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The Next U.S. Shale Oil Boom Could Be in California – Money Morning

This is a syndicated repost published with the permission of Money Morning. To view original, click here. Opinions herein are not those of the Wall Street Examiner or Lee Adler. Reposting does not imply endorsement. The information presented is for educational or entertainment purposes and is not individual investment advice.

The U.S. shale oil boom has hit Texas and North Dakota – and is now looking to take over the Golden State of California.

California’s Monterey Shale formation covers 1,750 square miles from southern to central California and is believed to contain more shale oil than North Dakota’s Bakken and Texas’s Eagle Ford combined.

The potential of the Monterey Shale formation is enormous. According to IHS Cambridge Energy Research Associates, Monterey may hold about 400 billion barrels of oil – roughly half the amount of conventional oil that Saudi Arabia has.

The energy research director at IHS, Stephen Trammel, told CNNMoney, “Four-hundred-billion barrels, that doesn’t escape anyone in this [oil] business.”

Even if that is an overly optimistic estimate, there is enough recoverable oil there to make it worthwhile.

How Much Oil is in the Monterey Shale?

The U.S. Energy Information Agency said in 2011 at least 15.42 billion barrels of oil could be recovered from the Monterey Shale using existing technology. That would be 64% of the estimated total recoverable oil in the lower 48 states.

It is also half the amount of oil in Alaska’s North Slope before oil began to be pumped. And it is twice as much recoverable shale oil as the Bakken and Eagle Ford formations combined.

Geological challenges have made it difficult to get Monterey Shale oil out of the ground, as the oil is 6,000 to 15,000 feet below the surface. But new technologies will make the oil recoverable.

“There are billions of barrels of oil buried in the Monterey Shale, and as far as I know, nobody’s been able to find it yet,” Neil Ormond, the president of Petroleum Land Management, a company based in Clovis, CA told The New York Times. “But I think there’s going to be more people looking for it. You can’t let a few dry holes discourage the whole thing, because if you find oil, you make money.”

And that’s why Monterey Shale has attracted the attention of oil companies.

Challenges Getting Monterey Shale Oil Out of Ground

The Monterey Shale’s geology has prevented anyone from coming up with an easy way to do large-scale extraction, and environmentalists have raised alarms about fracking.

Because of the San Andreas fault, the shale formations are not flat like other shale formations in the country. In the Monterey, the formations are, as CNNMoney described them, “folded like an accordion rather than stacked on top of each other.”

This geology makes the use of technology such as horizontal drilling very tricky. Oil companies will have to know the exact geology of each location. Brittle shale is good for drilling, while ductile shale is not.

To get oil from the Monterey Shale, oil companies may have to employ more intensive fracking and at deeper levels than elsewhere.

This, of course, has California’s well-known and powerful environmental groups up in arms.

These groups are unhappy with the California State Department of Conservation’s first draft of fracking rules, released in December. This was the first step in a yearlong process to set up regulations.

Environmentalists want companies would not have to disclose the chemicals used in the fracking process. They’ll be keeping close watch on oil companies’ progress in the region.

Monterey Shale Oil Plays

The company holding the biggest Monterey Shale acreage by far is Occidental Petroleum Corp. (NYSE: OXY).

It has had some success in Monterey Shale using a cheaper technology than fracking called deep acid injection – injecting hydrofluoric acids or other acids underground where they eat away at shale rock and enable oil to flow. The volume used is small and does not involve the use of pressure.

Another big player in Monterey is privately held Venoco. That company and Occidental have recently stepped up their exploration efforts, including a joint 3-D seismic survey of one area.

Other oil companies starting to increase their efforts in Monterey Shale include Plains Exploration & Production Co. (NYSE: PXP), National Fuel Gas Co. (NYSE: NFG) and Hess Corp. (NYSE: HES).

If other shale formations provide any indication, some company will eventually figure out the perfect technology to use at Monterey Shale, setting off a big shale oil boom in California.

[Editor’s Note:While the Monterey Shale is a game-changing find for California, what could be the largest shale oil find of all time was just uncovered in Australia. Money Morning Global Energy Strategist Dr. Kent Moors just released a new report on the $20 trillion discovery in a small, southern Australia town that could deliver a deathblow to Iran and Saudi Arabia.

The National Intelligence Community is following this story closely. China is redrawing its maps and building new alliances. And Washington, D.C. is trying to control this international chess match. This discovery could single-handedly cause powers to shift, while potentially transforming average Americans into millionaires..]

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