Since 1982, when the first well started producing gas from the prolific Panola Field in the Arkoma Basin of Latimer County in eastern Oklahoma, the field has put out some 185­­­ billion cubic feet (Bcf). Surprising to everyone but the mor­­­e recent operators—about half of that production has occurred since 2004.

Tulsa-based Unit Corp., one of the major players in the field, has uniquely positioned itself to capture fuller value from the newly found and highly productive northern and eastern areas. The 44-year-old, $2.3-billion company has E&P in Panola but also owns drilling rigs, gathering lines and gas-processing plants through subsidiaries, Unit Petroleum Co., Unit Drilling Co. and Superior Pipeline Co.

Unit’s E&P segment, Unit Petroleum Co., has an impressive record of production and reserves growth in Panola Field, achieved through acquisitions and the drillbit.

Panola Field was discovered by Unit in 1982 and now covers some 15,000 productive acres. About 90 wells have been drilled and Unit operates about half of them, making them the main operator of the field.

Initially, most of the development occurred in the southern part of the field, targeting the Lower Atoka sands at a depth of 12,000 feet. The average well in this area has an initial potential of 2 million cubic feet per day.

In late 2004, Unit extended the field to the north and discovered a high-volume area where the Lower Atoka sands displayed significantly better producing characteristics. Production there is about 15 million cubic feet per well per day. Since September 2004, this northern area has produced a cumulative 103 Bcf of gas from 13 wells and is currently putting out 75 million cubic feet per day.

“When we are talking about conventional gas, that is certainly the main point of Panola Field,” says Brad Guidry, senior vice president of exploration for Unit. “The northern part of Panola Field lay undeveloped until Unit discovered that the reservoir had better porosity and permeability than in the field proper, and it is by far the most prolific part of the field.

“This high-volume area of thick Lower Atoka sands covers about 1,000 acres. Unit has an average 25% working interest.”

The best well in the northern part of the field to date is Lively #7, which was completed in 2006. It tested Lower Atoka Cecil sands for an absolute open flow of 115 million cubic feet per day and flowed a maximum daily rate of 57 million cubic feet. Lively #7 has produced a cumulative 18.5 Bcf to date.

In 2007, Unit drilled Lively #8, which flowed 16 million cubic feet per day and has produced a cumulative 2.8 Bcf. Meanwhile, Maxey #6 and Jankowsky Trust #2 have flowed 6.2 million and 16 million cubic feet per day, respectively.

Altogether in 2007, Unit drilled 10 wells in Panola Field proper, and operated eight of the 10. Unit is currently drilling or testing five additional wells in the field, and there remains plenty of running room.

All of the field development had been done using well control and 2-D seismic. Then, in late 2006, 3-D was shot. So far, production has been mainly from the Lower Atoka sands. Part of Unit’s focus now is to drill deeper wells and incorporate the new data into its 3-D interpretation to formulate a go-forward plan.

“That’s an additional upside Unit has in this play. The deeper rock, at about 14,000 feet, could have some significant reserves also,” says Guidry. The deepest primary zone of interest, called Spiro, is one of the biggest producers in the Arkoma Basin. Although well known by geologists, it hasn’t been extensively explored due to the productivity of the shallower formations. Unit plans to change that.

It is also participating in a 140-square-mile, 3-D shoot in an area east of Panola Field where it has 54,000 gross acres under lease.

“We anticipate drilling the first well to the east based on the 3-D in mid-year 2008. This eastern, sparsely drilled area is almost twice as big as the original field. It’s not all going to be productive out there, but we are pretty excited about the potential,” says Larry Pinkston, Unit president and chief executive.

Unit spent about $25 million in Panola Field in 2007, and plans to spend about the same in 2008. As results come in from its deeper exploratory wells, that budget may change.

Unit Corp. captures the entire gas value chain by owning a fleet of drilling rigs, gathering systems and gas-processing plants.

“We have about 2,500 employees, mostly field personnel in our rig business. That’s a big part of the story,” says Pinkston. “Having three different arms of the company, in a field like this, helps us capture as much of the value that can be made out of Panola, from the E&P side, from the drilling side, and from the gas-gathering and -processing side.

“As a corporation, this makes better economics for our projects because we can capture so much of the value by integrating each of our segments.”

Subsidiary Unit Drilling has expanded an impressive 482% since its inception in 1995, becoming the fourth-largest deep onshore drilling contractor in the U.S. The company has 129 rigs, which it uses for its exploration business, and leases the rest to other E&P companies.

“It’s an advantage for us, because it’s always helpful to use the best contractor to drill our wells,” says Pinkston. Its rig fleet is capable of reaching depths ranging from 5,000 to 40,000 feet deep, and average utilization is 80%.

Subsidiary Superior Pipeline Co. supports the enterprise with its gathering systems and gas-processing plants. It holds 36 gathering systems and 650 miles of pipelines. The systems transport about 225 million cubic feet per day and have excess capacity to handle increased production.

In 2006, Superior added a second gas-treatment plant on its Panola gathering system, acquired two more gas-processing plants, completed an acquisition of an additional gathering system and processing plant, and added an additional 100 miles of pipeline. Superior now has four gas-treatment plants and seven gas-processing plants.

“We are processing about 60 million cubic feet per day, and recovering gas liquids from several of the gas streams, adding to the profitability of our systems. Superior’s gas-processing plants currently recover in excess of 185,000 gallons of gas liquids per day,” says Pinkston.

Unit’s company-wide production in 2007 was some 55 Bcf equivalent, about 85% gas. Its reserves are 77% proved developed. Year-end 2006 proved reserves totaled 476 Bcf equivalent, 22% in Panola Field.

E&P has been financed from internal cash flow. Its debt is 10% of total capitalization and consists of credit facilities with lead banks Bank of Oklahoma and Bank of America.