‘Close-ology’ drives bids for BLM oil leases

Geology plays a large part in oil and gas exploration in northeastern Nevada — and so does “closeology.”

Mike Evans, a Reno-based independent oil and energy professional, says “closeology” led to many of the high bids at last week’s quarterly auction of oil and gas leases for the Bureau of Land Management’s Battle Mountain district.

Many of those leases are for land in northeastern Nye County, where the majority of the state’s production oil wells are located in the historically oil-rich Railroad Valley. The area holds Nevada’s top-producing oil well and field, Grant Canyon, which produced nearly 59,000 barrels of oil in 2012, the Nevada Division of Mineral reports. From 1956-2012, the Grant Canyon field has produced more than 21 million barrels of oil, or 41 percent of the total oil produced in Nevada in the last 56 years.

“Closeology probably brings the highest amount of money,” Evans says of leases offered in Nye County that rose to hefty sums.

The Bureau of Land Management took in $862,183 at last Tuesday’s quarterly auction of 40 parcels totaling more than 65,000 acres of federal lands. Seven parcels had no bid, while the high bid of the day was $200,000 for a 1,600-acre parcel.

Oil exploration in Nevada is a crap-shoot at best, though. The Nevada Bureau of Mines and Geology reports that of the more than 750 wells drilled in the Railroad Valley, Pine Valley in Eureka County and Deadman Creek area of Elko County, only a small fraction were oil producers; the rest were “dusters.” And many producing wells taper off after just a few years or over time. Production at the Grant Canyon Unit, for instance, has declined 97 percent since the 2.34 million barrels produced in 1990.

There are 66 actively producing oil wells in Railroad Valley, the Bureau of Mines and Geology says, which account for about 87 percent of the state’s total production.

Wells in the Grant Canyon Unit are operated by Grant Canyon Oil and Gas of Denver. The unit has four producing wells and one injection well. In the vicinity of the Grant Canyon Unit GCOG operates two other fields with three more active wells, says Steve Barnes, a principal member of the company. Grant Canyon Oil and Gas also operates the Blackburn Unit near Elko, which has five producing oil wells and two injection wells. Barnes says leasing activity has increased significantly in the past three years throughout the state.

Recent exploration in the Nevada has been spearheaded by Noble Energy, the Texas energy giant which last year announced ambitious plans to drill for oil on more than 350,000 acres it has leased in Elko County.

“This has nothing to do with anything we or other operators are doing out there; it is based more on the belief that there are other resources to be tapped in the state,” Barnes says. “Noble has acquired a significant leasehold in Huntington Valley east and south of Elko. GCOG has acquired several leases in Pine Valley near the Blackburn Unit. It is a more extensively drilled area, and GCOG is trying to duplicate what they have been successful at, in addition to looking at other horizons.”

Noble Energy’s work near Wells hasn’t spurred much additional activity for oil and gas exploration in the state, Evans says, despite the modest activity at least week’s oil and gas lease sale.

“You see the activity here today and you think there is a lot going on and there’s really not, it is extremely slow. There are some wells planned this year, and I think Noble has applications in, but we will see what materializes.”

Evans says it’s extremely difficult for small companies to secure exploration capital. One firm, Sam Oil LLC, has plans to re-drill a well located 13 miles northwest of Ely in White Pine County. The well previously was drilled in 2007 by Plains Exploration & Production Co but was plugged after drilling difficulties. Sam Oil expects to begin drilling the well by late summer.

Philip White, president of Blanco Company of Albuquerque, N.M, picked up several leases hoping that companies such as Noble come calling in the future. White, who purchased 5,718 acres for $398,798, works as a lease trader and plans to hold his acreage for future exploration.

“There has been a lot of oil come out of that Railroad Valley, and that is what I am basing my bids on,” White says. “If there has been a lot in the past I have confidence that there will be a lot in the future.”

Lornezo Trimble, geologist with the BLM’s Reno Field Office, notes that most of the high bids in last week’s auction were for targeted properties.

“Railroad Valley dominates the state as far as production,” he says. “The bidding got higher around some specific parcels, and obviously they are looking at some specific areas. There was a good amount of interest on some parcels.”