Posted on 05/23/2014 5:56:46 AM PDT by thackney
The US energy world was rocked yesterday by a new Energy Information Agency report that significantly cut the projection of recoverable oil from the massive Monterey Shale formation in California. That’s “cut” as in chopped, shredded, and mashed to a bloody pulp. How bad is the damage? Well, just a few years ago in 2011 the projection was for 13.7 billion barrels, and yesterday’s update brought it down to about 600 million. That’s a 96 percent drop for those of you keeping score at home.
How’d the Monterey formation go from boom to bust in just three years? Just a quick note to our readers before we dive in. We’ve spilled a lot of ink on shale gas issues here at CT, so in case you missed it, the emphasis here is on shale oil (also not to be confused with oil shale, which is a whole ‘nother can of worms).
Monterey Shale Oil — The 2011 EIA Report The seeds of the debacle are actually right there in an EIA report dated July 8, 2011, titled Review of Emerging Resources: U.S. Shale Gas and Shale Oil Plays.
It starts off with a clear warning, as in “estimating the technically recoverable oil and natural gas resource base in the United States is an evolving process,” and it goes downhill from there.
The report notes “considerable uncertainty” in general regarding the recoverability of shale gas and oil, given the current state of drilling technology and the prospect of shifting market conditions.
Despite the optimistic projection for Monterey shale in 2011, the report contains a critical caveat:
…the resource estimates in the current report will be modified over time as more wells are drilled and completed, technologies evolve, and the long-term performance of shale wells becomes better established.
One important factor that EIA considered in hedging its bet so clearly is the absence of a meaningful history of production upon which to draw. The agency did take the experience of other formations into consideration, but it could not project that onto the Monterey Shale formation with certainty:
Because most shale gas and shale oil wells are only a few years old, their long-term productivity is untested. Consequently, the long-term production profiles of shale wells and their estimated ultimate recovery of oil and natural gas are uncertain.
In addition, EIA noted that most of the new shale production was taking place, naturally enough, within the most promising or already proven areas of shale formations. That makes it difficult to generalize for the purposes of projecting results from one formation to another.
Also throwing off the comparison between formations is the sheer size of some shale formations, making it difficult to assemble a reliable formation-wide estimate of recovery.
Monterey Shale: The 2014 Debacle Reuters has a good update on the latest EIA announcement, including confirmation that yes, the estimate dropped by 96 percent. Apparently some folks did not get the 2011 memo and had trouble believing what they were seeing.
For that matter, it seems that a critical analysis of the 2011 EIA report by the Post Carbon Institute sailed over everyone’s heads, too.
The Post Carbon report came out just last year. It took the EIA report to task for placing too much emphasis on the experience of Bakken and Eagle Ford shale operations. Post Carbon also notes that EIA failed to fully account for variations in Monterey shale formations, though to be fair EIA did place that aforementioned caveat emptor sticker on both of these points.
The Post Carbon report adds quite a bit of detail, for example this:
An analysis of every well producing from Monterey shale reservoirs reveals that average initial productivity is less than half of the typical horizontal and vertical shale wells assumed in the [EIA report], and less than a quarter of the “typical Elk Hills vertical shale well.”
…and this:
Fracking and acidization have doubtless been tried extensively on Monterey shale wells, yet the data do not show any significant increase in initial well productivity or likely cumulative oil recovery for recent wells.
…and this:
The majority of oil produced from the Monterey appears to have migrated, owing to the fractured nature of much of the Monterey. The existence of very extensive areas of uplifted mature source rock with non-migrated oil comparable to plays like the Bakken is highly speculative.
On the bright side, EIA based its estimate on initial production difficulties in Monterey shale. The estimate could swing in a positive direction if there is a technologically resolvable problem for at least parts of the formation, and the industry comes up with a solution.
However, the low estimate could also solidify for any number of reasons, for example if the technology solution proves too expensive, or if the price of oil drops, both of which would reduce the competitiveness of Monterey shale oil in global markets.
Also contributing to downward pressure on oil prices is new competition from alternative sources, namely solar and wind, in tandem with the prospect of competitively priced battery electric vehicles and fuel cell EVs. The wind angle will be particularly interesting now that the US has finally begun to tap into its massive offshore wind potential.
The vast bulk of production problems in California is political, not technical. With “Moonbeam” Brown running the state, and “Bat$#!t” Obama running the country, the best estimate of oil production California is ZERO.
I am certain the earlier number is the more accurate one.
In any event, we need to develop it and see.
With the government we have today, any report must be suspect of being corrupted for political purposes.
My guess is that technologies will continue to improve, that 600 million barrel number will go up over time, and should prices rise, more effort will be brought to bear on the problem of recovering this oil.
The government hates hydrocarbons. I think this is PsyOps to discourage and perhaps codify anti-fracking data. Of course there are challenges; of course the bright minds in industry will figure out solutions. And of course O and the Thug will get their pants in a bunch.
Governor Moonbeam - however hard this is to believe - supports fracking and has shot down a number of anti- bills in Sacto. He knows it will bring money to the state. My husband’s a geologist and is up-to-date on the politics in this, and has been pleasantly surprised. The anti-frackers will not go down without a fight.
I am certain it is not. My opinion is based upon the relatively poor production rates from the private companies drilling the holes for the last few years.
Is your certain based on any data? Or just wishful thinking and distrust?
The same group has been raising the producible reserves in the Bakken and the Eagle Ford.
The first report was junk and they included language in it that said it was based upon production from other fields.
It was a guess, and it wasn’t a good guess.
I’m guessing the recoverables are still there, it is just that the industry will make prognosticated adjustments according to regulatory environment.
Example: Formation A, when frac’d, has 5 MMM BBL recoverable reserves. But, state and local regulation will “stay” any frac activity and those hydrocarbons can no longer be considered ^recoverable^.
Industry says, “We must downgrade our estimates.”
I presume government numbers to be wrong.
Is it just me or is the tone here “this one instance of fracking estimates is bad, therefore fracking is bad”?
Very true. The same will effect places like the Bakken, Permian, Eagle Ford, etc. Rising proved reserves often does not requiring finding anything new.
The first government numbers certainly were.
I cannot help but wonder if they were pushed to get something out so the pump&dump stock guys could rake in the money before it was looked at too closely.
Many good companies in the industry criticized that first publication as not realistic. Many bad companies grabbed a lease and used that report to raise money before the bottom fell.
I don’t see that.
What the author is implying and it is a fair assertion is that “estimates” are exactly that.
Now, my problem with the author is he seems almost celebratory that the Monterrey formation isn’t as big as it was estimated to be...but anyone with a brain puts an over/under on an estimate. And in another few years that formation could be found to be larger than they ever dreamed.
As the empirical data grows so does the certainty.
BUMP!
__________
BTW, will the Chinese, Nancy Pelosi, Harry Reid, AG Holder, POS Obama and Jerry Brown be forbidden to bid on the soon to be decreased mineral rights value of the Monterrey Shale downgraded acreage?
I agree that US gov and the greenies want to downplay potential and kill fracking. That said, we should leave open the possibility that fracking in flat-lying sedimentary geological formations in the center of the continent may be hugely more productive than the same technology applied to the melange of rocks scraped from the ocean floor and volcanic island arcs pushed onto the continental margin. And the reports refers to the possibility that oil within this formation may have already migrated—meaning we may have sucked some of it up already drilling in the lower Cental Valley.
Coming from an administration known for cooking numbers . . .
Apparently, many are convinced it is there, but sorting out the rest will take some doing.
Even the Bakken has its hotspots where production is better and other areas where is is less, before it peters out completely near the edges of the formation (it does not outcrop anywhere and is only in the subsurface). I have only worked two out of roughly 200 wells in the Bakken and Three Forks which were non-productive, and they were where we were looking for the limits. We found them.
Among the other wells, though, IPs ranged from 3000 BOPE to 250 BOPE, depending on where in the basin we drilled.
And you should apply that thought process to the original report they put out.
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