Oil discovery in Banner County is no guarantee for local economic boom

A June 7 report by the Associated Press and Lincoln Star-Journal pointed to an Australian oil company, Black Star, reportedly finding oil in Banner County.

According to a news release from the company, the find in Banner County could account for between 4.3 million and 23.3 million barrels of oil between the two wells.

“This is a fairly large area, that comes down into the northern part of Kimball County,” said Bill Sydow, director of the Nebraska Oil and Gas Conservation Commission. “It’s a lima bean shape, and runs northeast to southwest.”

Analysis performed by the company and outside consulting firms showed that the two wells are “geochemically similar to the Silo field in Wyoming and the Jake Well in Colorado,” according to the reports.

The Silo field has produced more than 10 million barrels of oil since 1981, which is comparable to the estimates put forward by Black Star in relation to the Banner County site.

That being said, Sydow says there is a long way to go before anyone can definitively say that this oil is both usable and extractable.

“I don’t know what the hydrocarbon quality is,” said Sydow. “Maybe there’s oil there. At this point, I don’t know.”

Speaking on the Banner County site specifically, Sydow says that the numbers put forward by Black Star may prove to be higher than the amount of oil that could be extracted in a cost-effective means.

According to Sydow, on average, between 10 and 30 percent of the oil in place can be readily extracted, on average.

That takes the estimates of 4.3 million to 23.3 million barrels down to 430,000 at the low-end estimates and 6,990,000 at the higher-end of the scale.

What this, and every find, boils down to, according to Sydow, is the difference between reserve and resource.

Reserves are defined by the Society of Petroleum Engineers as “those quantities of petroleum claimed to be comercially recoverable by application of development projects to known accumulations under defined conditions.”

Furthermore, these quantities must meet four additional criteria to be considered reserves:

They must be discovered through one or more exploratory wells, recoverable using existing technology, commercially viable and lastly, remaining in the ground.

If, and only if, quantities meet these criteria, then they are classified into three distinctions based on their probability of recovery.

Proved reserves are quantities with a 90 percent minimum confidence of being recoverable under current conditions. The likelihood of recovery declines from that point, to probably reserves, which sit at 50 percent confidence of recovery, down all the way to possible reserves, which have just a ten percent confidence of recovery.

Resources are prospective quantities. These are largely estimations of the recoverable amounts of oil.

Stephen Payne, editor of Oil and Gas Investor, sums up prospective resources in the following manner.

“These sorts of resources basically exist in the minds of marketing people. That’s not to say they don’t exist in the real world as well, it just means that E&Ps are thinking of future oil and gas discoveries in new areas, based on upcoming technology and discoveries made in similar formations worldwide.”

Sydow believes the find in Banner County cannot be considered more than a resource currently.

“At this point, it’s a resource. We have not proven it can be converted into a reserve,” said Sydow.

Currently, the Niobrara formation - where many oil discveries have been made in Colorado and Wyoming - has been wholly unfruitful for those prospecting in the Panhandle of Nebraska.

The Beacon 1-3 well in Kimball County, which sits in the same zone as where this find is reported to be was plugged recently, due to its being unsuccessful, according to Sydow.

“I think they have to have some basis for that press release,” said Sydow. “But I wouldn’t call it a major discovery. It’s encouraging news, though.”

Last year, the entire state of Nebraska produced just over 2.5 million barrels of oil total. In contrast, the nation’s-leading oil producer, Texas, pumps out 2.2 million barrels each day.

The find, like others, depends on countless variables. Sydow knows that nothing in this industry is a certain.

“Oil and gas, if you will, is found in the minds of men and women.”