Saturday, August 4, 2012

Bakken, OXY, Monterey Shale: The Dots Are Starting To Connect

Updates

February 20, 2017: Monterey County voters overwhelmingly voted to ban fracking in their county. If I recall correctly, there's very little drillingin Monterey County to begin with; this is not a big story. And the fact that USGS has knocked off 96% of reserves. See April 30, 2015, RBN Energy link below.  

September 20, 2015: Business Insider calls it a scam

June 17, 2015: hope springs eternal

April 30, 2015: incredibly good update, RBN Energy. 

January 25, 2015: hope springs eternal. The San Jose Mercury News is reporting:
The oil and gas potential of the vast Monterey shale formation will be the focus of an upcoming study by an independent panel of scientists operating under direction of the state Legislature.
The study will be part of a highly anticipated report on the controversial practice of hydraulic fracturing, with the first volume released last week. That report, covering existing well-stimulation practices, underscored the profound uncertainties about the amount of developable oil beneath Monterey County and parts south.
"We're going to look at what it would really take to get a good estimate," said Jane Long, who is spearheading the study for the California Council on Science and Technology.
The effort is one result of SB 4, a 2013 state bill that was the Legislature's answer to a raging debate about the impacts of hydraulic fracking in California. Santa Cruz County banned fracking, and in November, San Benito County voters did the same.
The Monterey shale underlies the San Joaquin Valley and parts of Monterey County. In 2011, the U.S. Energy Information Administration estimated it held 15.4 billion barrels of untapped oil -- more than any place in the U.S.
But in 2014, the agency dramatically lowered its estimate to 600,000 million barrels. The study found both estimates to be unreliable.
Say what? They found "both estimates to be unreliable."

Jerry Brown needs the money for his bullet train. 

*********************************

January 14, 2015: the slump in the price of oil spells the end for the Monterey Shale ... like forever?

October 2, 2014: OXY USA to spin off California Resources (aka Monterey Shale). 

May 23, 2014: the potential of the Monterey Shale is "taken off the table" by the Feds.

May 21, 2014: from NaturalGasIntel --
The Energy Information Administration (EIA) has cut its estimate of recoverable oil in California's Monterey Shale to 600 million bbl, a 96% decrease from previous estimates, an agency spokesman told NGI's Shale Daily Wednesday.
The revised number comes nearly three years after EIA had estimated Lower 48 technically recoverable shale oil resources at 23.9 billion bbl, including 15.4 billion bbl in the Monterey/Santos play, then believed to be the nation's largest shale oil formation (see Shale DailyJuly 11, 2011). A year later, in its Annual Energy Outlook 2013 (AEO2013), the agency estimated technically recoverable oil in the Monterey at 13.7 billion bbl (see Shale DailyJuly 24, 2012).
But changes to technically recoverable resources (TRR) estimates "do not necessarily have significant implications for projected oil and natural gas production, which are heavily influenced by economic considerations that do not enter into the estimation of TRR," an EIA spokesman told NGI.
"Importantly, projected oil production from the Monterey play is not a material part of the U.S. oil production outlook in either AEO2013 or AEO2014, and was largely unaffected by the change in TRR estimates between the 2013 and 2014 editions of the AEO," Jonathan Cogan said. "EIA estimates U.S. total crude oil production averaged 8.3 million b/d in April 2014.
“In the Annual Energy Outlook 2014 (AEO2014) Reference case, production of economically recoverable oil from the Monterey averaged 57,000 b/d between 2010 and 2040, and in the AEO2013 the same production averaged 14,000 b/d. Clearly, there is not a proportional relationship between TRR and production estimates -- economics matters, and the Monterey play faced significant economic challenges regardless of the TRR estimate."
Estimates of TRR "are highly uncertain," Cogan said.
Key factors driving the lower estimate included new geology information from a U.S. Geological Survey review of the Monterey "and a lack of production growth relative to other shale plays like the Bakken and Eagle Ford."
The TRR estimates and other assumptions in AEO2014 are due to be released by EIA in June.
Except for a footnote, the EIA never mentions the Monterey Shale in the AEO2014. Very, very strange.

May 20, 2014: The Los Angeles Times carries the story that the Monterey Shale is a "bust"-- EIA.

February 14, 2014: OXY to move headquarters from Los Angeles to Houston, spin off California assets.


September 23, 2013: update on the Monterey Shale in The Wall Street Journal.


September 20, 2013: Governor Jerry Brown signs fracking regulations for the first time ever in the state of California.

June 29, 2013: The Dickinson Press has a nice little story on the Monterey

June 3, 2013: water issues / fracking issues in the Monterey

April 1, 2013: Taft, California, hopes to cash in on Monterey. Update at LA Times. Doesn't sound promising. I don't think oil companies have cracked the code on fracking in the Monterey, and the environmentalists are circling. The Monterey is California's Keystone XL.

February 21, 2013:  short video on Monterey Shale; sounds like it will be more difficult to figure out geologically (think tectonic plates, fault lines, mountains, earthquakes); CVX is on record as saying they are not impressed. Remember earlier post of CVX moving some 800 of their California employees to Houston. The transcript of the video is here.

February 3, 2013
: New York Times article on the Monterey Shale in California.

December 24, 2012
: recent BLM auction in Monterey County turns out to be a dud: $10/acre.

December 23, 2012
: BLM approves leasing for the Monterey shale; says fracking is safe; 

August 29, 2012
: with Californians so anti-oil, not much chance that the Monterey Shale will be huge competitor to the Bakken with regard to bragging rights. It's not as easy as it sounds to drill the Monterey Shale.

August 5, 2012
: after posting the story below, and after posting the first couple of comments, I read the SeekingAlpha.com transcript of EOG's 2Q12 earnings conference call. What EOG had to say about Eagle Ford, the Bakken, and the Monterey, confirms what I wrote below. Very, very interesting.



California Dreamin', The Mamas and The Papas


Original Post


Huge "tip of the hat" to Bakkenzone.com for this story: Monterey Shale may not match the Bakken.

Regular readers should find this very, very interesting.

First, some data points from the blog over the past few weeks.

Occidental, in my mind, is as California-centric, as Whiting is Bakken-centric. (I could be wrong, but in general, that's my world view.)

Occidental entered the Bakken; initials wells were not particularly noteworthy, and OXY mentioned (in an earnings conference call) they would be reducing their effort in North Dakota and moving to California where they perceived better opportunities.

About this time, there was a flurry of articles about the Monterey Shale in California, and the dots started to connect.

But, then two interesting observations. First, after that initial flurry of stories, I didn't read much more about OXY and Monterey Shale. Perhaps I wasn't looking hard enough (true), but I scan the headlines of four or five oil and gas trade journals five days a week, and I don't recall much being written about Monterey Shale.

The second observation; in the 2Q12 earnings conference call, OXY mentioned that its worldwide production had increased, but that increase was mostly attributable to the Bakken. And unlike earlier conference calls when the Bakken was hardly mentioned, it seems the Bakken was mentioned fairly often this time around. Those two observations suggested to me that maybe, just maybe, perhaps the Bakken was looking at least a little bit better to OXY.

So, that's where matters stood in the left side of my brain until a few minutes ago. I was checking up on Bakkenzone.com as a Bakken news site, and came across the linked story (above). From that site:
The field, a formation of rock known as the Monterey Shale, was thought to have 15 billion barrels of “technically recoverable” reserves, according to government estimates. That’s triple the amount of oil found in huge and newly prolific fields in North Dakota and Texas. The formation lies under the San Joaquin Valley in central California. Most of the locations probed so far have been northwest of Bakersfield.

But drillers haven’t been able to get the Monterey Shale to produce oil at high rates. Brackett suggests that there are a few characteristics of the geology that could make the field more difficult to develop. There are lots of natural faults in the rock, which means drillers can’t easily control the flow of oil through faults they create. Also, the rock is not under enormous pressure, so there is less force pushing the oil to the surface. And the oil may be relatively thick and sticky, which slows its flow.
Interesting, huh?

Now, add a few more data points.

"Everyone" agrees that the Bakken should have 3 to 4 billion barrels of recoverable oil. This is a most conservative estimate and was "developed" back in 2008 (?). Certainly technology and geopolitical events have changed since 2008. Recent estimates, by some credible folks, suggest there may be as much as 24 billion barrels of recoverable oil in the Bakken/Three Forks. Note how those numbers (4 billion and 24 billion) compare to the estimate for Monterey Shale.

Also, note at the linked story, the drillers interested in the Monterey Shale: Occidental Petroleum Corp.(mkt cap: $75B), Plains Exploration & Production Co. ($5B), Venoco Inc. ($0.5B) and Berry Petroleum Co ($2B). That list speaks volumes, especially when compared to the list of drillers interested in the Bakken: Statoil (Norway State Oil), XOM, COP, Marathon, Whiting, Continental Resources, Burlington Resources.

I don't think the state of California will stand in the way of developing the Monterey Shale due to the state's budget crisis, but a) faux environmentalists will always be a challenge; b) I've never thought of California as pro-business as North Dakota; c) even under best of circumstances, lawyers per capita in California vs North Dakota is a concern; and, d) if anything goes wrong, environmentally while drilling the Monterey, the press will be ready to pounce.

The tone of OXY's 2Q12 conference call seems to reflect those data points, especially in light of the article linked above, Bloomberg, July 31, 2012.

12 comments:

  1. I live in California, have for many years. In observing environmentalists and nimbys, my experience is that by far the most noise happens in the coastal including offshore and near and around state or federal parks . Enviro and nimby activists don't give two shits about what happens in Bakersfield (or for that matter) Williston . Just the way it is, sorry.

    ReplyDelete
    Replies
    1. I agree with you completely. In the big scheme of things I would rather have some faux environmentalists than no environmentalists at all. What I really prefer is "true" environmentalists, though.

      I remember the story of the rivers on the East Coast that could literally catch on fire.

      We enjoy Cabrillo Beach, San Pedro, CA, but have been told it is "full" of bacteria; I know not why.

      I sometimes wonder -- I know it's not good to generalize -- if farmers (and maybe some bird hunters/deer hunters) aren't the best examples of environmentalists and conservationists?

      Delete
  2. The difference between California and North Dakota are California is anti-business and North Dakota is the opposite being pro-business. It pretty much boils down to that simple fact. Clear all the political smoke away and it is obvious to see what side each is on.

    We are seeing areas of the country that were very successful now on the decline and that has opened up incredible opportunity for the areas that were historically overlooked. Though the handwriting is on the wall the areas of past success are frozen in amber refusing to implement the reform that is needed.

    One exception is Wisconsin who realized they were on a dead end road and have began implementing badly needed reform. Today there is a mini-silica sand boom going on that is giving them a greatly needed shot in their economic arm.

    ReplyDelete
    Replies
    1. You are absolutely correct. Some have written to say that, "of course, North Dakota is doing so well. It's their oil." In fact, several states have much more oil than North Dakota, including California. No, it's not "just" the oil. There is much more to it than that. As you noted.

      Delete
  3. I think we might need to do a little more checking into OXY. I don't catch quite the WB enthusiasm in the call that you do. Also-the spot where they attribute much of their growth to the Bakken may just be in regards to growth in the mid-continent region-ie "Much of our mid-continent growth is Bakken." Anyway-that is the way I read the transcript-relevant section on page 5-Q/A section.
    http://seekingalpha.com/article/753661-occidental-petroleum-management-discusses-q2-2012-results-earnings-call-transcript?page=5&p=qanda

    ReplyDelete
    Replies
    1. You may be correct (probably are correct). I tend to read things fairly quickly, often misreading things. Remove my comments about OXY's enthusiasm for the Williston Basin, but the challenge of the Monterey remains. That's the most important point of the article. Just because the Bakken is a challenge, doesn't necessarily mean the other shales are going to be any bit easier. Along that line, I hear of challenges in the Eagle Ford that may dampen the enthusiasm of some.

      So, with regard to OXY and the Bakken, we'll see. My hunch is that the Bakken will continue to surprise us, and continue to impress us.

      Delete
  4. "True" environmentalists are hard to find. I recall an instance in Santa Barbara a few years back where a fellow associated with an environmental group discovered the natural seepage of oil in the Santa Barbara Channel over a 2-3 year period was equal to the amount of oil spilled in the infamous '69 spill. Of course the only way to deal with the natural seepage would be to drill and pump out the oil to relieve the pressure. The fellow making this discovery favored drilling, but to date, and likely for years to come, nothing will be done.

    ReplyDelete
    Replies
    1. Thank you. You made my point exactly. Thank you for taking time to comment.

      Delete
  5. From all I can gather as of today, one well has effectively killed enthusiasm for the Monterey shale? I can't buy that. First off, Venoco has produced from the Monterey offshore for some time, but deeper where it is more fractured. All press was relatively positive until this recent well. And then I remember early rumblings in the Bakken that seemed discouraging. Even more so in the Eagle Ford, lots of bad press with some saying it was overrated, not economic, etc. A lot of that was due to local variation. I'm not counting the Monterey out as a prolific new play quite yet.

    ReplyDelete
    Replies
    1. Can't disagree. Thank you for taking time to comment. The Monterey will be fun to watch.

      Delete
    2. As an side, Hess Corp. has started to enter the the Monterey Shale and has started to drill wells in the Tulare region.

      I think the big guys are starting to get more interested.

      Even if the success of Monterey tunrs out less prolific than Bakken the amount of oil would still be very large indeed.

      Shawn

      Delete
    3. Great post, Shawn, thank you.

      For those interested, here's the story:

      http://www.bakersfieldcalifornian.com/business/x1942473835/Another-large-oil-company-arrives-in-Bakersfield

      Delete