Gas prices spur drilling in Sacramento Valley

Dec. 13, 2004
Strong natural gas prices have sparked an upswing in natural gas drilling in northern California's Sacramento Valley.

Strong natural gas prices have sparked an upswing in natural gas drilling in northern California's Sacramento Valley.

Through early November this year, operators had filed 122 notices of intent to drill wells in the province, compared with 97 last year. Workovers were up. Nine drilling rigs were at work in the valley, compared with seven last year.

Natural gas prices hovering around $6/Mcf attract many operators to small gas targets near existing production. Some operators are venturing farther from producing wells with riskier drilling in search of much bigger finds.

Drilling supervisor Rick Wilder (left) and Royale Energy's Chief Operations Engineer Phil Nicoll confer at the Royale Energy 1 Lake well in Sacramento Valley's Glenn County. Photos by Bill Stephens.
Click here to enlarge image

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"Activity has picked up considerably during the second half of 2004," says drilling contractor Kevin Graham. "Higher gas prices mean that smaller wells can now pay out."

In recent action:

  • Castle Minerals Inc. has drilled four wells in 2004 after drilling none last year.
  • Aspen Exploration Corp. drilled five wells last year and has drilled nine so far this year.
  • Source Energy went from two wells a year ago to five this year.
  • "The entire valley is active right now, "says Rob Habel of the California Division of Oil and Gas. "The discoveries aren't large, but these small finds in pockets in and near existing fields are now attractive. The use of 3D seismic has increased the success rate."

    The region

    The Sacramento Valley stretches 140 miles north and 80 miles south of Sacramento. The flat valley of large farms and small towns is California's prime nonassociated gas province. Significant gas fields were found there in the 1930s and later, and the area was an active province for several major oil firms through the 1980s. In the late 1980s, as gas prices sagged and discoveries and reserves dwindled, the majors began leaving the area to small independents.

    In the mid-1990s, independent Slawson Exploration Co. Inc. began shooting extensive 3D seismic surveys in the valley's old gas fields. Others followed. Now operators are using 3D seismic data effectively to pinpoint gas targets.

    With 83 active gas fields, the Sacramento basin has many small, isolated accumulations of natural gas. The deeper formations of the basin have not been extensively explored.

    Much of the current drilling in the Sacramento Valley targets new and distinct, low-risk accumulations in productive areas. At current gas prices, finds of 500 MMcf or even 250 MMcf are attractive. Depths of most of the wells being drilled are 3,000-9,000 ft. While drilling costs have risen, improved drilling techniques have cut the average drilling in half to about 1 week.

    "The big stuff was found a long time ago, and we're now finding the crumbs, the small fault blocks that have remained," says ABA Energy Corp.'s Al Adler.

    Doug Imperato, consulting geologist for Towne Exploration Co., says: "We're scavenging for the last bits of gas in the valley. What's new is that smaller pros- pects are more attractive as the price of gas climbs. We used to go after 1-bcf targets. But now if we can get 0.5 bcf, we'll drill it."

    Says Todd Slawson of Slawson Exploration: "The valley is littered with small gas pockets. As gas prices have climbed, we've been able to drill smaller and smaller pockets."

    Boost from 3D

    Use of 3D seismic methods has pushed drilling success rates in the valley to about 70% from less than half that in the recent past.

    Petroleum engineer Saeed Irani, president of Irani Engineering, who helps drill a large number of wells in the valley, explains that the Sacramento basin has many faults, isolated traps.

    "[Three-dimensional] seismic is good at showing new faults, and we're finding a lot of overlooked pockets," Irani says. "Before, they didn't know there were these faults because they didn't have 3D seismic."

    Says Imperato: "The high success rate is key because when you drill for smaller reserves, you can't afford to drill a lot of dry holes."

    Aspen Exploration's Bob Cohan reports a 20-for-23 success rate on his wells over the last 4 years.

    "We're finding some of our best wells this year," he says. "And the economics are excellent at the current gas price. We're not going for super wildcats. We look at 0.5-5 bcf, low-to-moderate risk wells."

    Operators often acquire new seismic data over abandoned fields to find what's been left behind in or between old wells.

    "There are many small prospects scattered all over, in between and in old fields," says Jim Frimodig of Source Energy. "Now, these small accumulations look good at current gas prices, and people are drilling them. We're going after prospects that were not observed because 3D hadn't been shot over them, as well as prospects that had been observed but were uneconomical."

    Expanding the play

    Some firms also are using the higher gas prices to explore farther from known production. ABA Energy is drilling four higher-risk wells along a corridor between Stockton and Rio Vista. The first well, the Zuckerman No. 1, is more than 10,000 ft deep.

    "We're being aggressive because we have some excellent seismic," says ABA Energy's Adler. "This is riskier drilling with potential for bigger reserves."

    He adds: "There are less and less places to drill. The places where the success rate is high are used up. So we're looking down the road in a different direction than most independents. We're starting to gear ourselves drilling a lot more wells for much bigger reserves.

    Irani thinks that's a trend.

    "Most people now are going after the lower-risk, smaller accumulations," he notes. "But those targets are getting leased up, held for production, and worked over. So, increasingly, we'll see people stepping out and drilling higher risk wells. That will mean lower success rates but potential for more reserves."

    The 10 most active firms in the Sacramento Valley and their 2004 well counts through early November were Pioneer Exploration, 19; Lario Oil & Gas Co., 10; Hamar Associates LLC and Aspen Exploration, 9 each; Towne Exploration, 7; Royale Energy Inc. and Source Energy, 5 each; Castle Minerals and Venoco Inc., 4 each; and Site Resources One, 3.

    Many of these firms have worked in the Sacramento Valley for years. The gas price surge also has attracted newcomers like Matris Exploration Co. of Houston.

    "We believe there is untapped potential," says J.T. Thompson of Matris. "Deeper may be an opportunity because a lot has yet to be drilled beneath a certain depth." Matris is targeting small accumulations, planning to drill four or five wells in 2005.

    Drilling crew working at ABA Energy 1 Zuckerman well on McDonald Island west of Stockton, Calif.
    Click here to enlarge image

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    Virtually all of the Sacramento Valley is being drilled. The most active counties and their well counts through early November were Tehama, 22; Salano, 21; Sutter, 15; and Sacramento, 11.

    Sacramento Valley's winter rains make drilling mostly a seasonal proposition. With strong natural gas prices, however, some operators are planning to winterize their sites for drilling this winter.

    Also, because of activity this drilling season, some firms have waited for rigs. Paul Graham Drilling, Rio Vista, has four drilling rigs and one workover rig working. Another firm has moved rigs to the valley from Bakersfield.

    "There isn't a big shortage of rigs," says Habel of the Division of Oil and Gas. "Firms have to plan ahead and get in line."

    Permitting challenge

    Drilling permits can be a challenge. Some operators say there are few problems because the valley is mostly farmland, and area farmers are familiar with drilling. However, the Sacramento Valley spans several counties, and acquiring some county permits can take 3 months. A California Energy Commission/Division of Oil and Gas working group of industry and government representatives has made progress streamlining permitting.

    Environmental planning and management consultant Bob Booher, who helps companies obtain permits in environmentally sensitive areas, says that as gas prices climb and prospects are harder to find operators are looking at areas with environmental sensitivities.

    The Sacramento Valley has endangered species and wetlands. Says Booher: "If a project is in an agricultural area, the permitting can be easy. But if it's near homes or an environmentally sensitive area, it can take 3-5 months, involve 7-10 permits, and mean operators' costs could go up as a result of mitigation measures to minimize or eliminate impacts. But if natural gas prices are high enough, people are increasingly willing to take on these projects."

    As Sacramento Valley communities expand into existing gas fields, the industry faces a new set of environmental challenges.

    In addition, landowners in the valley are growing more demanding. An operator drilling a well may have to deal with surface owner, mineral owners, and a tenant farmer.

    "It's getting harder from the land side to get things done," says Imperato, the Towne Exploration consulting geologist. "Landowners want a bigger piece of the pie."

    Biggest challenges

    Those aren't the biggest challenges in the valley, however.

    "The number one challenge in the Sacramento Valley is finding good prospects," says Aspen Exploration's Cohan. "We're selective. We look at 20-25 prospects for every one we drill. People bring prospects to us because they know we are actively looking, and if it's a good prospect, we'll drill it. So we have a good inventory of prospects now."

    Source Energy's Frimodig agrees.

    "There's a lot of stuff left to drill," he says. "But it's a lot of little things. The big fields have been discovered. And what's left is kind of clean-up. Getting good data is important when it comes to identifying new prospects."

    Towne's Imperato says, "I don't see a lot more room in the valley. The bright spots have been drilled. We're drilling for smaller and smaller gas pockets. There does seem to be quite a few of the smaller ones."

    He adds, "It's going to be interesting over the next 5 years to see if people keep having things to drill. I feel we'll have prospects to drill over the next 3-5 years, but after that, I don't know. I hope to make a run at more subtle things that aren't bright spots. But we won't have the success rates we have now. We need someone in the Sacramento Valley to open up a new play for us."

    Strong natural gas prices also are spurring efforts to increase existing production through workovers and recompletions in new pay zones.

    The small operators in the Sacramento Valley have traditionally not pursued expensive production enhancement techniques. But some expect that to change.

    "I think soon we'll see more engineering used in these gas fields—fracturing of wells and horizontal drilling to maximize production," Irani says.

    The future

    Although veteran Sacramento Valley operators avoid excess enthusiasm about current activity, optimism is obvious.

    As one operator puts it, "Now we're not concerned about going out of business. In the early '90s with prices below $2/Mcf, it was hard to make money. At these prices it gets easier to do things. It feels good to be making some money."

    There's quiet confidence that natural gas prices will remain firm, that there's more gas to be found, and that the future looks good.

    "I still think this basin is underexplored," says Slawson. "There's a lot of gas still left behind, but it's coming in smaller and smaller wells. As seismic and drilling technology keeps improving, this basin will continue to be steady."

    Many think the future involves drilling deeper, risker wells, farther from production.

    Geologist Roland Bain says the deep Upper Cretaceous Forbes formation holds future exploration promise.

    "Deeper in known producing areas has potential," he says. "I think there's 25 more years of money-making in this basin."

    Because Bain expects natural gas prices to remain high, he thinks 2005 will be even busier than 2004. Many firms, he says, will continue to target smaller accumulations, while others will drill riskier projects.

    "It's a good, interesting time in the Sacramento Valley," Bain says. "Everyone likes activity. The success rate is high."

    Drilling contractor Kevin Graham agrees that the next move will be deeper into the Forbes.

    "All natural gas below 10,000 ft has not been explored. As the gas price goes up, people can go deeper. It's important to find new, large reserves. Now is enjoyable. The future of northern California natural gas looks good."