When Occidental Petroleum announced a major new discovery in Kern County, California, it set off industry speculation about the nature and location of the find.
Specifics about the discovery initially were scant, but for industry participants anxious for good news it didn’t take long to learn where it was.
Oxy said it wouldn’t reveal the location of the discovery area, then immediately announced it was expanding its Elk Hills gas processing facility to handle the new production – which sort of took the mystery out of things.
“If you look at the state reports, you can see that their drilling is at the northwest end of Elk Hills, between there and Railroad Gap (Field) – possibly as a 10,000- to 12,000-foot deep sub-thrust structure,” said AAPG member Glenn Gregory, who has a geological consulting firm Gregory Geological Services in Bakersfield.
The company also said it wouldn’t give out details about the discovery, then released a slew of them:
Oxy expected to drill an additional 17 wells in the discovery area by the end of 2009, at a drill-and-complete cost of $3.5 million to $4 million per well. Payoff periods are less than six months and the combined finding, development and lifting costs will be significantly less than $10/BOE, it said.
Additional reserves are likely to be found outside the area delineated by the first six wells, according to Oxy, which has a 1.1 million-net-acre position in California. The company thinks it will take five to 10 years of drilling to exploit the related opportunities.
Occidental Petroleum already is the largest natural gas producer in California and the third-largest oil producer. Its California assets include more than 7,500 active wells located in 90 fields, spanning 600 miles.
In announcing the discovery, Oxy called the new field the biggest onshore California reservoir found in the past 35 years.
But that might not be saying much in light of the industry’s recent exploration record in the Kern County area.
“There’s been exploration steadily throughout the years. Frankly, if you look at the history of new field discoveries, it’s been less than stellar since the 1950s,” said another AAPG member, Jack Grippi, a geologist for Aera Energy in Bakersfield and president-elect of the San Joaquin Geological Society.
Prior to this year, the last oilfield with over 100 million barrels discovered in Kern County was the giant Yowlumne Field, near the south end of the San Joaquin Valley, discovered by Texaco in 1974 on a farm-out from Tenneco.
“The subsequent thing was Landslide, which was discovered in 1985. That was about 18 million barrels,” Grippi said.
So far, Oxy hasn’t talked about the geology of its new field. Gregory said he has a guess about the producing formation, and why it might have been elusive.
He said the reservoir could have resulted from west side of the San Andreas fault sourced sand-rich deepwater marine gravity-flow deposits that followed tectonically changing bathymetric lows, forming great accommodation spaces for sediments.
“These turbidite thicks can be pretty narrow, a half-mile to a mile-and-a-half across, but there may be one thousand feet of sands,” Gregory said.
“A lot of them just follow the marine bathymetry,” he added. “They don’t tend to build up beautiful overbank deposits on the flanks.”
Gregory characterized them as similar to turbidite channels, although not to typical meandering channel sands, with the potential of being highly localized and later structurally uplifted but down plunge on the anticlinal nose or trapped under a thrust fault.
“You could have a spill point saddle across a slowly building nose and the sand ponds up between them,” leaving 500 feet of oil pay sitting in a small space, Gregory noted.
“It could be something geographically that might be a mile square or half a mile square, or less.”
The Upper Miocene sandstone productive at Yowlumne is thought to have been deposited as a turbidite complex, along a tectonically active margin.
It’s a discontinuous reservoir in the Stevens Sandstone, a deep-marine clastic facies of the Monterey Formation. The Yowlumne Sandstone reservoir shows both channeling and erosion.
Gregory said the Oxy discovery is probably an older, lower sand. To date, the earliest productive sand identified at Elk Hills is the Lower Miocene Carneros Sandstone, part of the Temblor Formation beneath the Monterey.
Productive zones or pockets within the lower sands could have been difficult to identify.
“If you don’t drill far enough down the nose or deep enough, you might not find them,” Gregory said.
Oxy did make an intriguing statement about the new play, saying it was “most similar to a deepwater discovery and bears no relationship at all to so-called resource plays.”
If that implies Lower Tertiary, especially a fine-grained sandstone in the Oligocene-Eocene component of the Paleogene, the company may have found something a bit different from other production around Elk Hills.
Kern County encompasses a significant oil-producing area of the United States, with a number of giant fields. Elk Hills, about 20 miles west of Bakersfield, is the fifth-largest oil field in California and the state’s most productive gas field.
Production at Elk Hills was identified in 1911 and the field soon was set aside as the nation’s first Naval Petroleum Reserve, to secure future fuel supplies for the U.S. Navy. It underwent little development for decades.
Federal sentiment to sell the field grew in the 1990s. In October 1997, Oxy won the bidding for the government’s 78 percent share of the reserve – Chevron owns the remainder – by agreeing to pay $3.65 billion.
It outbid 22 other companies, including Chevron and Arco, and paid more than 50 percent above an official estimate of the field’s value.
“When Elk Hills was acquired by Oxy in 1998 it had approximately 425 million BOE of proved reserves. Since then, it has produced more than 364 million BOE,” said Ray Irani, Occidental chairman and CEO.
“Yet – as a result of the technology applied by Oxy over the past 11 years – we have actually been able to increase its proved reserves to more than 491 million BOE today. The total production and proved reserves since Oxy acquired the Elk Hills field is approaching one billion BOE,” he added.
Elk Hills is in the western half of Kern County, which contains prolific oil and gas production.
“You have plenty of good source rocks and there are multiple deformation events resulting from slip across the San Andreas Transform which bounds the western margin of the basin,” Grippi noted.
The source rock includes California’s famed Monterey, principal sourcing for the large Kern County fields.
“What makes the Monterey so interesting in California is, where these other source rocks have to get heated up and over-pressured to reach frac stage where the kerogens produce hydrocarbons and migrate into reservoir rocks, the Monterey goes through this fabulous diagenetic process,” Gregory explained.
“Here you’re looking at a diatomaceous biogenic shale,” he continued. “In the process of going through burial, diagenesis changes the diatomaceous shale to opal CT and then to a chert, which becomes brittle and naturally fractured. It very efficiently and quickly sources up and communicates the hydrocarbons with the Miocene Stevens sandstones as well as being it own fractured reservoir rock.”
Early oil migration is an important factor in producing favorable reservoir conditions and preventing a collapse into low porosity and tight formations, according to Gregory.
Also, “the deep arkosic sandstones of the Miocene in the center part of the basin have been deposited so fast that they’re overpressured, which tends to protect the permeability and porosity,” he said.
The favorable conditions and pore preservation are important when drilling below 10,000 feet in Kern County.
“That 10,000 feet doesn’t sound like much, but in California it can get pretty nasty, and pretty tight,” Gregory said.
“As you get into the wet part of these deeper and older sands, they look terrible” he added. “Then when you get into the oil pay, it’s a different world.”
Based on Oxy’s description of its discovery, Gregory said the reservoir sands are probably naturally fractured Carneros Sands sourced from the Eocene Kreyenhagen Shale.
“I would speculate that Carneros Sands might have porosities in the range of 10-to-14 percent, if the productive depths are from 10,000 to 12,000 feet and good gas producing rates can come from much lower permeable sands,” Gregory said, “but natural fractures, if they exist, would be of great benefit, as well as sand frac stimulations, to increase production rates.”
There are even deeper opportunities in the Agua and Phacoides Sands in the lower Temblor of Oligocene age and the Eocene-age Point of Rocks Sandstone interbedded within the Kreyenhagen Shale. All of these arkosic sands were deposited in a deep marine environment from a west side source.
In talking about expanding the play, “they’re thinking in terms of other plunging noses, or other structures,” he said. Gregory noted that California “is kind of late in getting large areas swathed in 3-D seismic.”
As companies look at, interpret and evaluate 3-D information, it isn’t impossible to think new exploration and production opportunities will appear.
Overall, Gregory praised Oxy for pursuing domestic exploration and continuing to build its portfolio of U.S. properties while improving and extending production.
But in Kern County, acreage holdings are dominated by Oxy, Chevron and Aera Energy, which is owned by Shell and ExxonMobil, making it nearly impossible to obtain favorable exploratory opportunities for consultants and small companies. Except for Oxy, the other majors are mainly developing their existing production.
“The exploration has been done mostly by the small guys,” he said, “and the problem is the hurdles you have to go through to get something done here within your own industry, not counting the environmental issues.”
A recent analyst report from Howard Weil Inc. speculated that Oxy’s discovery came in the Temblor Formation Carneros Sandstone. The report noted that the Carneros and older sands, found at shallower levels, can be highly productive in fields around Elk Hills.
It said the play possibly involves steeply dipping or near-vertical, sub-seismic, deepwater submarine fans.
The lack of deep penetrations at Elk Hills and the stratigraphic nature of the play would explain why it is just now coming to light.
Theorizing the play covers at least 23,000 productive acres, the report estimated its resource potential at over two billion BOE as Oxy continues expansion.
The future of exploration drilling in Kern County is now bright, if only because Oxy has committed to doing so much work in and around the play area, said AAPG member Bill Kempner, a geophysical consultant in Bakersfield, Calif.
“For Oxy it looks pretty interesting, because they’re out there shooting 300 square miles of 3-D seismic, so they obviously think they’re onto a promising trend,” he said.
Kempner praised the company for its willingness to take risks in exploring the Elk Hills area. Oxy also has conducted a large-scale acreage acquisition program over the entire region.
“It’s an area wide open for opportunities,” he said.
“One of the problems is that Oxy has become a major land baron in California, particularly in Kern County and the San Joaquin Basin,” he noted. “Anybody who comes out here is going to have to work with Oxy. It looks like they are here to stay and play.”
Although it contains a number of mature fields, the extensive San Joaquin is “very workable for exploration,” according to Kempner.
“This is an exciting basin with lots of opportunities and not a lot of exploration since the 1980s,” he said, “and with not only conventional but also unconventional opportunity.”
– DAVID BROWN