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How to Invest in California’s Monterey Shale – 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.

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Back in the times of the California gold rush, people didn’t need to work out how to invest in the bonanza. They simply grabbed some basic mining gear and headed up into the hills.

Today California is the home of yet another wealth-creating boom – the oil contained within the Monterey Shale formation.

As Mark Twain once said, “History does not repeat itself, but it does rhyme.”

The 1,750-square mile Monterey Shale formation covers much the same region that lured people from across the country hoping to strike it rich in the gold rush.

But this time it is oil companies looking for pay dirt, and the early signs are promising.

The Energy Information Administration (EIA) says the Monterey holds at least 15 billion barrels of recoverable oil, using currently existing technology. That’s twice as much as either the Bakken or the Eagle Ford formations.

But even that estimate may be far too low…

Monterey Shale Is a Middle East-Sized Bounty

Cambridge Energy Research Associates thinks there may be up to 400 billion barrels of shale oil in the Monterey formation.

That’s about half the amount of conventional oil in Saudi Arabia!

There’s just one problem. . .California’s convoluted geology.

The Monterey formation is just a jumbled mess of folds, faults, and broken and fractured rock. This makes it difficult to use the hydraulic fracturing and horizontal drilling techniques that have been so successful in unlocking the resources trapped in other shale formations across the country.

So even though California recently passed legislation not banning fracking, in the case of Monterey that may not matter. The oil companies need a way to “unlock” the oil lying in the formation.

So they are considering another, perhaps even more controversial, way to get the oil from the Monterey shale – acidizing.

In this process acids – hydrofloric and hydrochloric – are pumped into vertical wells to open passageways in the convoluted rocks, releasing the oil to flow to the surface through the well.

Acidizing is not new. It has been used from time to time for more than a century to dissolve debris around new wells and remove hydrocarbon deposits around old wells.

Chris Faulkner, chief executive officer (CEO) of Breitling Oil and Gas, told the San Francisco Chronicle that he believes the Monterey will not require fracking. He said, “acidizing will be enough to open up the rock. I think it could be a way to unlock the Monterey.”

Still, the very difficult geology has dissuaded many oil companies from tackling the Monterey.

“I think the jury’s out a little bit on the Monterey Shale,” Chevron (NYSE: CVX) CEO John Watson told shareholders in May. Needless to say, Chevron is putting its investment dollars elsewhere for now.

But one firm is going full speed ahead into the Monterey…

How to Invest in Monterey: Occidental Petroleum

California-based Occidental Petroleum (NYSE: OXY) is clearly how to invest in Monterey.

The second-largest oil producer in the state after Chevron, Occidental has all the pieces in place to make a successful run at turning Monterey into a Gold Rush 2.0.

The company plans to drill 15 exploratory wells in the Monterey in the second half of this year. Exploration efforts last year yielded a 50 million-barrel oil equivalent discovery in the San Joaquin Basin.

Occidental owns more land (roughly 1 million acres) in the Monterey Shale than any of its competitors. In Security and Exchange Commission filings, the company stated that it controls shale reserves in the Monterey that contain about 20 billion barrels of oil.

And Occidental thinks it can get that oil out with acidizing.

“It [Monterey oil production] is mainly acid-jobs driven, and we’re just simply treating these wells in larger intervals with more acid,” the president of the company’s operations in the Americas told Wall Street analysts.

The only question is whether environmentalists raise as much of a ruckus over acidizing as they have over fracking.

That may be all that stands in the way of Occidental striking it rich in the black gold of the Monterey.

Note: You must make this oil play NOW… Or you’ll miss your best shot at scoring explosive triple-digit gains – or more – on a practically virgin petroleum reserve worth $175 trillion. To get in position before the mad rush into the one key play on this find, just go here.

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