BusinessTN

In a tiny Tennessee county nestled between the Kentucky border and the Cumberland Plateau, there is money underground.

Drilling for oil on leased farmland in Pickett County in March, Southeastern Energy hit a well that flowed at 40 barrels an hour, and produced more than 8,000 barrels of oil in its first full month of operation.

In a state where the average well produces about a barrel of oil a day, the new well appears to be the largest ever discovered by Southeastern and has reignited interest in oil production in the area.

“We’ve picked up a lot of additional acreage there, and we have a lot leased,” says Tom Emberton Jr. of Kentucky-based Southeastern Energy. “We have a lot of activity in Texas, but we are really looking at Tennessee right now.”

Record-setting crude oil prices combined with several significant wells recently tapped in Tennessee oil country have created what one expert calls a “bit of a boom.”

“When the price goes up, it does inflate activity,” says Ron Zurawski, state geologist and chairman of the state oil and gas board. “Part of it is when you get a well producing 8,000 barrels a month, that will boost it.”

In late May, as crude oil prices lurched above $40 a barrel—the highest in nearly 14 years—to $41.85, Tennessee oil wells were looking like very rich business.

“In the last few months we’ve always got people calling us every day, people out of Vancouver, California, Texas,” says Anthony Young, the CEO of Young Oil Corp., which announced in April it had drilled a new well in Overton County, Tenn., that came in flowing at a rate of 97 barrels a day.

“When I started in 1996 with Young Oil, prices were $8.50 to $12.50 a barrel,” Young says. “I’m more excited now than I was then.”

Knob Lick, Ky.-based Young Oil plans to drill several wells near the Pickett County well discovered by Southeastern Energy. Young’s closely held company is one of many engaging in the speculative practice Zurawski dubs “closeology.”

“Where companies see production, they try to get close to it,” Zurawski says.

A dozen Tennessee counties clustered along the Kentucky border and Cumberland Plateau are the epicenter of oil production in the state. Landowners who lease to oil companies generally get as their cut 12.5% of sales. In addition, the state gets 2% of the sale price of the oil, and the county where the oil is found gets 1%.

That tax has brought about $6,000 a year into Pickett County coffers, says County Executive Stephen Bilbrey. The county, with a population of just under 5,000 and an annual budget of about $2 million, can use the money.

“It’s not a whole lot, but it helps out in a small county,” he says.

Oil wells have been part of Tennes- see’s rural landscape since drilling began in 1860. But the business is volatile, driven by the price of crude oil and the willingness of investors to put up the money for a well that will probably cost more than $100,000 and may not produce.

In the early 1980s, Tennessee oil boomed. During 1981, the state issued more than 1,200 drilling permits and Tennessee wells produced nearly 1 million barrels of oil. But things changed quickly. By 1988 the state issued just 93 permits. By 1998, just a little over 300,000 barrels of oil were flowing from wells in Tennessee.

Bill Goodwin, president of the Tennessee Oil and Gas Association, is all too familiar with the cyclical, price-driven nature of the oil business.

“Back in the ‘80s, I remember very well, my company went broke, as many of them did,” Goodwin says.

Recent numbers, however, point to a turnaround. From 2002 to 2003, the number of drilling permits issued by the state jumped from 140 to 281, and production rose from about 316,000 barrels to nearly 360,000.

Goodwin says he is ready for the latest rush of interest in Tennessee oil.

“I get calls from people asking where they should look, because now they want to look where they hadn’t been paying much attention,” Goodwin says. “Tennessee is really a frontier—there is massive untapped potential. The trend is gigantic, it’s just slow to develop.”

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