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Ridgeland exploration company hits the natural gas jackpot

Ridgeland — Twenty years ago, only the big oil companies and their room-sized computers could afford the technology to find oil and gas hiding far below the earth and sea.

Today, little companies like the three-man oil and gas exploration firm of LyMac, LLC, are using technology breakthroughs to uncover oil and gas on desktop computers. The two-year-old company is looking for small deposits overlooked by the big guys and has so far discovered about $100 million worth of natural gas 60 miles off the coast of Gulfport. Seven wells have been drilled so far, but only three were producers.

LyMac’s owners say they’ve seen “modest success,” but in just two years their firm has generated about $85 million in economic activity, based on jobs created and taxes paid to the state and federal governments.

LyMac is owned by Robert “Bob” McElroy, Tim Lyons and George Puckett, all Mississippi natives. Mississippi State University graduates McElroy and Lyons have over 40 years of experience in the oil and gas industry between them. They are joined by George Puckett, the company’s consulting geophysicist and a graduate of the University of Southern Mississippi.

The three are using a revolutionary technology called 3-D seismic to search for oil and gas. Seismic data is obtained by setting off a dynamite charge at the surface and recording the sound waves as they travel through the Earth and echo back. Thanks to advances in computer power, mass volumes of this data covering large areas can be recorded in 3-D and then stored on a desktop computer.

“Twenty years ago, only the major oil companies had access to that sort of technology,” said McElroy. “Exxon would have a computer larger than this room to do what a desktop computer can do. Now, one geologist can do the work of 10.”

They started LyMac with the belief that there was unfound natural gas in a specific area near Gulfport. They put together a group of investors and bought a license for 3-D seismic data covering 750 square miles of ocean and went to work looking for bright spots, or direct indicators that natural gas was below the surface. Lyons, a geologist, can see the bright spots thousands of feet below the surface on his computer screen, but he must guess at the depth of the reserve.

“We can tell the size and shape of the well,” said Puckett. “The problem is that 10 feet looks like 40 feet, and the difference between the two determines if it makes money for us or not.”

Lots of little pockets of natural gas lie beneath the ocean but because natural gas must travel by pipeline, it’s not always worth it to dig in. They estimate that it costs them $6 million to drill one well and build a portion of the pipeline to connect it to existing pipeline. Drilling a small well 100 miles from an existing pipeline just doesn’t pay the bills.

They estimate the project will cost approximately $35 million before they are through drilling and emptying the reserves.

LyMac recently took a bigger step and bought a license for 45,000 square miles of seismic data 60 miles off the coast of Mobile, Ala. They estimate this project will ultimately cost $50 million, but they believe there is $1 billion worth of natural gas to be uncovered.

LyMac and its investors are benefiting from an upswing in natural gas prices that is a long time coming. For more than 20 years, natural gas prices fluctuated between $1 and $3.50 per mcf, or thousand cubic feet. Now it is $6 per mcf.

The price of oil, however, has not risen that much based on the rate of inflation. “Right now, it’s $45 a barrel, but in 1981 it was $34 a barrel,” said McElroy. “When you adjust for inflation, the $45 price is really less than the $34 price in 1981.”

What lies beneath?

The big wells have been found, but technology makes drilling the smaller pockets affordable. There are still big oil and gas reserves left to be mined, but they are either very deep or expensive to recover, such as shale oil. Because the oil is in the shale rock, the rock must be crushed and the oil separated from it — a real mining operation, said McElroy. Canada has huge reservoirs of what’s known as heavy oil, but it is hard to refine into a usable product like gasoline.

“We have a situation where demand is rising very rapidly because of third-world countries becoming industrialized, but the supply is flat because it’s getting really hard to find the stuff,” said McElroy.

Also frustrating for companies like LyMac is the oil and natural gas that is off limits in the U.S., such as portions of the Rocky Mountains, the Alaskan National Wildlife Refuge and Florida’s coastline just a few hundred miles away. McElroy said environmentalists worry about what an oil spill from the wells would do to Florida’s coast, but he believes the bigger danger comes from the huge tankers that transport oil from overseas.

“There has never been serious environmental damage caused by an offshore oil spill (from a well),” he said. “The big problems have been tanker spills. When we shut off the U.S. to drilling, we have to get our oil overseas and that increases the environmental risk because there is more tanker traffic.”

With the Gulfport exploration well underway and Mobile just getting started, LyMac is looking for new projects. They face a challenging opponent, Mother Nature, but the three partners say it’s been worth it.

“In our last project 60 miles south of Gulfport, the potential was $300 million to $400 million and we’ve found about $100 million,” said McElroy. “But that’s the way it goes. You never find everything you’re looking for.”

Contact MBJ Staff Writer Kelly Russell Ingebretsen at kelly@msbusiness.com.

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