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October 25, 2014

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Oil firms hoping to tap Nevada

The confluence of $64-a-barrel oil, a discovery of huge amounts of oil in Utah and claims of untapped potential in the Silver State is getting Nevada pumped over petroleum.

Oil speculators are rushing to buy up leases on the Bureau of Land Management's vast areas throughout the state, already putting money into federal, state and local coffers.

Confirmation of the promise has not yet come, but if it does, the dollars and jobs could come in a flood. That flood would be particularly welcome to economically desperate rural counties such as White Pine County, where state officials have confiscated county credit cards because of a fiscal emergency.

"Nevada may be in some sort of renaissance for oil and gas," said Del Fortner, BLM deputy state director. "2005 looks to be a banner year in that we are getting interest from companies in Nevada, Utah and Wyoming, and internationally as well."

In June a BLM auction netted $3.1 million for leases of 335,000 acres for oil and gas exploration in what was the largest lease sale in Nevada history. Fortner said companies bid up to $95 bonus per acre.

In the two-step oil-lease process, companies bid "bonus" dollars for the right to lease land at $2 an acre. If they find and develop oil reserves, the companies then would pay a 12.5 percent royalty on the sales.

Half the money is split between the state and counties, and half goes to the federal government. The federal portion is again split between funds for environmental reclamation and the federal general fund.

One observer of earlier efforts to develop oil in Nevada said he hopes the interest in the Silver State pays off, but people should be wary of counting the barrels before they are pumped.

"Anything to do with helping our economy here, we're very excited about," said John Chachas, White Pine County Commission chairman. "There's potential right in our backyard here."

He said crews have already begun drilling test wells in the county, including one eight miles south of Ely, the county seat.

That has paid off in immediate economic benefits for the cash-strapped county.

"The motels are full now with roughnecks," he said. "We're enjoying the impacts right now on a small scale."

But Chachas warned that similar excitement in the past has not yielded black gold.

"We've heard this before," he said. "Until they punch through and it comes flying from the ground, we're going to sit back and wait for it to happen. They've stuck a lot of money into these holes. I wish them 100 percent success. The country needs it. White Pine, first of all, needs it more than anyone else."

In the past, local investors have gone broke betting on oil development that never happened, he said.

"We've seen too many attempts go bad. I hope this time it makes a lot of people wealthy."

Some environmental voices urge a bit of caution.

Bob Fulkerson, director of the Progressive Leadership Alliance of Nevada and a board member of Great Basin Mine Watch, noted the laws protecting the environment in Nevada -- and companies are aware of that when they decide to invest here.

"U.S. oil companies are making record profits," Fulkerson said. "We cannot allow them to walk away with public resources and leave it for us to clean up."

He said ranchers in Nye County's Railroad Valley already see negative impacts from oil production, and Fulkerson is concerned that the rest of the state could feel similar effects.

The state environmental movement has historically focused on residential development, water issues and hard rock mining. If oil production booms in Nevada, environmental and conservation activists will have to work to monitor the effects, he said.

"It's clearly something we need to take a good strong look at," Fulkerson said.

Shaaron Netherton, executive director of Friends of Nevada Wilderness, said she is concerned that land-use plans developed by the BLM don't take the new oil boom into account.

"Oil and gas hysteria has hit the BLM under this administration. They are rushing to lease huge tracts of land all over the West," she said. "It doesn't matter that most of their land-use plans are out of date and their NEPA (National Environmental Policy Act) compliance is inadequate.

"Wildlife, wilderness and other nonconsumptive values are overlooked in the rush to lease, lease lease," Netherton said.

One observer of the industry from outside the state also warned of potential impacts. Jennifer Goldman, a Montana-based activist with the Oil and Gas Accountability Project, a group concerned about the environmental and social impacts of oil development, said "a spiderweb" of effects could include disruptions to wild habitat and loss of air and water quality.

"Communities need to be aware of those possible impacts as they face speculative development," Goldman said.

Fortner, with the BLM, said the environmental impact of a Silver State oil boom would be minimal. While "there is always a risk in any industrial situation," the industry knows that damage to the environment will ultimately affect its bottom line, he said.

Oil company executives "have an ethic that most people, I think, would be surprised to see," Fortner said. "There's definitely a commitment to look out for the environment. They don't want leaks, spills or spews."

While the economic impact to an area can be huge, the overall impact on the United States and worldwide thirst for oil would be limited. A billion barrels would satisfy the U.S. oil needs for about 45 days.

The Arctic National Wildlife Refuge, which has been at the center of ongoing battles between environmentalists and oil speculators, may contain as much as 10 billion barrels, according to some estimates.

One of the state's biggest oil prospectors is Vancouver, British Columbia-based Eden Energy Corp., which in June took leases for 50,000 acres, bringing the company's total to 260,000 acres, much of it in White Pine County's Diamond Mountain range and in Nye County's Railroad Valley.

"There's lots and lots of potential there," said Paul Mitchell, Eden Energy's investor relations director. "This is an ideal area. It has excellent source rock and structures."

Some geologists have long believed that deep deposits of oil could be found in Nevada. According to the BLM, a test well from about 20 years ago in Clark County actually yielded natural gas, but no oil; Nye County leads the state with about a dozen oil wells.

John Menghini, a BLM petroleum engineer, said there are 11 active oil fields in Nevada today. Since the first discovery of oil in Nevada in 1954, 101 wells have pumped oil, with 58 still producing usually relatively modest amounts of oil, he said.

But Cedar Strat, a Las Vegas-based exploration company, has long predicted that the Great Basin could hold billions in oil, and the company's enthusiasm has been picked up by other companies.

The "structures" that have piqued Eden Energy's interest are folds of underground rock, potentially 10,000 feet or more below the surface of the Earth. The structures are part of a belt that includes the recent Utah find, oil and gas fields in Alberta and ultimately fields in Alaska, Mitchell said.

In Nevada, Eden Energy believes there are six such rocky structures.

"We think each structure is capable of holding a billion barrels," Michell said.

Mitchell said the factors that have made Nevada attractive for oil exploration have included the rise in oil prices and the recently passed federal energy bill, which contained billions in incentives for oil and gas exploration and development.

The biggest push is coming from the Utah find, he said.

"Whenever you get a discovery like this, it sets the whole area on fire ... You've got dozens of companies coming in."

In May, Wolverine Gas and Oil Corp., a Michigan-based company with just 25 employees, bought leasing rights to a half-million acres in central Utah. A year earlier, the company started pumping from a Sigurd, Utah, deposit the company estimated to contain 100 million to 200 million barrels. The company believes the total from two dozen deposits in the surrounding region could be more than a billion barrels.

If those numbers are accurate, the oil reserve could bring Utah more than $5.5 billion in royalties.

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