Released July 03, 2014 | SUGAR LAND
en
Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The U.S. Energy Information Administration (EIA) (Washington, D.C.) slashed its estimate of technically recoverable crude oil in California's Monterey Shale by 96% last month to about 600 million barrels, from a previous estimate of 13.7 billion barrels.
The agency is expected to release a detailed report on its revision in the near future. Word of the revision was first reported in late May by The Los Angeles Times, and it was later confirmed by EIA officials.
Speaking at an industry conference in New York at the time of the revision, EIA Administrator Adam Sieminski told Reuters: "The EIA concluded that the technical recoverability of Monterey Shale did not look as strong in 2014 because of the industry's difficulty in producing from the region. Not all (oil) resources are created equal. It turned out that it is harder to crack the reservoirs and get the oil flowing from the Monterey" than from Bakken or the Eagle Ford shales.
The Monterey Shale is a 1,750-square-mile formation under California's San Joaquin and Los Angeles basins. The shale formation is 1,000 to 3,000 feet thick, at depths ranging from 8,000 to 14,000 feet, the EIA said in its previous assessment of the shale. Prior to its May revision, the EIA had estimated the Monterey contained about 13.7 billion barrels of technically recoverable oil, far more than the Eagle Ford or Bakken shale formations. Oil is considered "technically recoverable" if it can be produced profitably at current prices using known technology.
The dramatic revision of technically recoverable reserves in the Monterey Shale is because the prior estimate, released in 2011, assumed that oil in that formation could be extracted as easily as oil in other shale formations, the Times reported.
The paper quoted John Staub, a petroleum exploration and production analyst who led the EIA research: "From the information we've been able to gather, we've not seen evidence that oil extraction in this area is very productive [when] using techniques like fracking. Our oil production estimates--combined with a dearth of knowledge (at that time) about geological differences among the oil fields--led to erroneous predictions and estimates." Different types of extractive techniques, such as acidization, might work better in the Monterey.
The extraction of oil from shale formations continues to evolve at a rapid pace, as operators are rapidly gaining expertise using horizontal drilling and hydraulic fracturing. But the complex geology of the Monterey has frustrated producers. Unlike other shale formations, where the oil lies in one or more stacked layers occurring at particular depths, seismic activity has folded and shattered the rocks in the Monterey Shale, making extraction more complex.
Earlier this year, Occidental Petroleum Corporation (NYSE:OXY) (Los Angeles, California) decided to sell its Monterey-based assets. A Monterey-focused producer, Venoco Incorporated (Denver, Colorado), has been warning investors that producing oil in the Monterey is more challenging than elsewhere. For more information on the Monterey Shale, see October 8, 2013, article - California's Monterey Shale Offers Big Rewards, but Bigger Risks.
The EIA revision is a blow to oil & gas producers, service companies, equipment suppliers and governments. One study of the economic potential of the Monterey, conducted last year by the University of Southern California and partly funded by the industry, predicted development of that formation could lead to a $24.6 billion annual increase in tax revenues and 2.8 million new jobs by 2020.
Jesus Davis, Industrial Info's vice president of research for the Oil & Gas Production, Pipelines and Terminals industries, said: "It's not unusual for the EIA to periodically reassess the size of a formation. Downward revisions, as well as upward revisions, are a fact of life in the Oil Patch, though a 96% downward revision is pretty steep. Still, given how rapidly the industry is learning about extracting oil from shale formation, we may be able to crack the code of the Monterey before too long."
"But geology and production techniques are only one part of the challenge the industry faces in developing the Monterey," Davis continued. "The larger challenge lies above-ground, in the political realm. Californians represents a difficult market for the Oil & Gas industry. There is a segment of the population that is vociferously opposed to hydraulic fracturing. The state recently adopted new hydraulic fracturing rules, and at least one county has passed an ordinance prohibiting hydraulic fracturing. In some ways, the geology and the economics of the Monterey are going to be easier to address that the local cultural and political issues."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
The agency is expected to release a detailed report on its revision in the near future. Word of the revision was first reported in late May by The Los Angeles Times, and it was later confirmed by EIA officials.
Speaking at an industry conference in New York at the time of the revision, EIA Administrator Adam Sieminski told Reuters: "The EIA concluded that the technical recoverability of Monterey Shale did not look as strong in 2014 because of the industry's difficulty in producing from the region. Not all (oil) resources are created equal. It turned out that it is harder to crack the reservoirs and get the oil flowing from the Monterey" than from Bakken or the Eagle Ford shales.
The Monterey Shale is a 1,750-square-mile formation under California's San Joaquin and Los Angeles basins. The shale formation is 1,000 to 3,000 feet thick, at depths ranging from 8,000 to 14,000 feet, the EIA said in its previous assessment of the shale. Prior to its May revision, the EIA had estimated the Monterey contained about 13.7 billion barrels of technically recoverable oil, far more than the Eagle Ford or Bakken shale formations. Oil is considered "technically recoverable" if it can be produced profitably at current prices using known technology.
The dramatic revision of technically recoverable reserves in the Monterey Shale is because the prior estimate, released in 2011, assumed that oil in that formation could be extracted as easily as oil in other shale formations, the Times reported.
The paper quoted John Staub, a petroleum exploration and production analyst who led the EIA research: "From the information we've been able to gather, we've not seen evidence that oil extraction in this area is very productive [when] using techniques like fracking. Our oil production estimates--combined with a dearth of knowledge (at that time) about geological differences among the oil fields--led to erroneous predictions and estimates." Different types of extractive techniques, such as acidization, might work better in the Monterey.
The extraction of oil from shale formations continues to evolve at a rapid pace, as operators are rapidly gaining expertise using horizontal drilling and hydraulic fracturing. But the complex geology of the Monterey has frustrated producers. Unlike other shale formations, where the oil lies in one or more stacked layers occurring at particular depths, seismic activity has folded and shattered the rocks in the Monterey Shale, making extraction more complex.
Earlier this year, Occidental Petroleum Corporation (NYSE:OXY) (Los Angeles, California) decided to sell its Monterey-based assets. A Monterey-focused producer, Venoco Incorporated (Denver, Colorado), has been warning investors that producing oil in the Monterey is more challenging than elsewhere. For more information on the Monterey Shale, see October 8, 2013, article - California's Monterey Shale Offers Big Rewards, but Bigger Risks.
The EIA revision is a blow to oil & gas producers, service companies, equipment suppliers and governments. One study of the economic potential of the Monterey, conducted last year by the University of Southern California and partly funded by the industry, predicted development of that formation could lead to a $24.6 billion annual increase in tax revenues and 2.8 million new jobs by 2020.
Jesus Davis, Industrial Info's vice president of research for the Oil & Gas Production, Pipelines and Terminals industries, said: "It's not unusual for the EIA to periodically reassess the size of a formation. Downward revisions, as well as upward revisions, are a fact of life in the Oil Patch, though a 96% downward revision is pretty steep. Still, given how rapidly the industry is learning about extracting oil from shale formation, we may be able to crack the code of the Monterey before too long."
"But geology and production techniques are only one part of the challenge the industry faces in developing the Monterey," Davis continued. "The larger challenge lies above-ground, in the political realm. Californians represents a difficult market for the Oil & Gas industry. There is a segment of the population that is vociferously opposed to hydraulic fracturing. The state recently adopted new hydraulic fracturing rules, and at least one county has passed an ordinance prohibiting hydraulic fracturing. In some ways, the geology and the economics of the Monterey are going to be easier to address that the local cultural and political issues."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
