California's next frontier: Development of the Monterey Shale

Bracewell & Giuliani via Oil & Gas Financial Journal ^ | December 2, 2013 | Heather Corken, Jason Hutt and Michael Weller

[thackney]

Depending on whom you ask, it looks like California is getting closer to tapping the nearly 15 billion barrels of recoverable oil that lies deep in the Monterey Shale. On September 20, 2013, Governor Jerry Brown signed SB 4 into effect, a bill that provides California with its first set of requirements specifically associated with hydraulic fracturing and other well stimulation techniques, such as acidizing. Less than one month later, the California Department of Conservation (DOC) has released proposed regulations applicable to well stimulation treatments in the state, initiated the State’s environmental review process and set the stage for the release of Emergency Regulations, under which owners and operators will be able to proceed with well stimulation in the interim.

While both industry and environmental groups may have wanted more from out of SB 4, its passage and swift implementation will provide some certainty now for oil and gas operators looking to develop the Monterey Shale, and avoids a situation like that in New York State, where the future of hydraulic fracturing remains in limbo.

Further studies

SB 4 requires California’s Natural Resources Agency to, by January 1, 2015, complete a comprehensive independent scientific study on well stimulation treatments, including an evaluation of “the hazards and risks that well stimulation treatments pose to natural resources and public, occupational, and environmental health and safety.” SB 4 requires the study to be truly comprehensive, covering everything from the chemical make-up of the treatment to the way that flowback is treated after stimulation. Specifically, SB 4 provides that the study should consider well stimulation treatments, additive and water transportation to and from the well site, the mixing and handling of well stimulation treatment fluids and additives at the well site, options for the use of nontoxic additives in treatments, the use or reuse of treated or produced water in well stimulation treatment fluids, and the treatment and disposal of flowback fluids and other materials, if any, generated by the treatment. The study must also consider “acid matrix treatments” and air emissions, including potential greenhouse gas emissions.

SB 4 also provides that the DOC’s Division of Oil, Gas and Geothermal Resources (DOGGR) must conduct an Environmental Impact Report (EIR) to provide the public with detailed information regarding “any potential environmental impacts of well stimulation in the state. The requirement to perform an EIR goes beyond the analysis that is typically required for oil and gas activities in California. The state Senate Rules Committee noted in its analysis of SB 4 that “DOGGR regularly approves oil and gas development proposals under the CEQA categorical exemptions for minor alterations to land or existing facilities, or by way of negative or mitigated negative declarations. As a result, oil and gas permits are rarely reviewed in EIRs that would evaluate the potential risks associated with hydraulic fracturing.”

On November 15, 2013, DOC published a “Notice of Preparation” of an EIR “to evaluate the impacts of existing and potential future oil and gas wells stimulation treatments” occurring in the state. DOC has stated that the objectives of the EIR process are to:

identify, evaluate and disclose the potential environmental impacts of well stimulation treatments of both conventional and non-conventional oil and gas resources within the State;

further the State Legislature’s efforts to ensure that well stimulation practices are conducted in a manner that assures environmental protection, public safety, data collection and reporting, interagency coordination, regulatory oversight and monitoring, and public disclosure; and

allow for the safe recovery and production of the State’s oil and gas resources.

In December 2013 and January 2014, DOGGR will host several Scoping Meetings to solicit public comment on determining the scope and content of the EIR. Down the road, the study will result in publication of a Draft EIR and a Final EIR. Once the Draft EIR is released, there will be a 30-60 day public comment period.

Proposed regulations

Previously, in December 2012, DOGGR released a pre-rulemaking “discussion draft” of regulations applicable to hydraulic fracturing. The discussion draft did not trigger the formal rulemaking process and simply acted as a means of engaging stakeholders in the process early on. DOGGR withdrew the discussion draft following the passage of SB 4.

SB 4 directs DOGGR to develop regulations by January 1, 2015, that include the following components:

revisions to the rules and regulations governing construction of wells and well casings to ensure the integrity of wells, well casings, and the geologic and hydrologic isolation of the oil and gas formation during and following well stimulation treatments;

full disclosure of the composition and disposition of well stimulation fluids;

a provision for the well operator to provide for baseline and follow-up water testing upon request by a nearby property owner; and

threshold values for acid matrix stimulation treatments.

SB 4 also sets forth the need “to promote regulatory transparency and accountability.” To accomplish this, SB 4 directs DOGGR to enter into formal agreements with other agencies as necessary to clearly delineate “respective authority, responsibility, and notification and reporting requirements associated with well stimulation treatments and well stimulation treatment-related activities, including air and water quality monitoring.”

As directed by SB 4, DOC released its proposed regulations on November 15, 2013. Generally, the DOC proposed “SB 4 Well Stimulation Treatment Regulations” define the types of well stimulation treatments, e.g. “hydraulic fracturing,” and set out various requirements applicable to such treatments. Some of the requirements covered by the proposed regulations include the need to

obtain a permit prior to the treatment,

provide pre-treatment notice to property owners so that baseline water testing can be conducted,

perform an evaluation of the well integrity prior to treatment and monitoring during treatment,

adhere to standards for storage and handling of well stimulation fluids, (v) perform post-treatment monitoring, and

submit to the Chemical Disclosure Registry information relating to the contents of the treatment.

The release of the proposed regulations kicks off the beginning of the formal rulemaking process and the 60-day comment period. DOC has indicated that, in alignment with SB 4, the regulations are scheduled to go in to effect on January 1, 2015. In the meantime, DOC plans to implement emergency regulations effective January 1, 2014 “to ensure the major requirements of SB 4 are addressed in the interim.”

In the meantime…

Unlike New York, California does not expect industry to sit on the sidelines until January 1, 2015 when the final rules are to be promulgated. SB 4 provides that, until the rules are finalized and implemented, DOGGR “shall allow” all well stimulation treatment activities, provided various conditions are met. DOC plans on releasing a “streamlined interim procedure” by December 13, 2013.

The interim procedure will take the form of Emergency Regulations, effective January 2014, for a one-year period. Under the Emergency Regulations, owners and operators will be able to proceed with well stimulation treatments without obtaining a permit, as long as certain conditions are met. Based on DOC’s SB 4 Implementation Plan, the Emergency Regulations will:

define well stimulation treatments covered by the interim procedure, including threshold values for acid volume;

with assistance from the State Water Board, provide initial guidance for owners and operators on the development of groundwater monitoring plans;

specify how operators are to certify compliance with SB 4, including disclosures relating to:

-the date and location of the well stimulation treatment;

-the makeup and volume of fluids other than water, by CAS number and trade name;

-disposition of fluids;

-tracer use;

-radioactivity of produced fluids;

-water use and water management planning compliance;

-groundwater monitoring compliance;

-compliance with requirements for neighbor notification and neighbor testing rights; and

-the posting of chemical information to the Internet.

Looking forward

Governor Brown included a signing statement with SB 4 that specifically references permitting under the new law and the need for efficiency in issuing permits. In that statement, Governor Brown directs the DOC to “develop an efficient permitting program for well stimulation activities that groups permits together based on factors such as known geologic conditions and environmental impacts, while providing for more particularized review in other situations when necessary.”

Governor Brown has pledged to work with the state legislature to address certain areas of SB 4 and to develop amendments as needed. While there is still work to be done, the passage of SB 4 signals that California has recognized the tremendous potential of the Monterey Shale and is working toward establishing a regulatory program to facilitate the development of that resource now. Despite some challenges on the horizon, SB 4 demonstrates California’s commitment to developing the Monterey Shale, which provides the oil and gas industry with some certainty. The end result could be a boon to a state economy that has had its fair share of rough spots over the last few years.

[thackney]

I thought you probably meant Fracking, but thought I would ask.

Hydraulic Fracturing is done in California, but not on most wells like other locations.

If you read from the link in post #9, it documents some of the hydraulic fracturing already done in California.

Few techniques have garnered more scrutiny in California than hydraulic fracturing, or fracking, which entails injecting water, often mixed with chemicals, into a well to fracture rock formations and unlock trapped oil and natural gas. Widely used in North Dakota and other big fields, fracking is less common in California, where only 560 of 50,000 producing wells were fracked in 2012, according to the Western States Petroleum Association.

[thackney]

and by the by the ND Bracken field uses fracking

Yes, as does the Eagle Ford, and essential all tight formations like shale. I wasn't trying to imply that wasn't done.

[thackney]

By the numbers: How much Monterey Shale is being Produced?
http://www.kerngoldenempire.com/story/by-the-numbers-how-much-monterey-shale-is-being-produced/d/story/66ovvxdrt0WN39-hyrv8eQ
11/04/2013

According to the California Division of Oil, Gas and Geothermal Resources or DOGGR, oil companies have produced oil from the Monterey formation for years, including includes parts of the formation made of shale or dense rock.

17 News asked DOGGR what is currently being produced from Monterey shale in the Central Valley to find out how far along producers are into tapping into what could be a 15.4 billion barrel potential in the Monterey shale.

DOGGR could not give us that answer, saying the Division does not keep track of oil production by formation.

So 17 News decided to calculate the numbers on our own, calculating that last year only 1.6 million barrels of oil were produced from the Monterey Shale.

That’s 0.8 percent of the state’s total oil production (197,500,000 barrels in 2012, according to the Division of Oil, Gas, and Geothermal Resources).

Here’s how we calculated this number.

Searching through DOGGR field history data sheets, we isolated each field that has produced from the Monterey formation.

From there we identified the pool the field was producing from (Antelope, Stevens Sand, etc.). Then we identified which pools in the Monterey are shale, consulting California State University-Bakersfield geologist Janice Gillespie.

This is important because producers pull millions of barrels of oil from Stevens Sand, a pool in the Monterey formation but not shale.

Breakdown by individual play at the link:

[ckilmer]

sheesh I couldn’t get through all the regs. the state seems to think the political work is the real work.

good luck to the california frackers.

[ckilmer]

Colorado Shale fields were in this same state in the 70s. Much was claimed, much was ‘started’….nothing was produced and all major players have pulled out.
..........
The niobrara formation in Colorado is currently experiencing a huge boom.

[thackney]

I think you and I have vastly different ideas about what is a huge boom.

[ckilmer]

I would define a huge boom in this case as huge for colorado. Huge for california of course would mean much higher production increases off a much higher base.

[thackney]

I would define a huge boom in this case as huge for colorado.

Last month, Colorado averaged 69 active drilling rigs.

Two years ago, they averaged 80.

Three years before that, they averaged 123.

Nov 07, 113.

Nov 06, 88.

Nope. Not a boom at this time. Potential, yes, today, no.

Rigs by State - Current and Historical
http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MjEzNTkxfENoaWxkSUQ9LTF8VHlwZT0z&t=1

[Nifster]

that is a new turn around….at least in 2010 and 2011 the last of the majors were pulling out. glad to hear it. Though California is so deeply in liberal hands it is a different place than COlorado ever was

[Nifster]

I know. Unlike you I have spent a good chunk of my life living there. I know all about California oil and what they do and do not do. One of the reasons I am a recent evacuee from that state is the hopeless nature of its politics

[bestintxas]

I do wish you guys would stop using the spelling “fracking”

The word is fraccing as used in the oil industry.

The word was purposely changed by a NYT editor some time ago in order to make the work seem more onerous than it is.
It also reads more sinister, perhaps even dirty.

[thackney]

The word is fraccing as used in the oil industry.

I read a lot of oil/gas related news. I almost never see it written with two "C"s.

When you are looking for an accurate term, rather than the common one, use Fracturing.

http://www.halliburton.com/public/projects/pubsdata/hydraulic_fracturing/fracturing_101.html

[thackney]

For reference: the Oil & Gas Journal stopped using “Fraccing” in 2011 and continues to use “Fracking”. The also use “Fracing” even more commonly but that doesn’t pronounce even close to the right term.

http://www.ogj.com/topics/search?&q=fraccing&y=-188&x=-1195&sort=date

http://www.ogj.com/topics/search?&q=fracking&y=-229&x=-1195&sort=date

http://www.ogj.com/topics/search?&q=fracking&y=-229&x=-1195&sort=date

[thackney]

The word was purposely changed by a NYT editor some time ago in order to make the work seem more onerous than it is. It also reads more sinister, perhaps even dirty.

By the way, the Oil & Gas Journal was using the Term Fracking back in 1990, as can be seen in my links above.

[truth_seeker]

California once produced 1 million bbls per day of crude.

Also was site of Hq. for several major oil companies; Union, Occidental, Arco, Signal, Chevron, etc.

Also Hq. of several major oil service and related forms.

So called “fracking” has been used for decades, including in California, which was once at the front of technologies for secondary and tertiary recovery.

Bottom line: A lot of data for their study is locally available, and if they can’t see the bottom line impact, they are getting led astray for political reasons.

There are legitimate environmental safety concerns (like infiltration to ground water) but there are also technologies to minimize and/or mitigate those concerns.

If Brown sees it help pay for his trains, and if workers see it paying their pensions, it will get the green light.

[thackney]

The Monterey takes a very thick oil column and/or extensive natural fractures to make it commercially attractive.

Do you mean thick as in thickness or in low API gravity?

[bestintxas]

Do you mean thick as in thickness or in low API gravity?

oil column thickness

been working 40 years and was fraccing wells at McAllen Ranch in the 70s and never saw another way of spelling it until recently when the enviro wackos changed spelling to degrade it as something bad.

[thackney]

oil column thickness

I'm struggling with different terminology.

Do you mean the thickness of the reservoir penetrated by the well bore? Sorry to continue to ask what is probably straight forward from your point of view.

[ckilmer]

I was looking at oil production in colorado not rig count.
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRFPCO2&f=M

[thackney]

Booms are usually described by number of jobs. More related to drilling rigs and employment.