Newspaper article THE JOURNAL RECORD

Fortuna Energy Head Says Natural Gas Industry `in Trouble' / Utter Chaos, Says Stipe

Newspaper article THE JOURNAL RECORD

Fortuna Energy Head Says Natural Gas Industry `in Trouble' / Utter Chaos, Says Stipe

Article excerpt

Martin Vaughan calls natural gas the future mineral wealth of Oklahoma.

But Vaughan, president of Fortuna Energy Corp. of Tulsa, says the natural gas business is in trouble as deep as Oklahoma's deepest reserves - complete with thievery and bound by abominable laws.

""It's utter chaos,'' says Sen. Gene Stipe, D-McAlester.

Stipe is sponsoring a resolution calling on the governors of Oklahoma, Texas, Louisiana and New Mexico to establish an interstate natural gas compact commission.

More than half of the natural gas in the United States exists in the four states, Stipe said.

Stipe said the proposed compact could ""stop these chaotic marketing conditions and stabilize the industry.''

The industry is in the same shambles as the oil business was in the 1930s, when Gov. Alfalfa Bill Murray called in the National Guard to shut in wells because of waste and stealing, according to Vaughan and Stipe.

Out of that confusion grew the Interstate Oil and Gas Compact Commission, Stipe said, and he envisions similar results with a natural gas commission.

In today's natural gas fields, the rights of mineral owners are being violated and gas is being wasted, Stipe charges.

Reserves are being drained by producers who have a market for their gas, while other producers who own part of the same reserve but don't have a market ""are losing their reserves and, possibly, the wherewithal to make an income,'' said Jack Davidson, chief of the Corporation Commission's oil and gas division.

""It's simply a very complex situation,'' Davidson said. ""Some are benefitting, some are getting hurt. . .We're doing all we know how to do to investigate the situation.''

An oversupply, not of reserves but of gas on the market, has led to prices that are so low that producers can't afford to reinvest to explore for future reserves, Davidson said.

Vaughan worries the situation, if not corrected, could lead to severe shortages by as early as 1990. A shortfall of 8 trillion cubic feet of natural gas - almost half the nation's current consumption of approximately 17 trillion cubic feet - has been predicted, he said.

Because drilling and exploration for new reserves have been severely reduced, Vaughan foresees ""a humongous shortfall. . .an absolute disaster in the making.''

He envisions, however, ""a better situation developing very rapidly,'' should a compact commission be created that helps conserve the state's wealth of natural gas and protects the rights of mineral owners.

As Vaughan sees it, here's one of the problems in the natural gas fields of Oklahoma:

One producer has a long-term contract to produce a limited amount of gas at $3 per thousand cubic feet; another producer of the same reserve has a spot market contract for $2 per thousand cubic feet with a purchaser willing to take all the producer is able to pump from the ground.

Because gas generally is more difficult to pump as the reserve is depleted, the producer selling on the spot market ""is literally stealing'' gas from the producer with the long-term contract, Vaughan said. …

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