Massive shale play predicted to trigger new 'gold rush'

This story was updated at 3:08 p.m. EST.

LONG BEACH, Calif. -- An explosion of oil and gas development is coming in California, one that's likely to trigger a 21st-century gold rush, experts predicted at a conference here yesterday.

Advisers to petroleum companies forecast that they are just a few years away from obtaining the key to extracting large volumes of resources from the Monterey Shale, a swath of land stretching from the middle of the state to Los Angeles County.

Believed to hold as much as 15.5 billion barrels of recoverable oil, Monterey is the nation's largest shale site.

"We're just getting started, really," said Stephen Harris, a consultant to Occidental Petroleum Corp. and past president of Los Angeles Association of Professional Landmen. "Most of us project that in the next couple years ... you're going to see another giant boom."


Los Angeles' part of the Monterey Shale holds "more oil per square meter ... than any other oil-producing basin on the planet," Harris added.

"There will be as much drilling as they possibly can do," Harris said.

The comments came as industry representatives gathered here at "Californian Oil: Unlocking the Golden State's Oil Shale Resources," a two-day conference focusing on what petroleum reserves exist in California, how close those are to development and what obstacles block further exploration and extraction.

The conclave took place against the backdrop of California officials debating increased oversight of shale development. Lawmakers and regulators are concerned about hydraulic fracturing, or "fracking," where volumes of chemical-laced fluid are injected into shale rocks to push oil and gas to the surface.

The California Department of Conservation is planning soon to release draft regulations on hydraulic fracturing. State Legislature members even before their session begins are promising measures on the issue.

State Sen. Fran Pavley (D), a day after she re-took the oath of office this week, offered a bill that would direct the California Division of Oil, Gas and Geothermal Resources (DOGGR) to enact regulations that include mandatory advance public notice of planned fracking activities and disclosure of chemicals used in the technique.

Environmental groups argue that the state lacks any significant oversight of fracking.

"We're learning that we don't have a lot of information here in California" on shale development, said Damon Nagami, a Natural Resources Defense Council senior attorney, who attended the conference. "The public is asking questions. They don't know all the answers."

The Center for Biological Diversity, Earthworks, the Environmental Working Group and Sierra Club California in October charged that California too often exempts new wells from environmental review or issues a declaration finding no major negative effects. They sought an injunction temporarily blocking any new permit approvals.

Companies that want to drill need "to avoid conflicts with [land] surface owners in California," Tom Henry, a California attorney who is an expert in the California Environmental Quality Act, or CEQA, said at the conference.

CEQA mandates reviews of whether projects will adversely affect land, water, air, species or other conservation concerns. A surge in exploration activity as well as negative publicity on hydraulic fracturing has led to conflicts between companies wanting to drill and residents, Henry said. Some residents who want to stop oil development have sued under CEQA, he said.

"Right now, it's very easy to stop a project under CEQA in California," Henry said.

Industry representatives at the conference said they were hopeful that California Gov. Jerry Brown (D) and Senate President Pro Tem Darrell Steinberg (D) in 2013 would boost energy development by advancing changes to CEQA.

Brown has supported streamlining CEQA. Steinberg in September said that he planned to convene stakeholder meetings and hold an informational hearing before the state Legislature convenes in January "to examine necessary reforms" to the law. Steinberg included CEQA reform as a priority for the upcoming legislative session.

Nagami urged caution on CEQA changes.

"The fact that all of the industry experts are predicting this boom makes it all that much more important that communities have tools to protect themselves, like CEQA," Nagami said.

Investors face competition

An acceleration in oil and gas development is likely to happen in the next few years because "it's hard to walk away from 10 or 15 billion barrels" of oil, Harris said. As well, extraction technology has improved, he said.

"The drilling tools we have available now, all those tools are coming into play," Harris said.

He predicted that there will be a quest to get into the race for profits before it's too late.

"Most of the table's been set" in the Monterey Shale region counties north of Los Angeles, where "well-known" players dominate, Harris said. "The L.A. Basin, folks still are getting seats at the table, but in a year or two, if you're not at the table, it will be done."

Occidental Petroleum has been working in the area for more than 20 years, he said. The company arrived in the late 1980s after an alliance of oil companies -- Texaco, Humble (an Exxon precursor), Union, Mobil and Shell -- left because of falling prices, he said.

The clock is ticking for some companies involved in shale exploration. A number of leases will run out in the next few years, said Len Tesoro, director of land products for Drilling Info, which aggregates information.

Very little of the recently leased acreage has been drilled, he said.

"You're going to have a lot of leases expire if this trend continues," Tesoro said. "Someone's going to have to start drilling here to prove it out."

Some of the companies with leased acres are small and lack money to drill, he said. Those will "have to go out and find partners with deep pockets," Tesoro said.

The Monterey Shale differs in composition from other oil regions including the Bakken Shale, which extends over parts of Montana, North Dakota and Saskatchewan. That region is more mature than the Golden State's oil-bearing rocks, experts said.

In older shale-bearing areas, the "pay zone" is 60 to 80 feet, Harris said. In California it can be more than 1,000 feet, he said, and in some places is 2,000 feet. That creates a challenge in figuring out how to develop it, he said.

Also in Monterey the oil and gas is "trapped in the source rock," unlike in Bakken and other places where hydrocarbon typically is found in the rock fractures, said Kenneth Peters, consulting professor at Stanford University. Petroleum in California is removed by pumping in proppants and fracking the rock, he said.

In many cases in California, companies are removing oil and gas through more standard drilling versus hydraulic fracturing, Rock Zierman, chief executive officer of the California Independent Petroleum Association, said today.

But Nagami, with NRDC, said state residents typically don't care which technique is used.

"We don't care if it's a drilling technique, a completion technique, steam flooding, fracking, ground packing, whatever it is," Nagami said.

"What we care about is whatever you're doing, we want it to be safe and we want to make sure doesn't affect resources," he added.

Challenges to extraction

There are obstacles to developing oil from the Monterey Shale and other places in California, several people said.

While there is a lot of oil, there also is "a lot of difficulty to get oil out," said Chris Boyd, land consultant with the Bakersfield Association of Professional Landmen.

The places where the oil has been found often require the construction of expensive horizontal wells, he said. There is the need to fund big rigs and obtain "pass-through rights" from landowners.

Negotiations become necessary, he said, because those property owners won't earn profits from retrieved minerals, and "the last thing they want to see is a big rig in their backyard and they get no money out of it."

Without agreements, there would be long and costly lawsuits, he said.

Doug Black, vice president of business development and land for Tulsa, Okla.-based Bright Horizon Resources, has worked on oil and gas exploration in Texas and California.

In California, he said, "the resource potential is almost mind-boggling. That being said, there are a whole lot of obstacles to companies like mine.

"It's a difficult place to find the right entry point," Black added. There are "maybe 500 landmen in all of California."

And the regulatory environment is "onerous," he said. Environmental groups "can just arbitrarily say no. An oil and gas organization needs the ability to know what the rules are."

But L. Rae Connet, managing partner with PetroLand Services, said that companies, particularly those wanting to operate in urban areas, need to do more outreach.

"The public is concerned about fracking," Connet said. "The public is concerned about what it saw on the East Coast, what it saw in the Gulf.

"Environmental concerns are bred into Southern California," she added. "And we can't ignore that, and we can't force the issue. So it takes time to educate them. So while there may be some wackos, most of them are people that are legitimately concerned and they just need information."

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