I-Team: Oil Discovered in Nevada (Part 2)

By George Knapp , Matt Adams

Published 10/26 2012 07:24PM

Updated 11/16 2012 08:00AM

Copyright 2017 Nexstar Broadcasting, Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

UPDATE Nov. 15 -- U.S. Oil & Gas issued a statement confirming that its test drilling found two underground areas that contain oil. However, the company had hope to find more areas with oil so the news is a disappointment to investors. The company CEO says a new round of testing will begin this month. Read the company statement.

HOT CREEK VALLEY, Nev. -- An Irish company financed by small investors has accomplished what American oil giants have been unable to do: It struck oil in central Nevada.

According to the company, U.S. Oil and Gas, it is not yet certain how big the oil field might be, but initial indications suggest tens of millions of barrels of oil are in the ground below Hot Creek Valley, east of Tonopah.

If the predictions are confirmed, the discovery could transform the Nevada economy.

On a tiny patch of ground in Nevada's Railroad Valley is what's left of a petroleum icon -- for 10 years, it was the single most productive oil well in the entire country, averaging 4,000 barrels per day. Experts say the oil must have seeped in from somewhere else, an unknown mother lode, which inspired some bold predictions.

"In my opinion, Nevada will be the largest oil state ever to have happened in the U.S., including Texas and California," said Chuck Laser, an oil wildcatter.

There are places in central Nevada where you can pick up a rock, break it open and it smells like gasoline. Oilmen have believed for years that somewhere out here is an undiscovered ocean of oil. And now someone may have found it.

Hot Creek Valley, adjacent to oil-rich Railroad Valley, seemed like a logical place to drill. The well is named Eblana 1, or "Nelly," to the European investors who have bankrolled U.S. Oil and Gas. Wary of crossing any lines with securities regulators, the company's CEO downplayed the discovery.

"We are looking at two oil systems: light sweet crude with gas condensate and the normal heavier oil that is found in Nevada," U.S. Oil and Gas CEO Brian McDonnell said. "We are quite confident we are looking at a new discovery."

McDonnell flatly refused to say anything about how much oil is in central Nevada, but legal disclosures made earlier to investors caused the stock price to increase tenfold. Preliminary data at one well suggested a pool of up to 187 million barrels of oil.

The company has leased 25,000 acres in the valley, room enough for many more wells and a lot more oil. A similar field in neighboring Utah has already produced a billion barrels.

"What we would need to do is a number of wells to actually define the geological structure and how much oil would be maintained in the geological structure," McDonnell said. "One well is not enough. We will have to follow with at least a three or four well drilling campaign."

The company used a combination of 3-D imaging and a unique sonic screening to identify the best place to drill, and it worked. They hit oil in the first place they looked. The system was developed by Karim Akrawi, who thinks this field could rival those found the Middle East.

"I am very, very positive, and I think this valley has great potential," said Akrawi, a U.S. Oil consultant and board member.

A lot of work still needs to be done to confirm the loftier projections, but there's no doubt what could happen to the state's economy if the predictions come true. The Bakken oil boom in North Dakota has made unemployment all but non existent. Median income has doubled, and the state now has a billion dollar surplus. A similar boom in Nevada would be the biggest change since legalized gambling.

The company has kept things so quiet that the news is only now starting to surface in the nearest town, Tonopah.

Tonopah City Manager James Eason said he has heard very little about U.S. Oil's operation.

"Just that they hit oil, and that is all I know," he said.

McDonnell said he is amazed by how much cooperation his company received from the Bureau of Land Management and the state of Nevada.

A few online investment bloggers in the United Kingdom have written that the projections seem improbable and wondered if the company has misled its investors.

McDonnell said he couldn't say more because of securities regulations but that an official announcement is likely within a few weeks.

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