N.E. Kansas land may hold gas riches

Producers trying to determine extent of coal bed methane

Landowners in rural northeast Kansas should keep their fingers crossed.

Multibillion-dollar companies are scouring the countryside around Lawrence to determine if the area is rich with an emerging form of natural gas. If it is, its production could mean thousands of dollars to owners of the land where the gas is found.

“If you own a section of ground, it could mean $100,000 per year,” said Tim Carr, chief of petroleum research at the Kansas Geological Survey. “For smaller farmers, it could be $10,000 or $20,000 per year. It would be enough to keep the farm going, because it is cash money.”

The exploration’s focus is coal bed methane gas. Geologists are fairly certain the gas lurks from 500 to 2,000 feet beneath most of eastern Kansas in a reserve that is one of the nation’s biggest.

In southeast Kansas, wells already have been drilled that are producing millions of dollars worth of the gas, which has the same uses as standard natural gas.

Land being leased

Oil and gas companies now are looking in the northeastern part of the state. Officials at the Jefferson County Courthouse confirmed that within the past month, executives with Cody Oil & Gas Corp. of Bismarck, N.D., have been researching property ownership lists to begin lease negotiations with large landowners in that county. It’s not known whether the company secured any leases; no such leases have been filed with the Jefferson County Register of Deeds Office. Cody officials did not return phone calls seeking comment.

Nick Powell, president of Iola-based Colt Energy Inc., said several other companies were looking at the area, too. Evergreen Resources, one of the country’s largest exploration companies, announced it had 450,000 acres under lease in eastern Kansas.

“I’m sure there is probably some acreage that is leased in Douglas County,” Powell said.

But Powell, whose company also is exploring coal bed methane options in the area, said landowners shouldn’t be counting their chickens yet. Unlike southeastern Kansas, the coal bed methane reserves in northeast Kansas aren’t yet proven to be commercially viable.

Potential and pipelines

“The big thing to remember is that it is still in an exploratory stage,” Powell said. “It is possible that it may not work like we think it will or that only 20 or 30 percent of it will work like we think it will.”

¢EPA – Coalbed Methane Outreach Program¢Kansas Geological Survey information (includes map)¢Douglas County Oil and Gas Production¢Jefferson County Oil and Gas Production

But Carr said gas exploration companies had become captivated with the Kansas potential. Eastern Kansas is probably now “the hottest play” in the coal bed methane industry, which is surging because high prices in the natural gas market make new exploration profitable.

Eastern Kansas has one of the nation’s bigger reserves of coal bed methane, possibly two-thirds the size of the Hugoton gas field in southwest Kansas, the nation’s largest, Lee Allison, director of the Kansas Geological Survey, told a Kansas energy conference early this month.

Most of the coal bed methane development in the state so far has been confined to a four- or five-county area around Independence, he said.

Carr said the state was attracting interest also because it had a large network of natural gas pipelines already in place, and much of the land was privately owned, a fact that speeds up lease negotiations. Other coal bed methane areas, like Wyoming, contain large areas of government-owned land.

Industry boost

The Kansas oil and gas industry is watching the exploration process closely because it could provide the biggest boost the $2.5 billion industry has seen in years.

“It could keep the state a national player in the industry for several more decades,” Carr said.

Powell said the speculation already was boosting the business of companies like his, which provide services to exploration companies. About a quarter of his business now is work with coal bed projects, he said, and that could grow to half his company’s business within three years.

In a conventional oil and gas reservoir, production is from oil and gas located above a water contact. Coal bed methane production is different. Water permeates coal beds, and its pressure causes methane to be absorbed onto the grain surfaces of the coal. To produce the gas, the water must be drawn off to lower the pressure, allowing the methane to desorb from the coal and flow to a well bore. The same principal is involved in opening a can of soda pop.Due to the large internal surface area of coal, it stores six or seven times as much gas as a conventional natural gas reservoir of equal rock volume. Much of the coal is accessible at shallow depths, making well drilling and completion relatively inexpensive.From 1995 to 2000, coal bed methane production increased nationwide, spurred by a tax incentive and the shortage of U.S.-produced energy. In 2002, coal beds were providing at least 6 percent of the nation’s natural gas. There is so much methane in coal beds that recovering just 15 percent would yield enough gas to meet the entire country’s natural gas needs for more than a decade.— Source: Public Lands Foundation

“I think it already has reinvigorated the industry in this state quite a bit,” Powell said.

The coal bed interest also is beginning to reinvigorate some county tax rolls. After drillers began work in Neosho County in 2001, oil and gas assessed values increased from about $155,000 to $1.5 million in 2002. By the end of this year, the total is expected to grow to about $12 million, said county appraiser Bob Kline.

The assessments would produce upwards of $2 million a year in new taxes for county, township and school governments, he said.

“It is exciting down here,” Kline said. “I would think it will allow us to do some things that we’ve really wanted to do. There’s been talk of consolidating some small schools down here, and now people are saying that with the new oil and gas revenues we maybe won’t have to.”

Boon, bane

Kline said the gas boom also was producing good money for rural landowners. Landowners typically receive 12.5 percent of the sale price of gas found on their land. A typical well may produce 80,000 cubic feet of gas per day. Current prices pay about $4 to $5 per thousand cubic feet.

Landowners also typically receive from $10 to $20 per acre, per year for the rights to drill on their property. Gas companies typically seek to drill one well every 80 to 160 acres.

Coal bed methane drilling isn’t without its critics, though.

Environmentalists are raising concerns about the impact on streams and aquifers, and farmers and ranchers are worried about the impact of drilling on their land.

The Powder River Basin Resource Council, an environmental group based in Sheridan, Wyo., calls coal bed methane gas development “the greatest environmental and cultural threat Wyoming has faced in decades.”

Among the problems the group cites are extensive erosion and irreversible soil damage associated with drilling, noise from compressor stations and increased traffic in rural areas. Another challenge is how to dispose of large quantities of water, sometimes saline, that are pumped from aquifers to release the gas from the coal beds.

The U.S. Geological Survey says contamination of aquifers due to coal bed methane development is another environmental concern. Such contamination has been a problem in the San Juan Basin, where major development of natural gas from sandstone reservoirs began in the 1950s, followed more recently by development of coal bed methane in the mid-1980s.