Think Nevada's never going to earn its stripes as an oil state? If that's the case, then know you're disagreeing with a proverbial truckload of oil explorers - with an army of experts and millions of dollars at their disposal. Among them are names like Chainman, U.S. Oil & Gas PLC, American Liberty Petroleum (OTC:OREO), and Delray Securities. No, none of them are major names like Shell Oil [Royal Dutch Shell (NYSE:RDS.A)], Chevron (NYSE:CVX), or Exxon Mobil Corporation (NYSE:XOM), though each of them has planted an exploration flags in the area. Given some time, however, it wouldn't be surprising to see those relative unknowns brought under the wing of those big-name oil companies, via an acquisition. It is, after all, how big oil gets a big chunk of its new sources.... by buying smaller names that have struck oil.
First and foremost, yes, there's oil in Nevada. A lot of it, in fact. One of the nation's most productive and longest-lasting wells is in Grant Canyon. It's owned by Royal Dutch Shell, aka 'Shell', and to date has produced more than 21 million barrels of oil since its discovery in 1983. The amazing part is that geologists only expected 13 million barrels to be waiting in the ground. There's no telling how much more could be produced, given how far the original estimates have been exceeded.
And here's the more amazing part - not only is Grant Canyon not a fluke, it's not even the biggest known oil field in the state. That honor belongs to the Cobble Cuesta structure in the western part of the state, in Gabbs Valley. Some experts estimate that field could offer up more than 4 billion barrels of oil. That would be one of the biggest oil finds ever in the U.S., and the biggest actively-drilled one. And, that's why the state's attracting all sizes of explorers, from smaller juniors like American Liberty Petroleum to monsters like Exxon Mobil.
The being said, the compelling part of the puzzle here isn't that someone's drilling for oil in Nevada. Someone's drilling for oil in every state in the nation. What's compelling here is that so many drillers are poking holes all over the under-explored state, and a great many of those test drills have compelling hydrocarbon 'shows' ... evidence that it would be worth the time and trouble to develop new prospects.
It all begs one question..... well, two actually. The first question is, why does Nevada seem to have so much oil? The second question is, how come nobody's ever noticed it before. The answers to both questions go hand in hand.
As it turns out, the shape of sub-surface geology in western Nevada allows for very deep pockets of oil, but they lie very deep under the ground. They don't have a large surface area footprint, as the bulk of the oil is situated as much vertically as it is horizontally. In fact, the 4 billion barrel 'field' in question American Liberty Petroleum could be sitting on is only a few dozen square miles. It's a very thick, compacted layer of oil though, which is why OREO doesn't need a lot of land... just a very deep hole.
While the Cobble Cuesta structure isn't exactly mirrored all over the state, all those other junior explorers are seeing similar potential - tall and compacted reservoirs. It certainly explains Grant Canyon's amazing success. And, it largely explains why Nevada is quickly becoming an 'oil' state and losing its status as the silver state. It's only produced 50 million barrels of oil in its history, but that could change real soon now that drilling technologies have advanced - the crude is definitely there.
As for what this means to investors, it's a good news bad news situation.
The bad news is, a lot of the junior explorers that are doing the dirty work of spotting and confirming the presence of crude aren't publicly traded. U.S. Oil & Gas PLC, for instance, can't be purchased in the open market. Neither can Delray Securities or Chainman.
The good news is, American Liberty Petroleum is publicly-traded. All of them are most likely looking for the same thing - a suitor - but only one of them will do public investors any good by finding one.
No matter how it all plays out though, the fact that so many juniors are coming to, and staying in, Nevada says there's something worth staying for. Sooner than later, big oil is going to start taking serious notice, and that's when the fireworks could really start. They'll be looking for some pre-developed opportunities, and so far, OREO has the biggest one in the works.