Looking at its resource play potential

The Monterey Shale: Big Deal, or Big Bust?

The locations of California’s Monterey Formation.
The locations of California’s Monterey Formation.

If you’re talking about hydraulic fracturing, you might call this play a crackpot idea.

If you’re talking about tubulars, you might call it a pipe dream.

The new hunt for unconventional oil production in California has to be called ... unconventional.

In the late 1840s, Californians shouted, “There’s gold in them thar’ hills!” Today the rallying cry is, “There’s oil in that thar’ Monterey Shale!”

But producing Monterey Shale oil could make panning for gold look easy.

Don Clarke
Don Clarke

“What people are looking for is, ‘Is there a secret to opening this thing up?’ To my knowledge, nobody has really done that yet,” said AAPG member Don Clarke, a Los Angeles consulting geologist who has worked the L.A. Basin since 1974 and counts the City of Beverly Hills among his clients.

Could California’s Monterey Shale turn into another huge shale oil play?

The definitive answer is:

Maybe.

Sounds Good, But …

California petroleum geologists know the Monterey Shale as a prolific source rock for many of the state’s large oil fields. Clarke said interest in tapping the Monterey comes in cycles, the latest peak occurring about 20 years ago.

When the combination of horizontal drilling and hydraulic fracturing began to unlock shale production in other parts of the country, the Monterey Shale started getting a closer look.

That interest heated up last year, when the Energy Information Administration (EIA) of the U.S. Department of Energy issued an 82-page report titled “Review of Emerging Resources: U.S. Shale Gas and Shale Oil Plays.”

Citing a commissioned study by INTEK Inc., the EIA put technically recoverable shale oil resources in the onshore lower 48 states at 23.9 billion barrels.

The Monterey/Santos shale play in southern California was estimated to hold 15.42 billion barrels, or 64 percent of the total. By comparison, the Bakken Shale was projected to hold 3.59 billion barrels of shale oil resource and the Eagle Ford 3.35 billion.

So the Monterey could hold twice as much recoverable shale oil as the Bakken and Eagle Ford combined.

Sounds good, until you realize there is no truly successful Monterey resource play to date.

Some reports have speculated that the southern California play area for the Monterey Shale is too tectonically faulted and fragmented for development by horizontal drilling.

Clarke thinks that isn’t true.

To him, the biggest problems are characterizing the shale across the play area, understanding the Monterey stratigraphy and dealing with government regulations affecting drilling and development.

Unlike some shales, the Monterey Shale doesn’t present a highly consistent picture. Instead, “it changes dramatically wherever it is in California,” Clarke said.

He said it’s important to identify where the Monterey is dolomitic or siliceous and brittle – and therefore theoretically more responsive to stimulative hydrofracturing – and where it is more calcereous and ductile.

“We have to understand the characteristics of the rock and how the facies changes across the basin,” he said.

Effective horizontal development could be possible in most of the Monterey, but nothing says it will be easy.

“The problem is, with any horizontal well you want to know where you are,” Clarke noted. “You have to know your stratigraphy. Well control is very important.”

In the Southern California/L.A. Basin area, “there is a lot of stuff unknown,” he said. “The other thing is that there has been 2-D seismic in the L.A. Basin but no 3-D seismic, except for what we’ve done in the Long Beach area.”

Several companies are looking at the Monterey Shale as a resource play, taking various approaches to the problem, but no one has been able to characterize the Monterey’s geology and develop a fully successful approach to tapping its potential.

“The oil companies aren’t talking about it yet. Because they can’t,” Clarke observed.

“The logging companies, like Schlumberger, have tried to do this,” he added, “but in my mind with only limited success.”

The Solid Rock

In California, working the Monterey as a resource play could be the only other new, unconventional game in town. The state is already known for its heavy oil production.

Tim Kustic
Tim Kustic

“Our biggest unconventional resource in California is the diatomite oil – we have these diatomaceous formations,” said AAPG member Tim Kustic, state oil and gas supervisor for California’s Division of Oil, Gas and Geothermal Resources (widely known as DOGGR, pronounced “Dogger”).

“The key to unlocking that was the realization that the industry could use cyclic steam,” Kustic said. “Basically, it’s a steam frac that creates channels and allows oil to flow into the well and back to the surface.”

DOGGR doesn’t keep the statistics, Kustic said, but he knows the unconventional oil production is a significant part of California’s output.

“I’ve heard it is somewhere in the range of 20 percent of the state’s production,” he said.

While California does have shale deposits, the organic rich Monterey Shale being a prime example, it doesn’t have the broad shale gas potential that’s led to so much activity in other parts of the country.

“The shale so far has been shale oil. That’s because of the maturity of the shale,” Kustic noted.

“As far as shale gas, there isn’t any significant shale gas operation in the state,” he said. “There has been fracing, but it’s been tight gas.”

Kustic said “the vast majority of fracing that’s been done in California has been done in vertical wells,” including the stimulation applied to tight sands in conventional reservoirs in the Sacramento Basin, in the northern half of the state.

“One of the limiting factors is that all the fracing equipment has had to come out of Bakersfield, so you had 300-400 miles of transportations cost,” he said.

That leaves the Monterey Shale, better known as an oil source, as California’s leading, potential unconventional shale play.

“Now they are looking at the Monterey as not only a source rock,” Kustic said, “but they are also looking at it as a reservoir rock.”

Risky Business

Unconventional gas would help the local energy picture, although the state relies on a variety of energy sources, not just natural gas, for electrical generation. California has an established geothermal resource and is developing more wind and solar power.

According to the EIA, about 60-65 percent of California’s electricity comes from natural gas, 15-16 percent from hydroelectric and 10 percent from renewables. Almost two-thirds of the rest come from nuclear power plants.

“Statewide, we’ll take those electrons any way we can get them,” Kustic said.

The active Monterey/Santos shale play area is about 1,750 square miles in the San Joaquin and L.A. basins, the EIA reported. In the play area, the shale is 1,000-3,000 feet thick at depths ranging from 8,000-14,000 feet.

Clarke said the Monterey can be found at various depths in California, down to 30,000 feet in the L.A. Basin. The shale is organically rich, widespread in and around the play area, and easily recognized.

“It’s gotten the nickname ‘nodular shale.’ It’s very obvious. When you go in and core it, you can see the nodules,” he said.

Occidental Petroleum Co. holds by far the biggest Monterey Shale net acreage. Other players include Venoco Inc., Plains Exploration & Production Co. and National Fuel Gas Co.

Oxy seems content to build upon previous experience in the Monterey; Venoco is pursuing an active program in the shale.

In 2006, Venoco began leasing onshore acreage targeting the Monterey shale, and it followed up with an active drilling program starting in 2010. Through the first half of 2012, the company has spud 28 Monterey wells and set casing on 25 of them.

Even though Venoco hasn’t seen material levels of production or reserves from the program, it claimed to be “encouraged by the scientific information collected thus far,” particularly in the Sevier Field in the San Joaquin Basin and the South Salinas Field in the Salinas Valley.

Development of the Monterey Shale probably will follow the same pattern as most other shale plays in the United States, Clarke predicted. Sooner or later, one company will figure out the right approach to drilling, hydrofracturing and production.

“This is a very expensive, risky project. There are a lot of places it can get knocked down,” he warned.

Clarke noted that the L.A. Basin/Long Beach/Southern California oil fields region is acre-by-acre the world’s most productive oil area.

He said getting even more out of the Monterey Shale would be “fantastic.”

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