By Mark Waite
KLAS-TV investigative reporter George Knapp in October reported a drilling rig struck a massive oil find in Hot Creek Valley in northeastern Nye County that could tap into a huge reservoir, but experts emphasized there has been no reported production yet and the company reports are still preliminary.
Knapp said if the projected output is accurate, “it could be a game changer for Nevada’s economy.” The I-team group of investigative journalists has for years quoted experts who believe there is an ocean of petroleum somewhere under Nevada, like oil geologist Alan Chamberlain, who predicted there could be a few billion barrels.
U.S. Oil and Gas Plc., the company drilling for the oil is based in Ireland. It received a permit to drill the Eblana 1 well from the U.S. Bureau of Land Management in March. The company reported holding large leased acreage with funding to drill three wells.
U.S. Oil and Gas only surveyed one-fourth of their lease area in Hot Creek Valley, the company states. Knapp said the company leases 25,000 acres and believes the total find could be much larger. It is west of the traditional oil production area of Railroad Valley. An application has been filed with the Tonopah BLM office to drill a second well, the Eblana 2, but a permit has not yet been issued, according to Field Office Manager Tom Seley.
U.S. Oil and Gas said it collected data using 3-D passive seismic surveying, which it called the most advanced oil exploration technology of its kind. It led to an estimate in a Competent Person’s Report by Forrest Garb and Associates of 189 million barrels of oil in place in the ground and 67 million barrels of recoverable oil for the surveyed acreage.
The vast majority of Nevada’s 407,999 barrels of oil produced last year, 364,801 barrels came out of Railroad Valley, which is just east of Hot Creek Valley. That’s a drop from 427,222 barrels produced statewide in 2010.
In 1983, the Grant Canyon well in Railroad Valley was the most prolific, onshore well in the continental U.S., producing up to 4,300 barrels of oil per day. Nevada oil production peaked at 4 million barrels in 1990 but has steadily declined since then. The Grant Canyon Field reported 77,683 barrels of oil produced in 2011. The Trap Spring field was the biggest producer last year, with 166,415 barrels.
The Eblana 1 well, drilled by U.S. Oil and Gas subsidiary, Major Oil International LLC of Houston, Texas, identified nine large, potential porous oil reservoir intervals and associated high fracture zones before reaching a target of 8,550 feet on May 26, the company reported.
U.S. Oil and Gas Company Chief Executive Officer Brian McDonnell said in a June statement, “the number and size of the reservoir zones we encountered was well beyond our expectations. Baker Hughes, who conducted all of the testing, are carefully analyzing and interpreting the data and, when complete, flow testing will commence.”
A Nov. 15 report released by U.S. Oil and Gas stated they tested 30 zones of which two zones brought oil to the surface; however, a consistent, natural flow couldn’t be achieved. There was also insufficient time to clear the productive formations, the company stated.
Two zones were confirmed as oil bearing zones with an initial low flow rate through tubing to the surface. The company believes flow was impeded by a high paraffin wax content and kerogene in the formation. Major Oil plans to try a range of stimulation techniques when work resumes perforating the producing zones, while another two potential zones above 4,500 feet remain to be tested.
KLAS-TV reported a handful of Major Oil Company staff have been living in trailers at the drill site for months overseeing flow testing.
For now, the Eblana 1 well has been temporarily suspended until advanced analysis of the results are complete, the company states. They intend to resume testing sometime this month or in early December, subject to supplier contracts.
In the latest Nov. 15 statement, McDonnell said: “It became clear as the work over progressed that the distinctive characteristics of the local geology were making interpretation of our original drill data problematic. Nevada has defeated many oilers, but we are pleased to be able to say that we have nevertheless succeeded in confirming our discovery and collecting large amounts of immensely valuable data. We are confident that, with an updated reservoir model and deploying further techniques we will succeed in flowing the primary zones we have identified.”
McDonnell wasn’t available to comment for this story.
Lowell Price, oil, gas and geothermal program manager for the Nevada Division of Minerals, said he was bound by confidentiality and couldn’t comment on the company claims. But, he said, “their current testing will either help prove or disprove their premature estimate.”
Christopher Ross, a spokesman for the state BLM office, said oil reserves can occur at any location given the right structural traps and the presence of hydrocarbon baring formations. Seley, with the Tonopah Field Office, said Eblana 1 is still only an exploration well; U.S. Oil and Gas can’t extract oil from it until they are issued a production permit, which requires an environmental analysis. The company hasn’t reported any production yet, Seley said.
The BLM doesn’t typically receive test results of the wells. But Seley said, “Right now I think everything is speculative. They’re analyzing data.”
Hot Creek Valley is in a remote area off Highway 6 about 90 miles northeast of Tonopah, northeast of Warm Springs where there is a junction with Highway 375, the Extraterrestrial Highway, but before the turnoff to another tourist spot, the Lunar Crater.
Nye County Commissioner Gary Hollis, who has experience oil drilling and is familiar with the area, said oil companies sank some dry holes in Hot Creek Valley several years ago. The latest rig hauled to the area was big, he said.
“It must have cost them half a million dollars just to move that rig in there,” Hollis said. “They’ve been up in there several times.”
But Hollis said workers in the oil industry are pretty close mouthed. He said companies exploring in the northwestern part of Nye County near Gabbs are hitting oil as well, a community he said is sitting on over a billion barrels of oil.
Hollis said that’s one reason he requested a bill draft in the next session of the Nevada Legislature beginning in February to increase the county’s royalty collections from oil production.
“I know of one guy that had 25,000 acres leased. I mean they don’t lease those kind of acres and pay that kind of money for lease payments if there’s not something there,” Hollis said.
The BLM must be notified when a well goes into production on public land, at which time the operator starts to pay royalties of 12.5 percent to the federal government. The first $7 million goes to the state Distributive School Account, 75 percent of the remainder goes to the county.
During the last quarterly auction of BLM oil and gas leases in September, John Obourn Jr. of Littleton, Colo. submitted the highest bid of $34,578 for a 1,920-acre parcel, or $18 per acre. The BLM sold 20 parcels out of 86, but the largest prices per acre were paid for parcels east of Railroad Valley closer to Sunnyside on Highway 93 in Nye County.