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Page added on July 27, 2011

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A big shale play in California

Production

California stands poised for a crude rejuvenation of sorts, as development of the Monterey

Shale play holds a key to reversing the state’s decades-old trend of declining production.

Call it a “California revolution,” as does Phil McPherson, a senior research analyst with Global Hunter Securities.

Bakken and Eagle Ford, the all-stars of the U.S. shale crude plays, draw the headlines — and the investment dollars — but it is the Monterey that could hold the greatest potential.

In the Energy Information Administration’s recently released “Review of Emerging Resources,” the federal agency pegs the Monterey play at 15.42 billion barrels of technically recoverable oil, compared to the Bakken’s 3.59 billion and the Eagle Ford’s 3.35 billion.

The Monterey shale overlaps much of California’s traditional crude producing regions. It generally runs in two swaths: a roughly 50-mile wide ribbon running length of the San Joaquin Valley and coastal hills, and a Pacific Coast strip of similiar width between Santa Barbara and Orange County.

Add to the mix an improved regulatory climate with faster permitting, an uptick in rig counts, and increased interest from independents, and California’s oil fields have become “a great place for investors to look,” McPherson said. “Their day in the sun is about to come.”

Challenges persist, however, such as community resistance to new drilling.

Unlike in Texas and North Dakota, home to the aforementioned shale plays, Californians– particularly those in the coastal cities–tend to resist embracing their state’s oil and gas heritage.

Excelaron, for instance, has seen its Huasna Valley oil field project in San Luis Obispo County endure repeated delays from organized community resistance. The Bureau of Land Management is facing a legal protest from environmental groups that seek to halt the federal agency’s lease sale in September of 2,600 acres for oil and gas shale exploration in the San Joaquin Valley.

Frankly, most Californians might be surprised to learn that their land of sun, beaches and wine is also the nation’s third largest crude producing state, churning out 558,000 b/d. Indeed, five of the country’s 20 largest fields are in California.

But the state’s oil fortunes have been on a downward trajectory. Oil production peaked in 1985 at 1.08 million b/d, and has since steadily dwindled. California’s proven reserves, too, peaked in the early 1980s at more than 5.0 billion barrels and have since dropped to 2.7 billion barrels by 2008.

Many of its large oil fields are pushing 100 years, such as the mammoth Beldridge South, and rely on Enhanced Oil Recovery techniques such as steam-flooding, to keep producing into the 21st century. And new offshore drilling still remains largely off-limits.

Hence the hope in the 1,752-square-mile Monterey Shale play, the largest of its kind in the nation. Venoco–with 158,000 acres of Monterey land–and Occidental Petroleum–with 873,000 acres–are wrapping up a joint-venture 500-square mile 3-D seismic survey of the southern San Joaquin Basin portion of the shale play.

Rsults in the play, so far, have been mixed: vertical drilling has been fairly successful to date, whereas horizontal drilling’s success remains more uncertain.

The Monterey remains a sleeper, but so too were the Eagle Ford and Bakken plays early in their development. Several years passed between the initial stages of production in the Bakken and the play’s first mention in large newspapers.

“It takes time for the mainstream to realize what’s going on,” McPherson said.

Platts



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