Noble exploration: Expensive information-gathering

Like any good middle manager, Kevin Vorhaben is gathering information so that his bosses can make a decision.

For Vorhaben, the information gathering comes at a steep price — $8 million to $10 million each for the exploration oil wells that Houston-based Noble Energy is drilling in Elko County.

While the company has described the initial results from its exploration as promising, there’s still a lot to learn, says Vorhaben, the leader of the Rockies/Frontier business unit for Noble Energy.

Noble Energy has plenty of experience in exploration and production in tight-oil deposits. It expects to drill more than 500 wells this year in the shale of the Denver-Julesburg Basin of northeast Colorado and the Marcellus formation of Pennsylvania and West Virginia.

But unlike those regions, which have a long history of oil and gas production from other formations, relatively little has been known about the oil deposits of Elko County.

“This involves a lot of learning for us,” says Vorhaben. “It’s really a new play for us.”

The first well the company drilled on its 372,000 acres of mineral leases in Elko County encountered a 700-foot thick section of the formation it targeted — including 400 feet of organic-rich mudstones and strong shows of oil during drilling.

Noble Energy has completed a second exploration well nearby, and it plans to drill four more exploration wells — two farther northeast in its Mary’s River holdings and two farther southwest in its Huntington holdings — to gather more information.

The analysis of samples from those wells is integrated with three-dimensional seismic imaging completed earlier by Noble. The results, Vorhaben says, are expected to provide a good picture of the oil reserves and the geographical range of the field.

In the past, Noble executives have said they have three big questions about the Elko area — the quality of the oil reservoir, the thickness of the formations that contain oil and how widespread those formations might be.

Elko has a strong infrastructure of outfits that provide services to the mining industry, and some of those companies — road builders, for instance — can easily shift their focus to support of the oil industry.

But for more specialized services, Vorhaben says the region’s distance from centers of the oil-exploration industry presents another layer of challenges to Noble’s work.

“You have to prepare for your contingencies,” he says. “It can be a four-hour call-out for a tool.”

The arrival of other companies with their own exploration programs probably will bring more service companies into the Elko area.

The Bureau of Land Management, which controls mineral leases on much of the land in northeastern Nevada, says nearly 240,000 acres of mineral leases have been signed in its Elko District.

(Statewide, some 1.58 million acres of oil-and-gas leases have been signed on BLM-managed lands. Most of those leases involve federal lands in the Elko and Ely areas.)

But the BLM leases tell only part of the story. Noble Energy, which has leased 97,000 acres of mineral rights from the federal government, notes that nearly two-thirds of its holdings in northeastern Nevada are on private lands.

In fact, Noble ranks only fifth on a listing of the biggest BLM oil leaseholders in the state, a list led by Wyoming’s Kirkwood Exploration LLC and Kirkwood Oil & Gas LLC, with nearly 295,000 acres of federal oil leases.

If the results of the exploration wells continue to be promising, and if Noble executives in Houston decide to invest in development of the field — the company has similar exploration under way from the Gulf of Mexico to Cyprus in the Mediterranean — development of the field is likely to be fairly quick process.

Noble wouldn’t approach the Elko area one well at a time, but instead would make the investments it needs to achieve economies of scale with a larger development project.

One of the questions that would need to be answered, Vorhaben says, is transportation of production from the Elko field to processing facilities. Trucking is the most likely option.

Foreland Refining Corp. operates the Eagle Springs Refinery at Ely. A complex of refineries at Salt Lake City provides another potential market.