Just a year ago it didn't appear to many of us that the United States will one day compete with Saudi Arabia or Russia in the amount of oil that is produced. By 2020, the United States could produce an astounding 11 million barrels per day. Elko in Nevada is buzzing with activity thanks to Noble's (NBL) fracking plans, which could eventually turn this sleepy county into an oil rich job creating boom town. In this article, I will explain how success in Elko could lead Noble to higher revenues and increased profitability.
What the Elko Deal Is All About
Elko is right in the middle of what is popularly known as the 'Gold Country' in Nevada. Noble completed 3D seismic exploration in 2012 and is hopeful to turn the area into an oil producing cash cow that will affect not only Noble's revenue positively, but help the U.S. to become one of the largest producers of oil and natural gas. In the next two years, Nobel will drill wells around Tabor Flats and begin production by 2014.
The company will also acquire a 60 square mile patch of land northwest of Ruby Mountains. Noble will have access to a total of 350,000 acres, where it can explore and drill by 2020. By that time, Elko County can help Noble produce almost 50,000 barrels of oil per day. With the country's predicted oil production hovering around at 11 million barrels per day in 2020, Elko's contribution will be very significant. In spite of being a small area that has long been ignored by oil giants, Noble has recognized the importance of the shales that hold oil and natural gas in the surrounding region.
For the uninitiated, Elko has had a shale oil plant for almost 100 years. Between 1917-1924, 12,000 barrels of oil was produced by Catlin Shale Products. Unfortunately, the poor quality of soil did not work well with the technology of that time. Noble will of course use fracking as the preferred method to get beneath shales. The technology involves ripping open shales with a burst of high pressure mixture containing water, chemicals and sand. Oil or natural gas will be sucked in through the same pipes once the rock is broken down. Environmental groups have voiced concern over ecological damage in the fragile Nevadan landscape but fracking is considered safe and Noble has the best infrastructure to ensure safety and meet environmental standards.
Noble's Rating Goes Up
No sooner did Noble announce its plans for Elko, Societe Generale restated its 'buy' rating for the company. With a current target price of $116, Noble is hovering around $107 at the moment. With a market cap of $19 billion and a P/E ratio of 39.79, Noble is one of the most impressive oil giants to invest in at the moment. I personally would invest in any oil company that explores and drills in the U.S. or Canada, as these two countries provide safe business environments without any security risks like in the Middle East or certain parts of Africa like Nigeria. Noble will also prove to be a wise investment option for those who are looking for long term returns. Noble has promising deals with Falklands Oil & Gas and will spend almost $350 million in the next 3 years, trying to explore and drill for oil and natural gas.
Competitors Are Busy In and Around Texas, Not Nevada
Most oil companies at the moment are concentrating on Texas. Chevron (CVX) moved 800 jobs to Houston from Bay Area. Most of these jobs deal with advanced energy technologies that require employees to be on ground where fracking and drilling take place. Exxon Mobil (XOM) runs the largest operating U.S. refinery in Texas as well. The Baytown complex east of Houston caught fire in October 2012 but did not cause much damage to the company. On the other hand, EOG Resources (EOG) has been particularly active at Eagle Ford Shale oil play. The fields have catapulted Texas to being one of the most oil rich regions in the world. EOG estimates that the field contains 1.6 billion boe of potential reserves. Chesapeake operates in several places in and around Texas. Barnett Shale is the most prolific unconventional gas resource that Chesapeake (CHK) is working on at the moment. Other than that, Chesapeake also has its operations in Eagle Ford Shale, Haynesville Shale and Niobrara Shale (Colorado).
None of these companies have begun to operate in Nevada yet. Noble is the only major oil company that is planning to frack and drill in a big way, in Nevada. This pioneering role will help Noble to establish itself as a regional player apart from being an international leader in gas and oil production. Noble's Elko plans will likely add to the company's total revenue and will help it to augment its revenue in the long-term.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.