Running counter to recent public and private sector analyses, mediocre results so far and complex geology have combined to cause an Alliance Bernstein (AB) analyst to question whether the Monterey Shale will live up to some of the hype surrounding its future prospects. Even with these reservations, high oil prices could push the play closer to its potential, the report conceded.
AB analyst Bob Brackett contends that Monterey Shale has been producing much less oil than hoped for by some government and private sector analysts who have seen it as one of the biggest U.S. oil fields with potential for 15 billion bbl of technically recoverable reserves.
Earlier this summer, two Wood Mackenzie analysts lauded shale plays globally as very good long-term assets, contending that the continuing hype about the underexplored Monterey was appropriate (see Shale Daily, July 5).
However, Brackett contends that operators — such as Occidental Petroleum Corp. (Oxy), Plains Exploration & Production Co., Venoco Inc. and Berry Petroleum Co.– collectively have not been able to get high oil production rates in the Monterey. One reason, he speculates, is geology that includes natural faults in the rock that make the play difficult to develop.
The major Monterey player, Oxy, doesn’t seem to share that pessimism. CEO Steve Chazen, in a recent 2Q2012 earnings conference call with analysts, said Oxy’s exploration program in California was “doing pretty well,” with what he classified as “some moderate successes,” although they are “a little off the mainstream as far as where they are located.
“There is still some acreage to acquire that other people have, so I don’t want to go into any details at this point, but I think [California] is doing pretty well, and we have nice [well sites] that will be 10 and 12 million bbl annual additions,” Chazen said.
U.S. Energy Information Administration (EIA) estimates would make Monterey three times the size of the Bakken or Eagle Ford plays, said Brackett, noting that if Monterey was performing as well as either of those two prolific fields it would be delivering an estimated 300,000 b/d by now.
“We don’t expect a ‘Bakken Boom’ to strike the San Joaquin Valley,” Brackett wrote in the report. “We expect California production to grow only modestly.”
Brackett quoted some drillers as complaining that California’s permitting process is too slow and is contributing to the problem, but Chazen maintains that things are getting better in that regard in his home state. “In California we continue to see improvement in the issuing of permits relative to the past year,” he said, noting there are now “improved” field level rules and Oxy has obtained permits for injection wells and drilling locations.
Even with the lack of perceived results so far, Brackett said Monterey is still an attractive resource play, especially if oil prices go higher.
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