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BY JOHN COX Californian staff writer email@example.com
Kern County's oil industry is working to tap a huge, previously overlooked reservoir that could greatly reduce California's dependence on foreign crude and support many local jobs.
The Monterey Shale, a vast "source rock" discovered two miles beneath the southern Central Valley, is believed to contain billions of barrels of oil -- enough, according to the federal government, to supply the state's refineries for two decades at the current rate of production.
But first, the industry must "figure out" the notoriously tricky formation, meaning engineers need to come up with a viable approach to bringing up the oil. Many expect it will require nontraditional methods of extraction, likely a combination of vertical and horizontal drilling, acid baths and hydraulic fracturing, or "fracking," the controversial technique worrying state lawmakers.
Recent interest in the Monterey has sparked something of a real estate rush around the county as players big and small, local and out of state, race to snap up land on which to set up drilling rigs and production wells.
Another indication of the industry's excitement was a conference in Bakersfield late last month in which more than two dozen industry speakers presented technological strategies for getting at Monterey.
Although some trace the discovery to a single well Arco drilled in 1986, the Monterey did not draw significant attention until Occidental Petroleum Corp.'s announcement two years ago of a major find in Kern. Since then, high oil prices have prompted local investments that might not have been justified even five years ago.
Even now some question the formation's practical potential in light of the steep geological and technological hurdles still to be overcome. But there is little doubt that the Monterey, which many suspect is the bubbling source of prolific oil fields such as Midway-Sunset and Belridge, has ended Kern's reputation as an oil region well past its prime.
"There have been thousands of successful wells drilled and completed in the Monterey in the San Joaquin Basin, but the new play is taking it deeper and essentially looking at the San Joaquin Basin with 'new glasses,'" Steven Marshall, managing director of Bakersfield's Western Energy Production LLC, told Hart Energy Magazine.
The U.S. Energy Information Administration stated last year that the Monterey, which it considers part of a larger formation that includes the Santos Shale extending off the coast of Southern California, is by far the nation's largest shale play, or extension of a field already in production.
That's a strong statement considering the agency's official estimate of the prolific Bakken oil shale formation now producing hundreds of thousands of barrels a day in North Dakota and Montana. The EIA pegged the Bakken at 3.6 billion recoverable barrels and the Monterey/Santos at 15.4 billion barrels, nearly two-thirds of the nation's total shale oil deposits.
For comparison, California currently imports about half of the 2 million barrels a day it refines, according to the state Energy Commission.
A reservoir that huge could have big implications for local government because of the taxes the county collects from oil producers.
So far, however, the county Assessor's office has been content to wait for Occidental and others to report the formation's "proven reserves" before increasing the companies' property taxes.
"It's just a little early for us to start counting our chickens before they hatch," said the office's chief appraiser, Lee Smith. He added that it could be several years before the Monterey's full extent becomes evident.
For similar reasons, it may be too early to say with certainty that the formation will be a boon to local employment. Unless an oil producer finds a way to extract large volumes of oil from the Monterey quickly, some say it could simply create a modest number of new jobs and then sustain them over a long period.
"Barring any gigantic, significant technology breakthrough, I think you're just going to see a slow production curve" in the Monterey, said Randy Adams, Kern's former top oil regulator. "So, I don't know how much that's going to affect any employment in the short term."
"I think clearly oil supports Kern County, and clearly the Monterey Shale is a huge part of that. And as long as that thing's producing, you're going to have that certain amount of employment coming out of that."
Underlying all of this is an assumption that oil in the Monterey can be produced economically. Key to that is studying the geology and drilling costly delineation wells to determine the most cost-effective places to begin production.
To that end, Los Angeles-based Oxy and Denver's Venoco Inc. have partnered on a three-dimensional seismic mapping project covering some 500 square miles, believed to be one of the biggest such undertakings in California history.
Although the results were not made public -- much that individual companies have learned of the formation has been kept confidential -- the findings were encouraging enough to persuade Venoco to drill up to 20 delineation wells this year "so we can get a ... more exact feel of the field -- the aerial extent," company Vice President Michael Edwards said in April.
Oxy, widely believed to be the largest leaseholder in the Monterey Shale, declined a request for comment on its activity related to the formation.
The focus now is on the engineering side to establish cost-effective strategies for extracting the oil.
Two factors have complicated this effort: The formation is "tight," meaning it does not easily yield oil, and its geology varies significantly. Finding a good way to pull up crude in one area does not necessarily mean the same approach will work elsewhere.
Seeking the 'Magic formula'
Hence David Hartley's skepticism. A Kern oil producer looking to expand his operations in the county, Hartley said other shale oil plays tend to have consistent geology. The Monterey's inconsistency, he said, makes it much harder to tap that the Bakken, for example.
Others agree that the Monterey presents significant challenge, though they tend to characterize it as a matter of time before the industry "cracks" the formation's secrets.
"Obviously it remains to be seen. There's a lot of uncertainty as far as exactly what's going to be recovered," said Rock Zierman, head of the California Independent Petroleum Association, an industry trade group. He added that it took engineers years to "unlock the magic formula" for producing oil in the Bakken and other shale deposits.
Another potential hurdle is growing public resistance to fracking, which pumps water, sand and small concentrations of toxic chemicals underground at high pressure to break up oil deposits. The industry insists the practice is done safely but environmentalists say it has the potential to pollute underground sources of drinking water.
California lawmakers have pushed state regulators to come up with rules specific to the practice. They are also considering bills that would require disclosure of where and when the technique is used, as well as how much water is involved, what is done with it afterward and what chemicals are used.
Zierman said the industry can deal with the proposed disclosure requirements and that he does not anticipate new barriers to fracking.
What's more, some people in the industry have concluded that at least some of the resource may be tapped using acidization, a less contentious approach that pumps high-pressure hydrochloric acid underground to open and enlarge underground pores.
Despite the uncertainties, outside companies are entering the local market. Among them: New York's Hess Corp., an oil producer with extensive operations in the Bakken and 2011 revenues of $38 billion.
Company spokesman Jon Pepper said in a late April interview that Hess has been picking up property in California since recently setting up shop on Chester Avenue. The company, which operates on six continents, previously did not have West Coast operations.
Pepper declined to be specific on a number of points, including how much property Hess seeks and where. He did call California a "very rich basin," however.
"This is very early days for us" in California, he said. "You know, we'll see where it leads."