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July 27, 2017

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Nevada’s oil speculators worry about uncertain future

Assemblyman aims to end fracking in state before it gains traction

In 2012, as oil companies used new drilling techniques like fracking to expand their operations to previously unreachable areas, Houston-based Noble Energy turned its attention to Nevada. The exploration firm announced its intentions that year to pursue an expensive high-risk play in a region long thought to have potential for a big payoff.

Noble leased about 350,000 acres and received state permits allowing the use of hydraulic fracturing to tap into the uneven but potentially oil-rich geology that characterizes the area east of Elko. By 2014, Noble had invested millions, according to filings, to hydraulically fracture three wells in Nevada. Two yielded oil. Notably, Noble received a permit for horizontal drilling, an innovation that, with fracking, helped drive an oil boom in the U.S. But as the boom increased supply and oil prices plummeted, Noble started to cap its Nevada wells.

It has since exited the state. Noble’s journey marked the beginning and end of the most serious attempt to create high-volume oil supplies in Nevada by fracking, a high-pressure ground injection of water, sand and chemicals, used to crack open rock and release oil.

Hydraulic fracturing has been used in conventional drilling since the 1940s, but its use increased in the past several years as other innovations allowed for prospecting in untapped areas. That expansion often has come with controversy, as the practice of blasting chemicals thousands of feet into the ground has been linked to groundwater contamination and increased seismic activity. Several counties and two states — New York and Vermont — have placed moratoriums on fracking activity, and Nevada may be next.

“No other well would be able to frack if the bill passed with its current language,” said Assemblyman Justin Watkins, who introduced a measure that would ban the extraction of oil and gas from hydraulic fracturing.

When Noble Energy was pursuing its wells, it worked with regulators in 2014 to create strict regulations. For instance, Nevada was first in requiring the pre-disclosure of chemicals, according to Richard Perry, administrator of the Nevada Division of Minerals Administrator. Watkins said these regulations were some of the nation’s best, but that they are not enough.

“What the science points to is that no amount of regulation of fracking can eliminate the harmful effects on our health,” Watkins said.

The plan was opposed by the Reno-Sparks Chamber of Commerce and the Western States Petroleum Association. Although there is no formal opposition group, some observers of the oil industry expected opposition to coalesce in the coming months and to come partly from rural counties that receive funding from oil royalties — about $2.8 million last year in Nevada, split between federal, state and local governments.

In practice, Watkins’ bill would have almost no effect on current exploration; only one firm has a permit to do hydraulic fracturing. The more pressing worry for opponents is that the legislation would block Nevada from tapping into what they see as a profitable resource that could spur economic development and bring more jobs to rural areas.

Nevada’s first oil well was built in 1907, but the state is a smaller player in the U.S. market. The Bureau of Land Management has issued 600 oil leases on federal land, but there are only 29 operating wells. According to the Department of Energy, it produced 281,000 barrels in 2015, compared with the 1.2 billion produced in Texas or 201 million in neighboring California. Industry geologists argue Nevada could be a larger player with the right investment. But big companies are more interested in developing oil shales with proven track records.

“If it was easy, we’d all be rich,” said Allen Matzke, whose SAM Oil is targeting conventional, vertical drilling sites that could be enhanced with fracking.

One historical footnote that keeps exploration teams coming back to Nevada is that, at one time, the state was home to one of the country’s most productive wells. It has since dried up, but speculators predict that the area could still be fertile with the right extraction technology: fracking with horizontal drilling.

“Nevada is probably a frontier state that could have a lot of really good development,” said Bill Ehni, a geologist who favors fracking to unlock unconventional deposits, such as oil shale.

Ehni stressed that the ban would block fracking in both traditional drilling, a practice in use for decades, and the unconventional drilling of shale. He said this could turn off even traditional oil exploration in the state, where fracking is used to enhance productivity.

“If that bill were to pass, the oil industry would basically disappear in Nevada,” he said.

But Watkins said the bill would prohibit only fracking, and that drilling could continue. Because the fracking industry is in such an early stage, he said the legislation would not cost a job. He also said when economic impact is so speculative, legislators should focus on the value of water in one of the country’s most arid states.

“Here, water is the most valuable resource we have,” Watkins said. “To put it into significant danger of contamination … as a trade-off for so little oil … doesn’t make any sense for us.”

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