Released October 08, 2013 | SUGAR LAND
en
Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Oil producers, and the companies that provide services to them, are well-acquainted with the risk-reward spectrum: projects with potentially small rewards carry small risks, while projects with bigger potential rewards carry bigger risks.
That's probably why oil & gas producers aren't charging en masse into California to develop the Monterey Shale. With an estimated 15 billion barrels of technically recoverable crude oil, the Monterey Shale contains far more oil than the Bakken or Eagle Ford shales, according to a 2011 study from the Energy Information Administration (EIA), the statistical and analytic branch of the U.S. Department of Energy (DoE) (Washington, D.C.).
EIA estimated the Monterey Shale stretches for 1,750 square miles 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 agency said.
A study by the University of Southern California estimated fully developing the Monterey Shale could create as many as 2.8 million new jobs and boost tax revenue by $4.5 billion for state and local governments by 2020--important considerations in a state with significantly above-average unemployment and longstanding budget shortfalls.
"When you first hear about the size of the Monterey Shale, you can get very excited," observed Jesus Davis, Industrial Info's vice president of research for Oil & Gas Production, Pipelines and Terminals industries. "And with oil prices at such high levels, the Monterey is getting more attention these days. In some quarters, it is being promoted as the 'Next Big Thing.' But you have to remember that the Monterey is located in California, where the environmental community has a strong voice."
The Monterey Shale's location--and its geology--pose sizable, potentially insurmountable, challenges. The challenges above ground look to become even more difficult next year when a California law governing disclosures about hydraulic fracturing goes into effect. California has been producing oil for more than a century, but only about 1% of the state's estimated 50,000 producing wells are being hydraulically fractured, according to a Wall Street Journal article citing the Western States Petroleum Association (Sacramento, California).
Hydraulic fracturing is a hot-button issue in environmentally conscious California. Last month, the California Legislature passed and Governor Jerry Brown signed into law Senate Bill 4, a controversial measure that increased regulatory oversight of hydraulic fracturing in the state. The bill sparked several campaigns to impose a moratorium, or even outlaw, hydraulic fracturing in California. Last month, a group of top-drawer chefs in California announced it formed a group to oppose hydraulic fracturing. The California chefs said their effort was modeled on a similar effort opposing hydraulic fracturing, New York's "Chefs for the Marcellus" organization. The California chefs and their New York counterparts claim hydraulic fracturing could threaten water, agriculture and the public's health.
Some companies are trying to extract oil from the Monterey without hydraulic fracturing, but that approach hasn't led to widespread public support either. One company, privately held Santa Maria Energy LLC (SME) (Santa Maria, California), has been developing a plan to extract crude from the Monterey using a cyclic steam enhanced oil recovery (EOR) process--a less water-intensive form of EOR than other techniques. The company has vowed it is not using and will not use hydraulic fracturing to produce oil.
But SME's application has drawn public opposition, in some cases by citizens who mistakenly think it will utilize hydraulic fracturing. "Although it has been stated repeatedly, we will say it again--SME has not fracked any wells, and has no plans to frack wells," SME President David Pratt wrote in a letter to the editor of the Santa Maria Times this summer.
SME's efforts have not been welcomed by Santa Barbara County or local non-governmental organizations. Despite a regulatory record exceeding 2,000 pages, and extensive outreach and environmental mitigation efforts, the company's application to drill production wells on a 32-acre plot of land found no favor with county's Planning and Development Department. Earlier this year, the board disagreed with its staff recommendation to approve the project, saying additional study of greenhouse gas emissions was needed.
"Santa Barbara County is the center of anti-oil & gas development," a visibly frustrated Bob Poole, SME's spokesman, told an industry conference this summer. "People in California go nuts over any potential oil & gas development."
Amy Myers Jaffe, executive director of energy and sustainability at the University of California, Davis, told the Wall Street Journal that hydraulic fracturing is more difficult to do in the Monterey shale because the formation is so jumbled. The formation's geology makes it hard to find large amounts of shale to produce using hydraulic fracturing. "The technical challenges are such that it makes it more expensive to frack in California," Jaffe sad.
Tupper Hull, spokesman for the Western States Petroleum Association, agreed. He told the Dallas Business Journal no operator has yet "cracked the code" on how best to produce oil in the Monterey Shale. The Monterey differs from other shale formations because California's seismic activity has buckled the shale, breaking a contiguous formation into many separate pieces.
California's largest oil & gas producers include Occidental Petroleum Company (NYSE:OXY) (Los Angeles, California), Plains Exploration & Production Company (Houston, Texas), now a unit of Freeport-McMoRan Copper & Gold (NYSE:FCX) (Phoenix, Arizona), and National Fuel Gas Company (NYSE:NFG) (Williamsville, New York).
Freeport McMoRan's California oil & gas business produced about 37,200 barrels of oil per day (BBL/d) during the first quarter of 2013, the company told investment analysts in New York earlier this year. This year, the company California oil & gas business will generate cash margins of about $850 million and a pre-tax rate of return of about 60% if Brent crude oil averages $100 per barrel and natural gas futures average $4 per million British thermal units (MMBtu) on the New York Mercantile Exchange (NYMEX), company representatives said in their June 24, 2013 presentation. Freeport's reserve life in the Golden State is about 24.5 years, well above the industry's average. A company representative would not discuss Freeport's oil & gas plans for California.
"I don't think significant development of the Monterey is going to happen," predicted Industrial Info's Davis. "Even with crude oil priced over $100 per barrel, companies would rather double down on increasing production in the Bakken or Eagle Ford before they try to operate in California. It simply doesn't make sense."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and nine 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.
That's probably why oil & gas producers aren't charging en masse into California to develop the Monterey Shale. With an estimated 15 billion barrels of technically recoverable crude oil, the Monterey Shale contains far more oil than the Bakken or Eagle Ford shales, according to a 2011 study from the Energy Information Administration (EIA), the statistical and analytic branch of the U.S. Department of Energy (DoE) (Washington, D.C.).
EIA estimated the Monterey Shale stretches for 1,750 square miles 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 agency said.
A study by the University of Southern California estimated fully developing the Monterey Shale could create as many as 2.8 million new jobs and boost tax revenue by $4.5 billion for state and local governments by 2020--important considerations in a state with significantly above-average unemployment and longstanding budget shortfalls.
"When you first hear about the size of the Monterey Shale, you can get very excited," observed Jesus Davis, Industrial Info's vice president of research for Oil & Gas Production, Pipelines and Terminals industries. "And with oil prices at such high levels, the Monterey is getting more attention these days. In some quarters, it is being promoted as the 'Next Big Thing.' But you have to remember that the Monterey is located in California, where the environmental community has a strong voice."
The Monterey Shale's location--and its geology--pose sizable, potentially insurmountable, challenges. The challenges above ground look to become even more difficult next year when a California law governing disclosures about hydraulic fracturing goes into effect. California has been producing oil for more than a century, but only about 1% of the state's estimated 50,000 producing wells are being hydraulically fractured, according to a Wall Street Journal article citing the Western States Petroleum Association (Sacramento, California).
Hydraulic fracturing is a hot-button issue in environmentally conscious California. Last month, the California Legislature passed and Governor Jerry Brown signed into law Senate Bill 4, a controversial measure that increased regulatory oversight of hydraulic fracturing in the state. The bill sparked several campaigns to impose a moratorium, or even outlaw, hydraulic fracturing in California. Last month, a group of top-drawer chefs in California announced it formed a group to oppose hydraulic fracturing. The California chefs said their effort was modeled on a similar effort opposing hydraulic fracturing, New York's "Chefs for the Marcellus" organization. The California chefs and their New York counterparts claim hydraulic fracturing could threaten water, agriculture and the public's health.
Some companies are trying to extract oil from the Monterey without hydraulic fracturing, but that approach hasn't led to widespread public support either. One company, privately held Santa Maria Energy LLC (SME) (Santa Maria, California), has been developing a plan to extract crude from the Monterey using a cyclic steam enhanced oil recovery (EOR) process--a less water-intensive form of EOR than other techniques. The company has vowed it is not using and will not use hydraulic fracturing to produce oil.
But SME's application has drawn public opposition, in some cases by citizens who mistakenly think it will utilize hydraulic fracturing. "Although it has been stated repeatedly, we will say it again--SME has not fracked any wells, and has no plans to frack wells," SME President David Pratt wrote in a letter to the editor of the Santa Maria Times this summer.
SME's efforts have not been welcomed by Santa Barbara County or local non-governmental organizations. Despite a regulatory record exceeding 2,000 pages, and extensive outreach and environmental mitigation efforts, the company's application to drill production wells on a 32-acre plot of land found no favor with county's Planning and Development Department. Earlier this year, the board disagreed with its staff recommendation to approve the project, saying additional study of greenhouse gas emissions was needed.
"Santa Barbara County is the center of anti-oil & gas development," a visibly frustrated Bob Poole, SME's spokesman, told an industry conference this summer. "People in California go nuts over any potential oil & gas development."
Amy Myers Jaffe, executive director of energy and sustainability at the University of California, Davis, told the Wall Street Journal that hydraulic fracturing is more difficult to do in the Monterey shale because the formation is so jumbled. The formation's geology makes it hard to find large amounts of shale to produce using hydraulic fracturing. "The technical challenges are such that it makes it more expensive to frack in California," Jaffe sad.
Tupper Hull, spokesman for the Western States Petroleum Association, agreed. He told the Dallas Business Journal no operator has yet "cracked the code" on how best to produce oil in the Monterey Shale. The Monterey differs from other shale formations because California's seismic activity has buckled the shale, breaking a contiguous formation into many separate pieces.
California's largest oil & gas producers include Occidental Petroleum Company (NYSE:OXY) (Los Angeles, California), Plains Exploration & Production Company (Houston, Texas), now a unit of Freeport-McMoRan Copper & Gold (NYSE:FCX) (Phoenix, Arizona), and National Fuel Gas Company (NYSE:NFG) (Williamsville, New York).
Freeport McMoRan's California oil & gas business produced about 37,200 barrels of oil per day (BBL/d) during the first quarter of 2013, the company told investment analysts in New York earlier this year. This year, the company California oil & gas business will generate cash margins of about $850 million and a pre-tax rate of return of about 60% if Brent crude oil averages $100 per barrel and natural gas futures average $4 per million British thermal units (MMBtu) on the New York Mercantile Exchange (NYMEX), company representatives said in their June 24, 2013 presentation. Freeport's reserve life in the Golden State is about 24.5 years, well above the industry's average. A company representative would not discuss Freeport's oil & gas plans for California.
"I don't think significant development of the Monterey is going to happen," predicted Industrial Info's Davis. "Even with crude oil priced over $100 per barrel, companies would rather double down on increasing production in the Bakken or Eagle Ford before they try to operate in California. It simply doesn't make sense."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and nine 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.
