Next month, the US Energy Information Administration (EIA) will publish a new estimate of US shale deposits set to deal a death-blow to industry hype about a new golden era of US energy independence by fracking unconventional oil and gas.
EIA officials told the Los Angeles Times that previous estimates of recoverable oil in the Monterey shale reserves in California of about 15.4 billion barrels were vastly overstated. The revised estimate, they said, will slash this amount by 96% to a puny 600 million barrels of oil.
The Monterey formation, previously believed to contain more than double the amount of oil estimated at the Bakken shale in North Dakota, and five times larger than the Eagle Ford shale in South Texas, was slated to add up to 2.8 million jobs by 2020 and boost government tax revenues by $24.6 billion a year.
Pops wrote:Just noticed this, an example of unfortunate press timingEurope Has 28-Year Shale Gas Rebuff to Russia: Chart of the Day
By Ladka Bauerova and Radoslav Tomek May 19, 2014 5:00 PM CT
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ROCKMAN wrote:I put no value on the original estimate. .. It has no bearing on the future production rate from the MS and what impact that might or might no have on the US economy.
Dream of U.S. energy independence was just revised away
Opinion: Most of the shale oil we were counting on doesn’t exist
...The hype about shale prospects are wedded to a Wall Street cheap capital machine that is showing clear signs of over-heating.
...For the U.S. as a whole, the Monterey write-down should squelch any talk of the U.S. needing to export any of its oil ..
Martenson wrote:Given how much hope and political posturing rested upon the shale oil miracle in the U.S., the Monterey write-down is one the biggest news developments on the wires right now.
Chief Executive Officer Stephen Chazen, who began talking to investors and analysts in April about the possibility of turning Occidental’s California operations into a stand-alone company, is facing skepticism as the promise of tapping one of the biggest U.S. oil reservoirs has yet to be realized. While Chazen hasn’t made any specific proposal public, shareholders including Cambiar Investors LLC and Frost Investment Advisors LLC are questioning whether more patience is needed to realize the best value from a spinoff or initial public offering. . . .
Venoco Inc., which has 46,000 net acres in the Monterey, drilled 29 wells in the formation from 2010 to 2012 and as of June hadn’t seen any production, according to a company filing. It’s now reduced spending in the region. . . .
Since 2010, Occidental hasn’t been able to increase production there beyond an average 1 percent in any three-month period — far below the expectations of analysts such as Bank of America Corp.’s Doug Leggate, who said in 2011 that the company could be worth $200 a share once it realized all the benefits of its California assets.
A slow permitting process and high costs have held Occidental back from boosting production more rapidly, CEO Chazen has said. The company’s business in the state will generate free cash flow of $1 billion this year based on a $1.5 billion capital program. Occidental’s California operations can raise output by 5 to 8 percent a year while generating a rate of return higher than 20 percent, according to a company presentation in July.
Summary
• The EIA wrote down 96% of the estimated recoverable oil from the resource.
• This could negatively impact the anticipated spinoff of OXY’s California operations.
• Other companies are affected, including CHK’s acreage position and VQ’s LBO debt.
• Could in theory negatively affect California muni bonds.
So: Venoco drilled 29 wells in the Monterey Shale and as of June hadn’t seen any production. So you might wonder why a company would keep drilling after 10 or so failures. Easy answer: they are perhaps making an adequate living doing so. And there's nothing illegal about. A management team drilling wells (successful or not) for investors has the right to be compensated as well as get a piece of pie from successes that the investors paid 100% to drill. These are called "oil and NG promoters" and do their best in times/areas of high hype. Back in the 70's boom I watched one such promoter drill 18 very expensive dry holes in a row on behalf of a NG pipeline company (common easy meat in those days). Did not make a smile commercial completion. And how did the promoter do: the senior hands retired millionaires when they eventually rolled the company up.
And all of the dozens of Eagle Ford Shale wells I know something about have promoted partners. Chesapeake was one of the biggest promotors in the play. For a while lots of folks paying ridiculous promotes in order to share their "glory". LO
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