February 2009 No.1
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A History of the Illinois Oil Industry
A Different Perspective on Outsourcing and
Offshoring
A History of the Illinois Oil Industry
The Illinois Oil and Gas Industry has had avaried and wide-ranging history over the years. Oil in the Southern Illinois Oil Basin was discovered in the early 20th Century and brought a great deal of activity and development to Illinois. Many people are not aware of the signifi cant impact that the oil and
gas industry has had on the Illinois economy over many decades. The Illinois oil boom in the first half of the 20th Century, primarily located in the southeastern and southern portion of Illinois, brought many workers and businesses to the area including producers, engineers, geologists, surveyors, land men, derrick operators, rotary drill operators, and machinery service operators. In addition, oil production resulted in wealth creation and much needed income to the area farmers and land owners.
Family Business
The Illinois oil industry is dominated by family businesses and sole proprietorships. Stewart Producers is one of those family companies and Mr.J.Russell Stewart was an early oil exploration pioneer. Mr. Stewart, whose family has been in the oil business since 1903, was sent by his father to Mt. Vernon, Illinois in 1948 to drill four or fi ve oil wells in the area. At that time, oil was $3.15 per barrel. Mr. Stewart, currently board chairman of Stewart Producers, stated that the best years for the oil business were in the 1950s, 60s and 70s. Stewart Producers expanded into the oil well servicing business in 1966. Mr. Stewart relates that although there has been little change in the equipment used in drilling for oil, there have certainly been new technological methods to acquire more oil from the older primary wells or the secondary recovery process. Until the last few years, when there was a slight upturn in area exploration and production, the oil business in southern Illinois has been down since the late 1980s. Many oil fi eld related fi rms failed due to the volatile price of oil during the past several decades. Mr. Stewart stated that “honesty and integrity” in business has been his cornerstone
to success. Continuing the family business, Russell Stewart’s son, Robert, is currently president of the company.
Employment Trends
Although the boom years of the Illinois oil business were in the mid-20th century, the Illinois Department of Employment Security has records for employment and the number of establishments for the Crude Petroleum and Natural Gas Industry back to 1981. Table 1 refl ects the very signifi cant trend of a decline in the number of fi rms and employment from the late 1980s through the fi rst few years in the 21st century. Since 2004, there has been a slight upturn in the number of businesses and employment – although still substantially less than 20 plus years ago. Wage data, shown in Table 2, verify this same trend as wages were basically stagnant for workers from 1990 through 2003. Since 2004, wages have begun to increase for oil industry employees.
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Economic Impact
The Illinois Oil industry has a much greater impact on the region than is often realized. Several factors cause the economic impact to be greater than indicated by the employment and number of establishment data (Table 1). Although the latest data refl ect about 160 fi rms with over 850 employees involved in the oil and gas industry, these totals do not include many of the sole proprietors involved in oil operations. Because these sole proprietorships do not have employees, the total information is not captured by the Illinois Department of Employment Security standard labor market database measures. However, these occupations represent a significant part of the oil industry. Sole proprietorships include engineers, geologists, surveyors,
land men, and pumpers or roustabouts. Brad Richards, Executive Vice-President of the Illinois Oil and Gas Association, states that there are approximately 420 active business members of the association and estimates that approximately 2,000 persons are working in the oil industry in Illinois. Wages for these occupations, especially the nonprofessional jobs (Table 2), are signifi cantly above average in an area of Illinois in which the pay for many entry level jobs is at the minimum wage level.
Land owners, who are fortunate enough to have an active well and receive a monthly check, are another major group which has an economic impact on the local area. For decades farmers, retirees or family members dividing the proceeds. In a region of Illinois that struggles economically, this additional income is a boost to the local economy. Because the oil industry impact on the economy is believed to be partially obscured the Illinois Oil & Gas Association, with the assistance of the University of Illinois and the University of Chicago, is currently conducting an impact study.
Future for the Illinois Oil Industry
Due to the extreme volatility of the price of oil, the future for the Illinois oil industry is very difficult to predict. During 2008, the price of oil has ranged between over $140 to less than $60 per barrel. However, since the overall price of oil has substantially increased during the past few years, the oil business has increased activity. Two technological advances have improved the ability to reopen old wells. An engineering breakthrough about five years ago has resulted in horizontal drilling, a process in which additional oil can be accessed and recovered from older wells. Enhanced secondary oil recovery, by water flooding or tertiary fl ooding (chemicals), has also greatly improved oil production.
According to Brad Richards, Vice-President of the Illinois Oil and Gas Association, the Southern Illinois Oil Basin contains approximately 7 billion barrels of oil, of which 3.5 to 4 billion barrels has been extracted. Table 3 reveals the impact that the price of oil has on the degree of activity. As price levels increase, so do exploration activity and active rig count.
Conclusion
The unpredictable Oil Industry has had a long and varied history in Illinois. The economic impact, especially in the southern part of Illinois, has been substantial for many decades. New technologies and recovery methods have enabled additional drilling and exploration capabilities. Although the future is uncertain with the basic supply and demand mode determining the degree of activity, oil field businesses such as Stewart Producers, will continue to play a major economic and wealth creation role in Illinois’ regional labor markets.