Oil and gas leases auction draws tepid interest

The Bureau of Land Management auction last week of oil and gas leases on 252 parcels in Nevada netted just 135 bids totaling $1.07 million, but at least one exploration company representative feels the state is poised for explosive growth in the development of hydrocarbon resources.

Otto Duffield, manager of Siloam Springs, Ark.-based Cortez Exploration LLC, says Nevada is "one significant discovery from busting wide open and getting major oil and gas play in here."

Last week's auction drew lukewarm interest from a handful of bidders the rights for the majority of parcels sold for the minimum bid of $2 an acre.

With record high oil prices at the start of summer, the BLM in June received nearly $950,000 in its quarterly auction of leases on 72 parcels, with a high bid of $575 an acre for 789 acres in Nye County. Revenues for the auctions are split down the middle between the state and U.S. Treasury.

"Overall the revenues were not as high as we would have liked, but it shows there are still people interested in Nevada, and if the price is right they are interested in picking up leases for future exploration," says John

Menghini, who oversees the BLM's oil and gas leasing in Nevada. "The big surge in oil prices led to high bidding (in June). Now that oil prices have leveled out somewhat, $2 is very economical to pick up acreage."

Duffield lost out on last week's auction's high bid $53 per acre for rights to a 922-acre parcel in Nye County that was purchased by Charter Post Exploration LLC. That fierce round of bidding had auctioneer Dr. Greg "Lightning" Williams firing numbers in a machine-gun style. Leases are for 10 years, and the BLM charges an annual rental of $1.50 an acre and a 12.5 percent royalty on any production of oil and gas.

Drilling for and producing oil and is not entirely new in Nevada the state produced a modest 72,250 barrels for the months of March and April. The trouble with the state's hydrocarbon resources is that they typically are fairly deep: an exploration permit issued in May to Tonopah-based Makoil for its Sans Spring

Well in Nye County was for a drilling depth of 6,000 feet, while another issued last year to Trail Mountain Inc. of Rock Springs Wyo. for its Palisades No. 1 well in Eureka County was for 12,000 feet 2.27 miles beneath the surface of the Earth.

But with better technology and record high oil prices, Cortez Exploration's Duffield predicts there will be much more exploration and development in the coming years.

"There will be higher interest taken in Nevada," he says. "Nevada is a very complex area, but the implementation of high-tech (exploration) is reducing the risk of exploration. And the price of oil is paying for you to go deep and take a much higher risk than you could before."

Alan Coyner, administrator for the Nevada Division of Minerals, says there hasn't been significant oil discovery in the state in almost 15 years. And prospecting for oil here is extremely complicated and costly, as most sites lack infrastructure such as roads and water.

"The geology is significantly chopped up and displaced," he says. "It is mixed up, jumbled, therefore reservoirs are smaller and much more difficult to find."

Coyner says just 28 permits for oil and gas wells were issued from 2005 to 2007. Only 20 wells were drilled and every one turned out to be a dry hole. Coyner says drilling a typical oil well can cost several million dollars. bidding (in June). Now that oil prices have leveled out somewhat, $2 is very economical to pick up acreage."

Duffield lost out on last week's auction's high bid $53 per acre for rights to a 922-acre parcel in Nye County that was purchased by Charter Post Exploration LLC. That fierce round of bidding had auctioneer Dr.

Greg "Lightning" Williams firing numbers in a machine-gun style. Leases are for 10 years, and the BLM charges an annual rental of $1.50 an acre and a 12.5 percent royalty on any production of oil and gas.

Drilling for and producing oil is not entirely new in Nevada the state produced a modest 72,250 barrels for the months of March and April. The trouble with the state's hydrocarbon resources is that they typically are fairly deep: an exploration permit issued in May to Tonopah-based Makoil for its Sans Spring Well in

Nye County was for a drilling depth of 6,000 feet, while another issued last year to Trail Mountain Inc. of Rock Springs, Wyo. for its Palisades No. 1 well in Eureka County was for 12,000 feet 2.27 miles beneath the surface of the Earth.

But with better technology and record high oil prices, Cortez Exploration's Duffield predicts there will be much more exploration and development in the coming years.

"There will be higher interest taken in Nevada," he says. "Nevada is a very complex area, but the implementation of high-tech (exploration) is reducing the risk of exploration. And the price of oil is paying for you to go deep and take a much higher risk than you could before."

Alan Coyner, administrator for the Nevada Division of Minerals, says there hasn't been significant oil discovery in the state in almost 15 years. And prospecting for oil here is extremely complicated and costly, as most sites lack infrastructure such as roads and water.

"The geology is significantly chopped up and displaced," he says. "It is mixed up, jumbled, therefore reservoirs are smaller and much more difficult to find."

Coyner says just 28 permits for oil and gas wells were issued from 2005 to 2007. Only 20 wells were drilled and every one turned out to be a dry hole. Coyner says drilling a typical oil well can cost several million dollars.

Nevada's major oil-producing area is the Railroad Valley in Nye County near the town of Currant. The state ranks 26th out of 31 oil-producing states 2007 production was less than 500,000 barrels. And the oil produced here usually is of a lower quality.

"We are not currently an OPEC state," Coyner quips.

Despite the potential for oil wells throughout Elko, White Pine, Lincoln, Eureka and Nye counties, much of the focus on tapping new energy resources in Nevada centers on developing hydrothermal power drilling for steam heat. A BLM auction in August netted $28.2 million in geothermal exploration-rights bids.

"Oil and gas has taken a back seat," says Duffield, "but I think Nevada has a long future in oil and gas when the problems and the solutions are conquered."

Nevada's major oil-producing area is the Railroad Valley in Nye County near the town of Currant. The state ranks 26th out of 31 oil-producing states 2007 production was less than 500,000 barrels. And the oil produced here usually is of a lower quality.

"We are not currently an OPEC state," Coyner quips.

Despite the potential for oil wells throughout Elko, White Pine, Lincoln, Eureka and Nye counties, much of the focus on tapping new energy resources in Nevada centers on developing hydrothermal power drilling for steam heat. A BLM auction in August netted $28.2 million in geothermal exploration-rights bids.

"Oil and gas has taken a back seat," says Duffield, "but I think Nevada has a long future in oil and gas when the problems and the solutions are conquered."