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Saturday, Sep 29 2012 08:00 PM

New drilling brings life to old oil fields

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    By Felix Adamo/ The Californian

    An oil well approximately one mile north of Highway 46 and east of Highway 33 in a file photo.

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    By Felix Adamo/ The Californian

    Kenai rig No. 3 is drilling an exploratory well that is approximately one mile north of Highway 46 and east of Highway 33.

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BY JOHN COX Californian staff writer jcox@bakersfield.com

Bakersfield oil executive John Moran consciously ignored the hottest trends in the petroleum industry last year as he sank more than $5 million into an exploratory well in the northwest Kern County field known as Beer Nose.

While larger companies around him focused on horizontal drilling and hydraulic fracturing in the vaunted Monterey Shale, Moran and his team at Tamarack Oil and Gas LLC chose to drill a 21/2-mile-deep vertical well in a field others believed had been exhausted by decades of production.

Test results arrived in April: The well was producing 500 barrels a day of light, sweet crude -- a mini bonanza in a region better known for its lower-priced, heavy oil. Since then the company has added a second well nearby and hopes to complete work on a third any day.

And what of the drilling that other companies had been doing in Beer Nose since the 1960s?

"The wells didn't wind up being in the right spot," said Moran, the company's president.

Tamarack's experience illustrates an important but little-publicized trend in the local oil industry. A small number of exploration and production companies -- some unconvinced that the Monterey Shale has lived up to its enormous potential -- are making bold investments in hopes of finding previously overlooked reservoirs in and around Kern County.

Such work could become increasingly important to the local economy. Federal estimates that the Monterey contains more than 15 billion barrels of recoverable oil offer no guarantee that industry engineers will be able to develop efficient techniques for producing crude from its notoriously difficult geology.

At the same time, it's unclear which strategy is the safer bet -- drilling in an area crowded with other companies' wells, or staking out an unproven field with less competition and therefore cheaper real estate.

"That's always been the petroleum game, right?" said Cal State Long Beach geologist Rick Behl, an industry consultant who has studied the Monterey. For all the excitement surrounding the immense source rock, he said, there "potentially are much more untapped reservoirs" not far away.

Modern exploratory drilling is largely dependent on high oil prices, given the risk and expense involved. It also tends to rely on relatively new technology known as three-dimensional seismic imaging, which gives geologists unprecedented understanding of underground rock formations.

Nimble partnerships

Much of the exploration is being done by newcomers and small, nimble companies with deep-pocketed partners.

Tamarack, whose Beer Nose wells are its first, is funded by Century Exploration Resources Inc., a subsidiary of Kentucky-based RAAM Global Energy Co.

Orion International Oil & Gas is partnering with Aera Energy LLC, a much larger oil producer also based in Bakersfield, to explore deep formations in the Belridge area. Orion is headed by former Aera chief Gene Voiland.

An Australian company, Solimar Energy Limited, is testing at least three exploratory wells in Kern and Kings counties. Only one of them taps into the Monterey; it and another of the three are joint ventures with Neon Energy Limited, also based in Australia.

Early, publicly available results suggest that the exploration work has achieved varying levels of success, as measured by oil flow rates. Among those having a tough time is Zodiac Exploration Inc.

Slow flow

The Canadian company uncovered signs of a large, untapped oil reservoir after performing seismic imaging work in 2009 in the Kreyenhagen Shale in Kings County.

In a field near Kettleman City where oil companies have been producing since the late 1920s, Zodiac drilled a vertical well about 17,000 feet underground and a horizontal well nearly 15,000 feet deep. President and CEO Murray Rodgers declined to state the cost of the wells, saying only that it was "very significant."

The results so far have been unimpressive. Strong flows of light, sweet crude early on tapered off prematurely, which Rodgers attributed to possible mechanical problems with the wells themselves.

The company expressed confidence that, given finely tuned production techniques and the right investment partner, the field can be made to produce oil at commercially viable rates.

"You don't always get the best results with your first wells," Rodgers said, "because there's a lot a experimentation and a lot of unknowns that you have to contend with."

Tough to crack

The same could be said for the Monterey Shale. Companies including Los Angeles-based Occidental Petroleum Corp. are producing oil from the formation, just not in the quantities observers had hoped.

A July report by researchers at Wall Street asset management firm AllianceBernstein questioned the source rock's potential. It said the Monterey, which underlies much of the southern Central Valley, is unlikely to produce an oil boom akin to the one now seen in North Dakota's much smaller Bakken formation.

Similar skepticism was expressed by David Hartley, president of Kern County oil producer Sacramento Energy Inc. He noted that the Monterey and other California formations such as the Kreyenhagen have been subjected to natural fractures that may have allowed oil to migrate to reservoirs that have already been exploited.

"Personally, I wouldn't be doing either one in California. I think there's better things to do," said Hartley, whose company has production in local oil fields including Edison, Mountain View and Canfield Ranch.

Bakersfield geologist Phil Ryall begs to differ. The Monterey is a huge resource that will simply take time to understand and exploit properly, he said.

Ryall acknowledged that drilling outside the Monterey is likely to turn up new reservoirs, but said such discoveries will be, at best, "large but not huge."

He withheld judgment on Tamarack's find at Beer Nose.

"Talk to me a year from now and tell me if it's still producing at a high rate," he said.

Moran acknowledged that Tamarack's was not a big find but said it was significant for a company of its size. He added that the well's output was encouraging so far.

"It's a pretty good well in these times," he said.

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