BLM oil auction hints at Nevada boom

The foundations of a potential oil and gas boom in Nevada were strengthened last week in a humble room at the Bureau of Land Management’s state office on Financial Boulevard.

Bidding activity was extremely heated during Tuesday’s auction of oil and gas leases for public and private land in Elko and Eureka Counties, which netted $1.27 million for the BLM on 29 parcels comprising 35,889 acres. Lonewolf Exploration and Production Company, acting as agent for Noble Energy of Houston, flexed its muscle throughout the auction. Lonewolf strengthened Noble’s position in the state by acquiring 16 parcels totaling 16,491 acres for future exploration. Lonewolf spent $771,391 — 60 percent of the auction’s total proceeds — to acquire the leases.

Noble late last year announced a $130 million exploration plan to tap billions of barrels of oil reserves trapped deep under the state’s arid topsoil. The outcome of the company’s drilling results — it plans to begin late in the second quarter — could touch off an oil boom similar to the rush that’s been powering the economy of North Dakota since 2008.

“It’s time has come,” says Robert Bedard of EarthQuest Technical Services of Bakersfield, who attended last week’s auction. “This is the early days of it.

“It is a combination of high oil prices and the technology of hydraulic fracturing, which has advanced to the point where they are able to drill and produce wells economically. Those two things coming together have put Nevada on the map,” Bedard adds.

Exploration efforts conducted in the 1970s and 1980s hinted at the state’s potential for large oil and natural gas reserves, Bedard says, but the economics to pursue those reserves weren’t yet in place. Since then, the economics have shifted favorably, and the development spotlight has shifted its focus to Nevada.

“It’s not going to replace mining anytime soon,” Bedard says. “But what could happen is if someone can drill, make a well and demonstrate the (economic) viability of it, the state would break loose like you have seen in North Dakota and Montana.”

The beginnings of a potential oil boom actually started to appear in the past few years. Last year, the BLM netted $1.78 million from 42 bids on 72,144 acres during its quarterly oil and gas auction in March of 2012. That’s when Noble Energy added to its oil and gas leases in northeastern Nevada, and the company’s ambitious exploration and development plans soon followed. Noble held the leases on 350,000 acres of federal and private lands prior to last week’s auction.

Alan Coyner, administrator for the state’s Division of Minerals, says much of the heated biding activity last week was spillover from Noble’s growing interest in the state.

“If Noble makes a significant discovery in Nevada, that will make a lot of companies take a second look at Nevada and come in and do work,” Coyner says. “It is a big state, and there are a lot of shale plays, especially in the eastern half of the state.”

Mike Smales, Elko County recorder, says Lonewolf Exploration has had a steady landman in the office for several years, and over the past year at least three other oil and gas companies have had representatives conduct extensive research in the county.

Kevin Cochran, partner with Texada Resources of Houston, was at last week’s auction as an agent for an energy company. Cochran agrees that Noble’s efforts in the state have sparked interest from competitors of the Texas energy giant.

Noble’s permit for hydraulic fracturing is the first of its kind in the state’s long history of minerals and oil/gas exploration, Coyner notes. Drilling permits on public land are issued through the BLM and the Division of Minerals. Drilling permits for work on private lands are issued solely through the Division of Minerals.

“We are working with Noble — they are the first ones through the door — to see what that permit will look like,” Coyner says. “We have been going back and forth with the permit to get different conditions and so forth specified.”

Half the receipts from last week’s auction head to the state’s general fund. Leases are held for 10 years with an annual rental of $1.50 per acre for the first five years and $2 an acre until production begins. Leases that are producing are charged a royalty of 12.5 percent.