Monterey Shale: another over-hyped US shale deposit.

Chris Nelder on SmartPlanet: “In February, coverage of California’s Monterey Shale exploded in the mainstream press. ….As usual, the purveyors of this pablum were mainly interested in generating buzz, not investigating the reality. And as usual, it worked.” “Millions of readers took away a wafer-thin narrative about how fracking would create a new California “gold rush” in the Monterey Shale, which contained two-thirds of the nation’s estimated tight oil resources (or “reserves,” in the case of the more energy-illiterate writers). Industry money was pouring into the region, which could become the next Bakken or Eagle Ford. The Monterey Shale resources could slash California’s oil imports, bolster its balance sheet, and create lots of good jobs, if only those damned environmentalists would get off the industry’s back.
The only data anyone cited was that the formation covered 1,750 square miles and contained 15.4 billion barrels of oil — figures that came from a July 2011 report published by consultancy INTEK, that was commissioned by the Energy Information Administration (EIA).
….Now, some 10 months after the ballyhooing in February, Canadian geoscientist David Hughes has blown the Monterey Shale story to bits, with a report offering the “first publicly available empirical analysis of actual oil production data from the Monterey Formation,” published by Post Carbon Institute and Physicians, Scientists & Engineers for Healthy Energy.
Based on an analysis of actual production data from the Drillinginfo database, the most comprehensive oil and gas production database publicly available, “Drilling California — A Reality Check on the Monterey Shale” explains in exacting detail what the geological properties, current production, and production potential of the formation really are.
The gap between the reality and the hype could not be more stark:
– The initial production rates of the existing Monterey wells are only about one-half to one-quarter of those claimed in the EIA/INTEK report.
– Total lifetime oil production (“ultimate recovery”) per well is likely to average one-third or less of that assumed by the EIA/INTEK report.
– The Monterey’s productive oil regions are a relatively small part of the overall formation. The claim in the EIA/INTEK report that 1,750 square miles can be drilled to a density of 16 wells per square mile is likely not true.
….The bottom line from Hughes’ analysis is stark. Where the USC study estimated that 4,112 wells could produce between .42 and 3.3 million barrels per day from the Monterey region by 2030, Hughes estimates that it would actually take somewhere between 49,119 and 232,562 wells to reach this capacity, depending on the production decline curve used in the estimate. To put this in perspective, current California production from roughly 50,000 wells is just over 0.5 million barrels per day.
Considering that the EIA/INTEK report estimated the total number of potential well locations in the Monterey at 28,032, it’s highly unlikely that the USC production target could be achieved even under the best circumstances. As Hughes flatly states, “the oil production estimates in the USC study lack credibility.”
Separately, five California academic economists who reviewed the USC study “were puzzled by its findings, and baffled by its methodology,” and likewise concluded that it was not credible.
….we’ve seen this movie before. It always starts with a hyped-up story about incipient “energy independence,” based on little but opaque industry-funded claims. Then the “gold rush” ensues, with players rushing in to snap up acreage and drill, baby, drill. A few operators make money. Some leases get flipped to latecomers with deep pockets, who wind up writing down massive losses on their purchases. More leases wind up languishing on operators’ balance sheets, having failed to live up to their promise or to be lucky enough to get sold off at an inflated price. And a few operators wind up bankrupt or acquired for pennies on the dollar. In the oil and gas industry, it’s the circle of life. I have documented the cycle repeatedly in my columns, and I expect I’ll never run short of such stories.
But don’t expect any of the big-name publications who touted the “next oil boom” in February to breathe a word of the reality, now that the facts are out for all to see. Nobody cares about facts. As I explained in 2012, we all just want to hear a good story. A story about independence, American exceptionalism, sticking it to OPEC, and striking it rich. We can listen to those stories all day long. It doesn’t matter if they’re true.”