Tri-Valley Reports Massive Gas Find in CA
If early reports are confirmed, the irony will not be lost on energy-starved Californians. Last week, Tri-Valley Oil & Gas Co. (TVOG) reported it might have found the West's largest natural gas field ever near Delano, CA, estimating it holds 3 Tcf in reserves. TVOG said its Sunrise Natural Gas Project might be one of the largest onshore finds in more than half a century.
"Successful recovery of 80% of the estimated 3 Tcf in place would equal or exceed all the existing remaining gas reserves in California," said TVOG President Joseph K. Kandle. "At this critical time in California's need for new gas supply, Tri-Valley may have doubled the state's resources."
Although the discovery is not yet confirmed as a producible reserve, F. Lynn Blystone, CEO of TVOG's parent company Tri-Valley Corp., noted that if 40 wells produced a steady 2 MMcf/d each, it would take more than 85 years to drain the formation's estimated reserves using 80% recoverability.
"Putting this formation on production would clearly be a home run with the bases loaded for Tri-Valley shareholders as well as the partners who took the initial risk, and a boon to California consumers," Blystone said. Tri-Valley is headquartered in Bakersfield, about 30 miles from the discovery.
"A commercially flowing well on this project could have the same implications for Tri-Valley as did the Lathrop Gas Field discovery for Occidental Petroleum in 1962," Blystone said. "To say we are extremely excited about the possibilities is an understatement, though we realize we have lots of hard and cautious work to do to obtain the potential here."
Earlier this year, Bakersfield-based TVOG drilled a wildcat at Sunrise-Mayel No. 1 in the project to test a concept that formations under a 10-square-mile area could contain a massive amount of hydrocarbons. Gas shows in the mud log confirmed hydrocarbons in the McClure interval of the Monterey Shale, and TVOG ran a suite of logs to collect additional data.
"After analysis of these logs, three independent sources agree with TVOG that the Sunrise-Mayel No. 1 has cut approximately 300 net feet of diatomaceous formation saturated with 825-to-922 Btu natural gas," said TVOG in a written statement. "The analyses further estimate 72 Bcf in place per 160 acres. Tri-Valley has mapped approximately 6,600 acres of closure in its lease block."
Paul Hacker, a TVOG consultant, said "almost all recently found new production in California during the past 25 years has been in various intervals of the Monterey Shale section or its equivalent Stevens sands." He said the Sunrise/McClure interval "could be the biggest onshore dry gas find in 65 years since the discovery of the giant Rio Vista Field in 1936."
Formation characteristics are tight for vertical well bores, said TVOG, and "it appears that exploitation wells will be horizontally drilled and hydraulically fractured to maximize production rates." Both Texaco and EOG Resources are completing similar wells in the oil phase of the formation in fields located 10-20 miles south of the TVOG find, and about 2,000 feet down dip of the Sunrise area.
Tri-Valley is now working with other, larger companies interested in acquiring long-term rights in the Sunrise project, in particular, power generators needing a long-term secure supply of gas. Blystone said his investors don't have the resources to take on the massive drilling needed. His current investment pool would "take decades."
"We're hoping to talk to major companies that could drill it out in a year or two," he said, noting that both Texaco and EOG are spending about $100 million each this year on their programs in the area. "If we could get it drilled out in one or two years, it would behoove us to reduce our interest and turn it over to someone who could do that."
Until a major producer is found, Tri-Valley intends to keep trying to independently finance additional wells one at a time as groups of investors are assembled. "We're kink of like a hitchhiker," Blystone said. "We stick our thumb out every time we hear a car coming, but we never stop walking because we may have to walk all the way.
"But we would rather see some big power company like Duke Energy or Calpine, or someone like that, come in and take this deal. We could continue to operate and drill the wells for them, but there is enough here to make a 1,000-MW generating plant for 85 years. This is big stuff, and we would love to see a power company as opposed to, say another operating company like Occidental [that operate the Elk Hills field farther to the West].
"We think this is ready-made for the Calpines of the world who are scrambling and starving secure long-term gas supply. The welcome sign is out for people to talk to us about this and coming in. I don't think anyone would object to finding gas in California these days," he said.
Another potential beneficiary is the city of Delano, which owns some of the mineral rights in the play leased to Tri-Valley. The farming community is considering establishing a municipal utility, and has provided TVOG with three drill sites to support development efforts. The company also has leased another 800 acres of nearby federal land.
Tri-Valley CFO Thomas J. Cunningham said that the potential recovery of estimated gas in place would produce gross cash flows of more than $7 billion using a constant price of $3/Mcf. Tri-Valley Corp. will own 25% working interest and about 20% net revenue interest on most of the acreage. It also will own 100% working interest and about 80% net revenue interest on a minority of the acreage acquired after the original prospect.
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