(Fred Weinberg/The Penny Press) – The biggest oil company that the average Nevada taxpayer has never heard of has leased 330,000 net acres in Northeastern Nevada and is looking for reserves of half a billion barrels with an exploratory drilling program beginning in 2013.
Noble Energy, which calls Houston home these days, is a $3.76-billion (2011 revenue) company which has operations all over the globe.
If you don’t follow the oil business and have heard of them it is probably because you are a sports fan and know that the University of Oklahoma Sooners play that other sport (smash mouth basketball) in the Lloyd Noble Arena on the University’s campus.
What this means is that a real company as opposed to a pump and dump penny stock operator is officially interested in Nevada’s oil resources which probably means that there actually are some oil resources. We know of Noble’s interest because of public filings. That means other major players are watching closely and we have unconfirmed reports of some additional leasing activity which won’t be public until at least next quarter.
We’ve always known that there is some oil in the state. But the issue has been the economics. Back in the early 80’s, when oil was at a then very high $30 a barrel, the economics of exploration and production still weren’t very attractive. At $70 to $90 a barrel, the sales price vastly exceeding the lift cost causes the potential of Nevada to become far more attractive.
Further, the location of the exploration program, North of Wells in Elko County, offers great potential for the economies of not only Elko County but Harry Reid-depressed White Pine County as well as Lander and Humboldt counties. Unlike mining operations, drilling rigs move and are often staffed by people who come from more than 100 miles away to work a multiple day shift. That means, depending on Noble’s success, there could be a lot of good jobs for folks in Ely, Battle Mountain and Winnemucca as well as Elko.
Then, there’s the output.
One of the reasons we pay some of the highest gas prices outside of California in the nation is that we have no refinery here.
Now just imagine what might happen if an entrepreneur were to build one in or near Ely which Harry Reid, who was supposed to be representing the best interests of the state, screwed out of two coal fired power plants and 2,400 jobs.
Because it would take far less effort to get gasoline to the Nevada market, prices could come down to the levels in Texas and Oklahoma. As this is written, Oklahoma’s average gas price is $3.12 while Nevada’s is $3.57.
What’s to stop this boom?
The biggest obstacle is whether or not there is actually oil in sufficient quantities. Noble believes there is at least a half a BILLION recoverable barrels. In gross dollars at today’s price of $87.31 assuming the minimum of that half a billion barrels, that’s over $43.6-BILLION in gross revenue.
Let’s assume that Noble is right—and they’re talking about the 330,000 net acres they have already leased up—than that’s a tax gusher for the state.
That means a big tax fight.
Right now, oil is taxed the same way that the output of mines are taxed.
It shouldn’t be because, unlike gold, oil is actually consumed as soon as it’s produced. Oil is usually subject to a severance tax.. In Oklahoma, as an example, the tax is 7% of the sales price when the price is above $17 a barrel and 4% when it is below $17. The nominal tax rate here is 5%.
Strictly speaking it is a sales tax in most oil producing states and should be here as well.
That said, we have a Democratic legislature and a teacher’s union which wants to heavily tax anything that moves. Make the tax structure too onerous and maybe it’s not as attractive a deal for the oil company. Make the tax structure simple and compatible with other oil producing states, and it’s not much of a factor.
But we have another problem looming with a Democratic legislature.
The pressure on Barack Obama to lower the price of gas by increasing domestic production may be overwhelming, but clowns like Harry Reid and his sycophants in the state legislature may not get the memo.
As we noted earlier, Reid suddenly had a religious epiphany after he became the Senate Minority leader in 2006 and almost singlehandedly killed two power plants and the economy of Ely in one shot. You can bet that unless both Democrats and Republicans in Nevada firmly remind Reid that he’s still our Senator and he’s still supposed to represent us, he’ll go and do whatever the Democratic intelligentsia wants. In short, Reid could be a big problem.
And, finally, there are the back door regulatory schemes at the Federal level. Adding the Sage Grouse to the endangered species list could simply shut down rural Nevada for any use including building a playground. And the Obama EPA is just poised to rain regulations. We have a state bureaucracy in the habit of saying, “thank you sir, may I have another,” to Federal regulators.
The regulation fest will probably start in February at the legislature and it probably wouldn’t hurt to call your favorite legislator and politely but firmly let he or she know that chasing the oil industry out of Nevada will be considered a recallable offense.