A Reality Check on the Monterey Shale
The recent growth in unconventional oil production from the Bakken (North Dakota), Eagle Ford (Texas) and other tight oil plays has drawn attention to the potential of shale in California’s Monterey Formation.
In 2011, the Energy Information Administration (EIA) published a report by INTEK Inc. which stated that the Monterey Formation contains 15.4 billion barrels of technically recoverable tight oil (also called “shale oil”) — 64% of the entire estimated tight oil resource in the continental US at that time.
This estimate was seized upon by industry groups intent on the development of the Monterey shale and has been repeated widely and often by media, both in California and nationally.
Comprising two-thirds of the United States’s total estimated shale oil reserves and covering 1,750 square miles from Southern to Central California, the Monterey Shale could turn California into the nation’s top oil-producing state and yield the kind of riches that far smaller shale oil deposits have showered on North Dakota and Texas.
The EIA/INTEK report was used as the basis of a March 2013 University of Southern California (USC) economic analysis which projected as much as a $24.6 billion per year increase in tax revenue and 2.8 million additional California jobs by 2020.
But how realistic are the EIA/INTEK estimates of recoverable reserves? And how likely is it that Californians will see enormous economic benefits resulting from drilling in the Monterey Shale?
The EIA/INTEK report assumed that 28,032 tight oil wells could be drilled over 1,752 square miles (16 wells per square mile) and that each well would recover 550,000 barrels of oil. But horizontal drilling and hydraulic fracturing has taken place in the Monterey shale for some time, and the data shows that the EIA/INTEK assumptions are extremely optimistic.
When analyzing real production data (compiled in the most comprehensive oil and gas production database publicly available), a very different story emerges.
Average initial productivity of wells in the Monterey shale is only 25-50% of that assumed by the EIA.
Average cumulative recovery of oil from Monterey shale wells is likely to be 1/3 or less of the EIA assumptions.
It's highly unlikely that the Monterey contains extensive regions amenable to high productivity from dense tight oil drilling.
Thus the EIA/INTEK estimate that there are 15.4 billion barrels of recoverable oil from the Monterey shale is likely highly overstated. Certainly some additional oil will be recovered from the Monterey shale, but this is likely to be only modest incremental production. This may help to offset California’s long-standing production decline, but is not likely to create an economic bonanza.
In December 2013, Post Carbon Institute and Physicians, Scientists & Engineers for Healthy Energy published “Drilling California: A Reality Check on the Monterey Shale.” Written by geoscientist J. David Hughes, the report provides the first publicly available empirical analysis of actual oil production data from the Monterey Formation, including from wells that have undergone hydraulic fracturing and acidization. It lays out some of the play’s fundamental characteristics compared to other tight oil plays, including geological properties, current production, production potential, and associated environmental issues.
Unlike previous studies looking at potential production and economic impacts, this report is based on analysis of real production data (compiled in the most comprehensive oil and gas production database publicly available) and should therefore help ensure that public policy decisions on the development of the Monterey are grounded in data, not assumptions.