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Nevada Oil

January 8, 2008

By Clouser, Gary

Nevada continues to tempt and frustrate oil producers. Fool’s gold or untapped riches? Casinos aren’t the only places in Nevada where risk-takers are hoping to beat the odds and strike it rich. This land of gamblers and silver and gold producers is increasingly being targeted by oil explorers. With $90-plus oil prices, some wildcatters are even more convinced Nevada is worth the gamble.

Fewer than 1,000 wells have been drilled in the state, but Nevada’s oil enthusiasts believe it holds billions of barrels of untapped oil resources that are waiting for the right combination of technology and geological understanding to unlock its riches. They are convinced that history is not indicative of future results.

Although a commercial oil producer for more than 50 years, its production has always been small. From a peak of 4 million barrels in 1990, output totaled just 426,000 barrels in 2006. In first-half 2007, 213,000 barrels were produced. And, no natural gas is surfaced from the vast state.

But drilling has picked up and more plans are in due diligence now. This year, 17 drilling permits have been issued in Nevada, compared with eight in 2006.

Since 1954, 50 million barrels of crude oil have been produced from 101 wells drilled within 15 different fields in Nevada, says Christy Morris, oil, gas and geothermal program manager for the Nevada Division of Minerals. Currently, the state has 72 oil- producing wells within 13 active fields.

Yates Petroleum’s White Pine Dome well was drilled in the hanging wall of a thrust fault fold in the northern Grant Range near the prolific Grant Canyon Field in Nevada.

Nevada: Wells Drilled

Most of what little oil Nevada has yielded in recent years has come from the eastern part of the state, in areas known as Railroad and Pine valleys. Grant Canyon oil field, in Railroad Valley, is recognized as a world-class discovery. It produced 20.9 million barrels of oil from tfiree wells between 1983 and 2006.

Yet, Nevada has a lot of dry holes. The last discovery was 10 years ago. Activity picks up when oil prices soar, but exploration is very tricky due to very complicated tectonics, Morris says. The faulting and geothermal activity create difficult situations in the search for oil.

“Nevada is dominated by basin and range topography, the result of thousands of years of uplift and rifting. The stratigraphy is never layer-cake and oil occurs in isolated protected pockets structurally defined. This makes exploration particularly risky and much depends on geophysical exploration techniques for targeting. However, as Grant Canyon illustrates, exciting discoveries are possible,” Morris says.

This twisted and fractured geology makes it very tough to find the oil that some believe is down there. An interesting aspect of Nevada petroleum production is that some of the oil is associated with hot water, much like the geothermal fluids that formed gold and silver deposits, although lower in temperature. Another curiosity is that some of the oil is trapped in fractured volcanic rocks, although the ultimate source of the petroleum is organic matter in sedimentary rocks.

Wired with a survey-grade GPS unit, Dr. Alan K. Chamberlain instructs a large independent oil company’s exploration manager on recording structural attitudes with a GPS as part of Cedar Strat’s new serial-transect mapping technique.

Until recently, little significant drilling had been completed in the Great Basin area of eastern Nevada and western Utah, which is why the near billion-barrel discovery made by Grand Rapids, Michigan- based Wolverine Gas & oil in Utah earlier this decade has opened the eyes of many.

The state lacks a detailed and precise geological survey. In fact, the state has never had a geological survey. Dr. Alan K. Chamberlain, president of Cedar Strat Corp., an oil and gas prospect- generation company in Eureka, has spent the past three decades working to create a detailed geological map of eastern Nevada.

“No accurate geologic map exists for Nevada and western Utah. Therefore, baseless geologic theories, such as the rift theory, that have been engrained into the literature have misled exploration companies and governmental agencies to believe that no giant oil accumulations occur in the Great Basin,” Chamberlain says.

“However, the discovery of Covenant Field (by Wolverine) on the eastern edge of the Great Basin in central Utah has stirred up new interest in the basin.”

Jonathan Price, state geologist and director of the Nevada Bureau of Mines and Geology, takes exception to Chamberlain’s comments.

“Working in conjunction with the U.S. Geological Survey, we have produced numerous detailed, 7.5 minute, 1:24,000-scale geological maps in eastern Nevada and various reconnaissance-level maps for the entire state, including a series at 1:25,000 scale covering each of the 17 counties and a 1:500,000-scale map of the entire state. Neither the whole state nor all of eastern Nevada is covered by detailed mapping at 1:24,000 scale or larger; nonetheless, a lot of good work has been done.”

Price also disagrees with Chamberlain’s statement on “baseless geologic theories” about the Late Cretaceous thrusting in eastern Nevada, and says many competent geologists have done detailed work in the area.

Chamberlain says his work has made him bullish. The Mississippian Antler foreland basin that covers eastern Nevada and western Utah has one of the world’s richest hydrocarbon source rocks with enough organic material to generate trillions of barrels of oil, he says.

“New geologic mapping and geophysical data are revealing that the Late Cretaceous Sevier thrust belt, responsible for giant oil fields in Canada, southwestern Wyoming and northern and central Utah, extends into Central Nevada. Since a quarter of the earth’s known oil reserves are found in thrust belts and associated foreland basins, it is easy to assume that billions of barrels of oil have been generated and preserved in giant Great Basin fault folds.”

Normally, thrust belts worldwide have oil seeps that bubble to the surface and serve as a pathfinder to giant accumulations. “However, in Nevada many oil seeps were sealed by a blanket of volcanic rocks. Being sealed for 30or 40 million years, some of these buried oil seeps contain enough oil to be commercial.”

All 50 million barrels of Nevada crude have been produced from these commercial oil seeps, he adds. “However, due to false theories caused by the lack of geologic data, exploration companies have not used the oil seeps to lead them to the giant accumulations in thrust structures,” Chamberlain says.

Noah prospect

Eden Energy Corp., a Vancouver-based E&P company that bought two of Cedar Strat’s prospects, is also bullish on Nevada. Eden has more than 200,000 acres in Nevada, mostly in the Noah project in the Diamond Mountains of White Pine, Elko and Eureka counties.

“We haven’t acquired any new leases in the last 12 months, but we are continuing to look at prospects in the area and could acquire more acreage in the future,” says Donald Sharpe, chief executive.

“We think this area has excellent potential for oil and gas exploration. It has all the ingredients for big oil-thick, thermally mature and organic-rich source rocks, reservoir rocks that have proven to hold large oil reserves like those at Grant Canyon in Railroad Valley, and large closed structures created from a combination of thrusting followed by extensional tectonics.

“Plus, a lot of the areas look like they are in the oil- generating window, which would make for easier and less expensive transportation and the production would see the high prices we are seeing globally. The area has not had intensive exploration, but activity has increased as discoveries in western Utah have focused more attention in the Great Basin.”

Eden’s acreage consists of federal 10-year leases. All leases carry a variety of environmental, cultural and general access stipulations, which must be addressed before exploration can proceed, he adds.

“Eden has used a variety of exploration techniques in developing the Noah prospect, include surface outcrop mapping, geochemical analysis of source rocks, gravity, magnetics and 2-D seismic.”

The Noah prospect is a 7,000- to 9,000-foot test that is to spud next spring. Access roads and lease preparation are complete. Expectations are that drilling will take between 30 and 60 days to complete. “The Noah area, and Nevada in general, provides special challenges due to the remoteness of the location and the lack of drilling services and infrastructure,” Sharpe says.

Even wells that are deemed commercially unsuccessful are not entirely dry holes. Producers say they smell something that smells like oil, and some even report traces of petroleum.

John Campbell, investor-relations representative for Double Eagle Petroleum Co., a Casper, Wyoming-based E&P company, says Double Eagle recently drilled a test well in Nevada that did not have commercial success.

“We were disappointed, but we knew it was a wildcat going in. Still, much was learned about the geology, and there were some signs of encouragement,” he reports.

Double Eagle has taken the position that exploration in Nevada is going to be a multi-year project, and the company will probably wait a few months to see if other companies have any luck with the drillbit. Double Eagle has acreage close to Eden’s Noah prospect, and its total holding in Nevada is about 185,000 net acres. As of July, eight companies were producing oil in Nevada, led by Makoil Inc., based in Lake Forest, California, according to the state.

Other producers include Double D Nevada LLC, Billings, Montana; Frontier Exploration Co., Salt Lake City; Meritage Energy Co., Denver; Blackburn oil & Gas, Denver; Grant Canyon oil & Gas, Denver; V.F. Nuehaus Properties, McAllen, Texas; and Western General, Las Vegas. Morris says there have been a lot of well-ownership changes during the past year, so a ranking is uncertain.

Annual oil production from Nevada grew to 4 million barrels in 1990, largely from Grant Canyon Field, but output is in decline while there have been no new significant discoveries in the state.

Nevada Geology

More information is at the Nevada Bureau of Mines and Geology’s website (nbmg.unr.edu) and its oil and gas database (nbmg.unr.edu/ lists/oil/oil.htm) and a newly released map on petroleum-related data (nbmg.unr.edu/dox/m162plate.pdf), the USGS geologic map database (http://ngmdb.usgs.gov/) and publications by the Nevada Petroleum Society (nbmg.unr.edu/nps/index.html).

PROSPECTS AND PROSPECTING

Cedar Strat Corp., an oil and gas prospect generating company based in Eureka, Nevada, has interests in more than 1 million acres in Nevada, and more than 10 deep (greater than 10,000 feet) drilling commitments on several of its prospects. At least two, and perhaps as many as six wells, may be drilled on its prospects in 2008.

“Cedar Strat will show major company geologists oil source rocks that are so organic rich that live oil drips from them, reservoir rocks with large enough pores to stick your finger in, and structures large enough to trap billions of barrels of oil. Pure logic will compel them to explore this frontier province,” says Alan K. Chamberlain, president.

The main drilling objective is a 200- to 400-foot karsted (latticework of cavities) zone at the top of the middle Devonian Simonson formation. It is the same interval that provided North America with the most prolific onshore flowing oil well for 10 years at Nevada’s Grant Canyon Field.

Many other targets occur in the 40,000foot Paleozoic section in eastern Nevada. Just as in the Utah/Wyoming thrust belt, hydrocarbons are likely to be trapped in depths of 15,000 to 20,000 feet. A 12,000-foot well in 2005 cost about $7 million; Chamberlain estimates an 18,000-foot well would probably cost nearly $15 million now.

“Exploration companies have found that conventional 2-D seismic data is not adequate to image structural targets in the Great Basin. Exxon had some success by swathshooting long regional seismic lines, but the results are marginal without serial-transect mapping along the swath lines. However, unless a company is willing to expend hundreds of millions of dollars as did Exxon and conduct serial- transect mapping, seismic data is not very helpful.”

Exxon proved the new thrust-belt model when it found Devonian rocks thrust over Mississippian rocks in a well 12 miles north of the Noah project. “Surface geochemistry in the Great Basin is unproved and conventional 2-D seismic is dismal. Magnetic data is used to screen potential prospects for adverse thermal events, such as intrusives. Gravity is used to identify gross structures but by itself is not very useful.”

Cedar Strat has found that, by combining gravity, available seismic, magnetics, well studies and other data with its serial- transect mapping exploration technique, it can successfully image potential drilling targets.

Serial-transect mapping involves collecting surface structural data along prescribed transect lines that are used to make balanced, restorable structural cross-sections. It costs a fraction of seismic acquisition and provides a much more powerful Great Basin exploration tool than seismic or other methods, says Chamberlain.

Copyright Hart Energy Publishing, LP Dec 2007

(c) 2007 Oil & Gas Investor. Provided by ProQuest Information and Learning. All rights Reserved.




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