What are the top shale plays in America?
Just five years ago, you could literally count them on one hand. Primarily gas plays, these formations enjoyed early success in the pre-boom era: Marcellus, Haynesville, Barnett, Woodford, and Fayetteville.
But now with horizontal drilling and hydraulic fracturing (fracking) technology being adopted en masse for extracting previously trapped oil resources as well, it seems like more and more shale formations are being added to the list each year.
The oil-rich formations of the Bakken, Niobrara and Eagle Ford have now become household names in the energy industry, churning out millions of barrels of oil per day, and putting the US on track to become “all but self-sufficient” for energy by 2035.
And very soon, we can add one more to the list…
This lesser-known formation’s will be primarily oil production as well.
Although it’s had little media attention to speak of – it could very well have colossal implications for our future energy needs.
Although the current crop of producing shale plays is leading the charge, they could all soon be eclipsed by the enormity of this new monster.
And, because the formation is only just beginning to catch the attention of the oil industry, I believe this play could quickly become one of the hottest investment opportunities of the decade.
And you know me; I love it when moneymaking news goes unnoticed.
This is a big deal folks. Here it is…
Welcome to California!
More specifically…welcome to the Monterey Shale.
To Californians, this area is also known as the Central Coast.
It’s home to some of the largest near-surface oil producing wells in America – and was once the top oil producing region in the world.
For years, petroleum geologists credited the Monterey Shale as the prolific source rock for many of the state’s large oil fields.
The story was the same. The bulk of the hydrocarbons in the Monterey Shale was trapped in shale rock and was thus not economical to extract.
But with fracking technology opening up plays like the Bakken and Eagle Ford, geologist began to take a second look at the Monterey Shale’s oil potential.
Then last year, the Energy Information Administration (EIA) of the U.S. Department of Energy issued an 82-page report titled “Review of Emerging Resources: U.S. Shale Gas and Shale Oil Plays.”
In it, the EIA revealed that the Monterey/Santos shale play was estimated to hold 15.42 billion barrels of recoverable oil.
That’s over four times that of the Bakken Shale, which holds 3.59 billion barrels of shale oil resource. It’s also over four times that of the Eagle Ford’s 3.35 billion barrels of oil as well.
In fact, the massive Monterey Shale holds twice as much recoverable shale oil as the Bakken and Eagle Ford combined.
It’s utterly massive, folks.
It’s also where my profit-making compass is pointing to next.
But here’s the important part…
This play has seen very little activity through the years even though there’s been evidence of production as early as the turn of the 20th century.
More than 17,000 wells have been drilled here to date… but most are either intended for near-surface production or never made it beyond the exploration stage.
The primary reason is that deep shale oil extraction in the region has been deemed ‘uneconomical’ due to the complex geology, and therefore no one has managed to establish any solid foothold there.
Like a wet sponge that’s been barely squeezed, you can just imagine how much oil remains trapped below ground.
But now the Bureau of Land Management (BLM) is finally recognizing the potential of this oil-packed region. They’ve recently committed to putting up thousands of acres of federal land for lease to the highest bidders over the coming years.
Nearly 18,000 acres went up for auction in December, while 3,000 acres were released earlier last fall.
Politicians and oil execs are also looking for ways to turn on this tap successfully (and safely).
If all goes well, we could be seeing more shale-accessible land up for grabs in the near future.
However, development of the Monterey Shale is not without its challenges.
For starters, extracting oil from this formation is tricky to say the least.
Some reports have speculated that the southern California play area for the Monterey Shale is too tectonically faulted and fragmented for development by horizontal drilling.
Don Clarke, a Los Angeles consulting geologist who has worked the L.A. Basin since 1974, thinks the biggest problems are characterizing the shale across the play area, understanding the Monterey stratigraphy and dealing with government regulations affecting drilling and development.
Probably the biggest obstacle facing the oil industry is the state’s powerful environmental lobby.
Horizontal fracking is still a controversial practice and environmentalists in the Golden State fear an oil boom could cause widespread groundwater contamination, along with air pollution, road congestion and other issues.
But Richard Behl, professor of geology at Cal State Long Beach believes, “it’s just a matter of time before environmentally acceptable methods of fracking or other techniques are developed.”
Yet at the end of the day, the potential reward is just too big to ignore.
Don Clarke predicts the development of the Monterey Shale probably will follow the same pattern as most other shale plays in the United States. Sooner or later, one company will figure out the right approach to drilling, hydrofracturing and production.
The Western States Petroleum Association is also optimistic as well
“If hydraulic fracturing proves to be as successful here as it’s been elsewhere, it’s an extraordinarily optimistic future we’re looking at from an energy point of view,” says Tupper Hull, VP Strategic Communications for WSPA.
And keep in mind, California has the distinguished honor of being the most debt-ridden state in America ($617 billion) as well as having the third highest unemployment rate at 10.1 percent.
Opening up the state to new shale exploration and production would certainly bring those numbers down. They need the jobs and they certainly need the money.
To put things in perspective, the North Dakota oil boom began in 2008.
In four short years, tens of thousands of new jobs were created in that state, pushing down the unemployment rate to less than four percent and handing the state a billion-dollar budget surplus.
Other states with the good fortune of being situated above shale formations are enjoying similar boom times.
With the Monterey, history can easily repeat itself.
However, the implications are far greater.
Companies To Watch
At the present time, L.A.-based Occidental Petroleum holds the most Monterey Shale acreage. Other players include Venoco Inc., Plains Exploration & Production Co. National Fuel Gas Co., and Berry Petroleum Co.
Several majors have already obtained a vast amount of Monterey land, but have largely avoided exploring this region for both the geological challenges as well as the red-tape associated with fracking.
If one of these companies announces a successful well, then the rush is on.
As more Monetery land becomes available on the auction block, be on the lookout for oil companies building up their war chest.
Once this massive shale play gets the green light, the ramp-up will be swift and dramatic.
The potential benefits garnered won’t just affect the people of California… it could very well fuel American energy needs for generations to come.
The good news is, we’re right on the ground floor.
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