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Monterey Shale Reserve Drop Draws Comments, Questions

Knowledgeable industry and academic sources following California's Monterey Shale on Tuesday expressed little surprise or disagreement with the U.S. Energy Information Administration's (EIA) 96% cut in its estimated technically recoverable reserves (TRR) in the Monterey. They stress, however, that this is more a reflection of current technology being deployed in the play than its long-term potential.

Some observers see the EIA making a radical pendulum swing from earlier grossly optimistic estimates to now austere predictions about recoverable reserves in the formation that covers a large swatch of central California.

Richard Behl, a geology professor and director of the MARS (Monterey and related sedimentary rocks) Project at California State University, Long Beach, called the earlier reports of 13.7 billion bbl in the Monterey "wildly optimistic and based on a number of poor assumptions." He said J. David Hughes in a paper late last year for the Post-Carbon Institute exposed the weakness of the earlier estimates (see Shale DailyDec. 9, 2013).

"I would guess that E&P in the Monterey will not slow by the active players -- both large and small -- but this change in EIA perspective might shake out speculators without experience and understanding of the complexities of these rocks," Behl told NGI's Shale Daily.

"It might also allay the intense, emotional opposition to petroleum development that was engendered by visions of Bakken-like intensive development and hydraulic fracturing in previously unexploited areas of California."

The slow developmental pace and operational challenges posed by the Monterey Shale haven't provided much of a boost for proved crude oil reserves in California, either. Proved crude oil reserves in the Golden State stood at 3.3 billion bbl at year-end 2007, and fell to 2.7 billion bbl at year-end 2008, before rebounding somewhat to 3.0 billion bbl at the end of 2012, the last year for which the U.S. Energy Information Administration has complete data.

The head of the Western States Petroleum Association (WSPA), Catherine Reheis-Boyd, said the latest EIA revisions don't change the amounts of oil present in the Monterey Shale; they just reflect how much oil can be produced with the current state of technology in California.

"We have a great deal of confidence that the skills, experience and innovative spirit possessed by the petroleum industry ultimately will solve the puzzle and improve production rates from the Monterey Shale," Reheis-Boyd said.

The Monterey has plenty of oil in place, but getting that oil out is difficult, according to the experts, such as Behl and independent Southern California geologist Donald Clarke (see Shale DailyApril 12, 2013).

"The Monterey varies greatly in composition and rock properties," Clarke told NGI’s Shale Daily on Tuesday. "Sometimes it is siliceous, calcareous, dolomitic or phosphatic; these chemical changes along with the amount of detritus cause big changes in the rock properties."

Clarke said the chemical complexity is further complicated by "structural deformation and the resulting fracturing. What is needed is a set of models that will help target the sweet spots or certainly the less risky targets."

He thinks that if this can be done, the recoverable oil in the Monterey may actually be a large number, possibly 10 billion bbl. However, Clarke acknowledged the Monterey is "risky business" that will require "some bold exploration to work out the secrets of the Monterey.

"Creative minds can open up the Monterey just like they opened up the Marcellus and Bakken. We need to give them a chance to. I guess you can put me with the bullish group."

The EIA recently cut its estimate of recoverable oil in California's Monterey Shale to 600 million bbl, a 96% decrease from previous estimates (see Shale DailyMay 21). 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, later revised to 13.7 billion bbl (see Shale Daily, July 24, 2012).

Behl said he thinks the latest EIA assessment will prove to be "just as wrong" as the earlier, bullish one. While he acknowledges that the new assessment could hurt California economically in the short term, he thinks that in the long run it will cause exploration/production activity to be done "more carefully, properly and consistently."

"It also will likely cool the heated rhetoric that was fanned by expectations of super-rapid growth in drilling activities before the local people and governments understood what real impacts are," said Behl, adding there is a lot of additional exploration and new technology needed in the Monterey.

"I don't have a crystal ball, but my group and the people that we work with are gaining new understandings all the time that are opening new possibilities."

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