Carson company produces oil nearby
March 24, 2014
Oilman Ed Traub knows he has been a laughingstock for the better part of the two decades that he has been preaching his belief that there's oil to be found in the remote hills between Fallon and Gabbs.
He's closer to getting the last laugh on the many doubters.
Sierra Nevada Oil LLC, a Carson City company co-managed by Traub, is positioning itself with Empire Petroleum Corp. of Tulsa to undertake a significant exploratory program of the property this summer.
The longtime true believers at Empire Petroleum and Sierra Nevada Oil already have begun silencing some of the skeptics with a well that has been producing about 15 to 20 barrels of oil a week.
That's not exactly a gusher, but it still represents the first oil production in western Nevada.
"Nobody believes we're pumping oil," said Patrick Fagen, Traub's co-manager at Sierra Nevada Oil. "We've proven there's oil in the system."
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The next question: How much oil?
Sierra Nevada Oil's executives believe that the geologic formation due west of Gabbs hosts at least 139 million barrels of oil — and maybe much more.
To support their belief — and to show that the first production wasn't a fluke — Fagen and Traub are putting together plans to drill a deeper well to test a formation about 9,000 feet below the surface. That well is likely to cost $3 million to $4 million, the company believes.
The earlier production came from a much shallower well drilled to about 3,700 feet. Fagan says more wells to that depth — much less expensive, at $750,000 to $1 million each — might be an alternative to the deeper test.
Executives say that ideally, they'd like to find a partner for a three- or five-hole drilling program to get the prospect moving more quickly.
Along with the quantities of oil in the formation, questions remain about the ease of getting it out of the ground.
The first production, Fagan explains, tapped oil that's heavy in paraffin — oil that's difficult to get out of the rocks if temperatures fall below 72 degrees. A down-hole heater system has been successful in improving the flow.
To get themselves into position for the summertime drilling, Sierra Nevada Oil and Empire Petroleum are working through a transaction in which privately held Sierra Nevada Oil will take a controlling interest in publicly held Empire.
If Sierra Nevada exercises its option to buy 4 million shares of Empire, paying $1 million, it will name directors to all of the seats on Empire's board. The companies also will combine their lease holdings in Gabbs Valley.
The two companies already have worked closely together as they've developed leases on roughly 35,000 acres of federal land in the area and scratched together enough money to collect seismic and satellite data and drill a few wells.
Although those wells gave strong hints of oil, the early drilling programs were filled with headaches. Among them: Heavy flow of hot water deep below the surface that stymied drilling and clay that swelled and shut off oil flow after a hole was drilled.
"It's been like picking the devil's lock," Traub said.
The companies have spent about $12 million on testing and drilling in the past decade, Fagan said.
"Those were really high-risk dollars," he said, especially given the limited history of oil production in the state.
Railroad Valley in Nye County, about 150 miles east of Gabbs, has been the most prolific producer in the state — but it also has been the site of at least 150 expensive dry holes.
Houston's Noble Energy, meanwhile, is spending $130 million in exploration of a far-flung expanse in Elko County, about 270 miles northeast of the Gabbs Valley Prospect. Other exploration activity has been stirring south of Ely, where an auction of BLM oil leases in December drew extensive interest.
While none of that has any direct effect on the Gabbs Valley Prospect, Fagan says all the activity may open the eyes of potential investors to previously overlooked prospects throughout the state.
And the Gabbs Valley skeptics?
"I've never paid any attention to them," Traub said.