitting process. This is a process created by federal law, complicated by federal regulations and used by anti-development interests to delay and discourage new American oil and natural gas production.
False accusations about oil and natural gas production are obscuring its complexity to make America’s independent producers a scapegoat for failed national energy policies.
IPAA represents more than 7,000 companies who drill 95 percent of the U.S. oil and gas wells both onshore and offshore. Our companies are in the business of supplying energy. They supply it, not sit on it. They supply energy where you want it, when you need it, every single day.
America’s oil and natural gas producers pay for the right to explore on leased land as well as a rental fee. The government is not losing money.
Leases don’t come with MapQuest directions that say, “Drill here for 50 million barrels.” Companies do develop their leases, but producing oil and natural gas requires many steps: gathering funding, exploring, getting permits, drilling, and finally producing the oil or natural gas. Then they have to be able to transport it to market. The entire process can take years. Another delay we have seen is widespread litigation from anti-development organizations.
So-called “idle” leases aren’t idle at all – leases that are in the exploration phase are considered by some to be “idle” even though companies are actively exploring for oil and gas and risking hundreds of millions of dollars in the process, such as with seismic surveys and other tests.
Many offshore leases are five years old or less – with a moratorium in between, it’s not surprising that they aren’t producing energy yet.
An oil company with a lease by law must “use it or lose it.” If energy isn’t produced within the lease term, the lease reverts to the government and the company forfeits all the money invested, which can be hundreds of millions of dollars.