NEVADA FRONTIER EXPLORATION PACE SLOW BUT STEADY

Robin Buckner Price
Staff Writer

Despite the depressed level of frontier exploration in the U.S., a few companies are focusing on underexplored but highly prospective Nevada.

While many U.S. companies are shifting exploration dollars overseas because U.S. offshore and arctic areas are either disappointing or off limits, Nevada offers some of the same opportunities as the international arena but without the political risks, say explorationists there.

In addition to large untapped structures with prospective reserves potential pegged by some at more than 700 million bbl, there are big acreage blocks available for exploration.

"The potential in Nevada is incredibly high," said Bill Miller, land manager of Anschutz Corp., Denver. "it is a large area where we can put together a very substantial frontier acreage position and have the opportunity to benefit from the risk dollars we are willing to expend. It is one of the few places left in this country where you can operate in that manner."

And Nevada is home to the single most prolific well in the onshore Lower 48.

Nevertheless, exploration in Nevada continues today as it has for almost the past 85 years: slow but steady.

NEVADA'S TRACK RECORD

It was 1907 when the first well was drilled in the state. It was another 47 years before oil was found, and the second commercial discovery was still another 22 years in the offing.

The number of permits to drill in Nevada, including notices of staking, has averaged 1-6/month the last 10 years, according to Dwights Energydata Inc., Richardson, Tex.

For many states that would mean the death of the industry. But Nevada's exploration and development sector has yet to get off the ground in earnest.

Unlocking the key, notably of a tantalizing overthrust play, could trigger a surge of drilling.

"One discovery would kick it off to an enormous extent," said Mike Cochran, exploration manager of the Houston region for Anadarko Petroleum Corp., Houston.

The geology of Nevada is very complex, and, as in most frontier areas, operators are using the gamut of exploration tools to define and decode the plays.

As they get closer to deciphering that geology, some explorationists think the state's oil production could jump as much as tenfold in the near term as a result of rank wildcat discoveries. That's a prospect unheard of elsewhere in the U.S., given the current political climate and mature state of exploration in U.S. provinces.

THRUST PLAY

A small part of activity in Nevada comes from a handful of companies exploring the mountains in White Pine, Nye, and Eureka counties for thrust fault related production.

Discovery of an active oil seep at the Yankee Gold mine in White Pine County heightened interest in thrust potential (OGJ, July 15, p. 74).

Anschutz geophysicist Lon McCarley said, "We believe the reservoir potential on some of the bigger structures in the ranges could be 500750 million bbl. We. have always thought that, but we are beginning to put more of the pieces together so we have a comfort level for throwing that size of reserve figure around.

We think you can get structures that cover 8,000-12,000 acres."

"It has legitimate world class potential," added David Dlouhy, senior geologist with Anschutz.

Dlouhy noted the area underwent several periods of thrusting, but Mesozoic thrusting is responsible for the structures his company targets as well as for setting up the source-reservoir relationships that make Anschutz's prospects attractive.

Thrust related structures in the mountains have the potential to be much larger, Dlouhy said, and were not disrupted by the Tertiary extension that created block faulting in the valleys.

Anschutz has assembled a leasehold totaling almost 1 million acres and developed a confidence level that warrants operating some wells soon.

"We're at a point where we plan to be operating several wells in the next 24 months. We plan to get at least one operated well drilled during the first half of 1992," Miller said.

LARGE ACREAGE BLOCKS

Most of the acreage in Nevada is held by the federal government and is made available by the Bureau of Land Management through periodic sales.

But another tool for acquiring acreage has been through development contracts with the Interior Department, a practice that is being questioned by the General Accounting Office in a report issued in September (OGJ, Nov. 4, p. 88).

Since 1986 almost 7 million acres in Nevada have been leased under development contracts.

Anschutz has had a development contract there for 4 years, under which it had as much as 1 million acres leased.

Miller said in the last few months Anschutz has high graded its leasehold and culled some of the acreage, reducing it by less than 20%.

Miller said the BLM office it deals with is operating from a business as usual standpoint regarding development contracts.

"The companies that hold acreage in a development contract aren't quite sure what the GAO report means," he added.

THE VALLEYS

Most drilling in the state occurs in Pine Valley and Railroad Valley, where the structures are related to tensional block faulting.

To date no production has been established outside the two areas.

Citing difficulties of exploring in the valleys, Anadarko's Cochran said, "Structures tend to be very small, seismic data doesn't image very well, and with only two or three major fields, we don't have a lot of analogs."

On the plus side, he noted, acreage is modestly priced, and because most wells are shallow, about 5,000-6,000 ft, they are relatively inexpensive.

Anadarko has two development contracts that cover about 500,000 acres.

The company drilled three wildcats in 1991 targeting Paleozoic fractured carbonates, all unsuccessful, and plans four to six more next year.

Apache Corp., Denver, with 30,000-40,000 acres under lease, also plans to increase drilling activity in the state next year and is acquiring more acreage.

However, Jerry Mayer, Apache's exploration manager for the Rocky Mountain region, said, "We are not poised for an explosion of activity right now. There is a lot of interest in Nevada because of the potential there and the shallow depth involved, but people are fully aware of all the risks and the difficulties in finding production in Nevada. Oil prices are adequate to keep some activity going, but they aren't high enough to spur a great deal of additional effort."

Although seismic quality is reported poor in the area because of valley infill, Apache believes steady progress is being made and points to seismic as the best, highest confidence tool.

"Each time we shoot data we have made improvements in recording and processing," Mayer said.

"And we are expanding our knowledge of what we perceive the potential traps should look like."

GRANT CANYON UPDATE

Included in Apache's near term plans is another well in Grant Canyon field, where cumulative production is approaching 16 million bbl. The company is evaluating seismic data to determine the best location.

Apache has been nursing Grant Canyon field this year, trying to fend off water that encroached in the 3 Grant Canyon well, which for several years has been the highest producing rate well in the onshore Lower 48. It has produced more than 9 million bbl of oil, but in May this year began producing water (OGJ, Aug. 12, p. 90).

Apache was able to recomplete the well, and it is now producing about 2,000 b/d of water free oil.

"When it went to water it broke a few hearts, but we've got it back-for a while anyway," Mayer said.

Apache drilled 7 Grant Canyon to boost production from the field, hoping to gain structure and more reserves. Completed in August, the well ran about 200 ft high to 3 Grant Canyon and flowed more than 3,000 b/d of oil (OGJ, Sept. 30, p. 46).

EXPLORATION TOOLS

The main detriments to exploration in Nevada are complex geology and lack of data.

"Information is so hard to come by, we spend a good deal of time trying to identify the least expensive way to explore cost effectively and trying to get to a point that we can justify seismic surveys," Anschutz's Miller said.

Anschutz has spent 5-6 years exploring Nevada and believes it is getting a handle on how to integrate exploration tools.

Many point to the integrated approach for exploration, using things such as surface geology, gravity and magnetic surveys, geochemistry, geothermal data, and satellite photography to select prospects.

Anadarko's Cochran said of the valley areas, "The structures have steep dip, are tight, and very small. Three-D seismic may be the answer, but the problem is the cost:benefit ratio vs. drilling the wells. If the wells were three times the cost, people would be doing 3-D surveys. But maybe we are being penny wise and pound foolish."

Anschutz said it has found while one tool works well in one area, another may work best in a different area.

"Notwithstanding all the high tech effort and the incredible amount of money that has been spent in Nevada for exploration, we have also come back to the basics of oil and gas exploration," Miller said.

"We're using the entire spectrum of tools to explore out here. High tech geophysics is only one of them. We are using the most basic tools that have been around forever and finding they are very effective in some areas."

McCarley predicts in 10 years production in the state could exceed 50,000-100,000 b/d, compared with current production of about 10,000 b/d.

He said, "In other words, we are in a preliminary stage of understanding the state, but in 10 years there probably is going to be tremendous production from Nevada because we are going to reach the stage where exploration tools are working most effectively."

Copyright 1991 Oil & Gas Journal. All Rights Reserved.