The search for oil has created a boom in North Dakota and southern Nebraska has been seeing more action in recent years. Now, increased interest in southern Sioux County has brought drilling rigs to the area.
Fidelity Exploration and Production has started drilling one oil well in the far south end of the county and has plans for two more, according to Joe Icenogle, Fidelity’s environmental affairs manager. If all goes well, the wells – two vertical and one horizontal – should be finished before the year is out, he said.
There has been a spike of oil and gas leases in southern and central Sioux County over the last couple of years, said William Sydow, the director of the Nebraska Oil and Gas Conservation Commission. Fidelity is the first to obtain permits to begin drilling in the area, though he expects to permit another two wells for a Colorado company in the near future.
Fidelity Exploration and Production is currently drilling a vertical well at a site known as the V-Bar 1 Cattle Ranch (Section 26 Township 26N 56W).
“It’s going to be a difficult well to drill, and it’s going to be fairly deep,” Sydow said.
Fidelity has a permit that allows them to drill an 8,000-foot hole, with intermediate casings to be set at 7,600 feet before drilling continues, Sydow said.
Drilling started approximately two months ago.
“This is a very high risk exploration and play,” Icenogle said. The company’s study of the geologic composition of the area is favorable, however, so Fidelity is committed to testing the region to see if the wells will be viable.
Fidelity’s second permit is at the Sioux Ranch, two to three miles to the north of the current drilling operation (Section 11, Township 25N 56W). That is in the same area of another low-volume well already in operation, Sydow said. The company’s third location will be determined after data from the first two holes are analyzed, Icenogle explained.
It’s not the first time Sioux County has seen oil exploration. According to Sydow, a Casper, Wyo., company drilled in southern Sioux County in the 1980s and put a well in to operation producing 20 barrels of oil an hour. The well was eventually damaged, however, and production dropped to approximately 15 barrels a day. In 1998, two horizontal wells were drilled in the county, but never produced enough to become economically feasible.
“They were considered mechanical successes and economic failures,” Sydow said.
Southern Sioux County is part of the Denver-Julesburg basin. The shape of that basin, and the way the rocks outcrop from the Rockies to the Missouri River creates lower reservoir pressures than most oil and gas basins.
“It’s a lot different,” Sydow said.
Those geologic conditions means companies wishing to find success in the region may need to consider a lighter weight drilling fluid, he continued. He compared the mud companies must drill through to toothpaste and said a heavier weighted drilling fluid system can cause drill bits to get stuck. Even using a freshwater system leaves over-balanced pressures, Sydow said. Freshwater weighs 8.5 pounds per gallon, and the reservoir pressures in that region are around 5 pounds per gallon. Companies will have to experiment with different techniques to find ways to create a better balance if they want the wells to produce efficiently, Sydow said.
Exploration wells like the ones Fidelity has committed to drill are more expensive than production wells as companies learn the mechanics required for a particular region, Icenogle said.
“These high risk areas take time to figure out if they’re viable or not,” he said. As an example, the Bakken oil field in North Dakota took years of work before the boom of today while the strong and weak spots of the field were located.
Once Fidelity has finished drilling, core samples will be extracted to determine the porosity and permeability of the rock. Icenogle said shale traditionally isn’t very permeable, which is why a horizontal well may be the best approach. Vertical wells are much more economically feasible though and if the rock formations test well, vertical production wells could be utilized.
According to data posted on the Nebraska Oil and Gas Conservation Commission’s Web site, Sioux County produced 1,228 barrels of oil in 2010, the most recent data available. Kimball and Hitchcock counties lead Nebraska in oil production, with 623,579 barrels in 2010 in Kimball County and 524,737 barrels in Hitchcock. Overall, Nebraska produced more than 2.2 million barrels of oil in 2010.
While southern Sioux County and other areas of the southern Panhandle have seen an increased interest recently, Sydow isn’t predicting a large oil boom in the region.
“I don’t think we’ll see activity levels ever like they have in North Dakota,” he said.
Should the new wells in Sioux County begin producing there will be a direct benefit. The U.S. is the only country in the world that allows landowners to retain the mineral rights, and those landowners will receive royalties from any production.
“It’s a supplemental income,” Sydow said.
In addition there are substantial tax benefits to a county if oil is discovered and can be extracted. A well that produces $100,000 worth of oil a year will equal approximately $4,000 in real estate and property taxes for the county.
Fidelity has worked with county officials throughout the drilling process and will continue to do so, Icenogle said.
Sioux County requires oil and gas companies to obtain a conditional use permit prior to drilling. County Attorney Adam Edmund said the county’s concerns revolve around infrastructure and possible costs to the county as developments of any kind proceed.
Fidelity recognizes that in rural areas like Sioux County, “county roads are the lifeblood,” and the last thing Fidelity wants to do is tear up roads or cause other problems, Icenogle said. Other county services, such as emergency response, could also be affected, and Icenogle said it’s important that Fidelity keep the landowner’s rights and the community in general as the top priority.
“We’re guests out there.”