California's Monterey Shale: Bonanza or Bust? Nobody Really Knows

The controversy over hydraulic fracturing in California has been largely centered around the Monterey Formation, the rock layer that was said to be the largest oil resource in the country and almost a sure bet for a drilling boom.

At least, until this week. Federal officials with the Energy Information Administration are reportedly downgrading their estimate of how much oil could be pumped out of the formation. Just a few years ago, the agency projected that oil companies could retrieve 15 billion barrels of oil. Now, it’s down to 600 million.

Just to clarify: these numbers don’t reflect how much oil is underground in California. Most geologists agree that there’s still plenty down there. The EIA is attempting to estimate how much could be pumped out with current technology. As with other oil and gas reserves around the country, this number fluctuates quite a bit based on assumptions about the geology and what oil companies can accomplish.

“The total resource can be huge – just ridiculously large,” says Don Gautier, geologist emeritus with the U.S. Geological Survey. “What fraction of it can actually be recovered? That can be very uncertain.”

What’s Unknown About the Monterey Formation

So why the uncertainty around the Monterey Shale? It has to do with the lack of information about the rock formation.

The Monterey has already been incredibly productive in California. It’s been the source of most oil production in the state over the last century. The rock layer covers 1,700 square miles and can be several thousand feet thick in places. It was created millions of years ago, when dead microorganisms piled up on the bottom of an ancient sea.

That organic material created oil-bearing rock and over the millennia, oil has seeped out and pooled in underground reservoirs. Finding and tapping these reservoirs, what’s known as “conventional” oil development, has made California the third-largest oil producer in the country.

The buzz these days, however, is over “unconventional” development. That’s where oil and gas companies drill down into the rock layers that produce the oil – known as “source rock.”

These rocks are dense and historically, haven’t been very productive – until hydraulic fracturing came along. When water and sand are injected underground at high pressure, they create tiny fractures in the rock that help release the oil.

Historically, oil companies in California haven’t had to tap into the source rock. There were plenty of conventional reservoirs to develop. But as the technology has improved and production in older reservoirs has declined, oil producers have started looking deeper, down to the Monterey Shale source rock.

Is the Oil Still There?

North Dakota has seen a massive oil boom in the source rock of its Bakken formation, due in large part to hydraulic fracturing. Fracking opened up source rock that was considered beyond reach just a few decades ago.

The question in the Monterey Shale is whether the source rock still holds lots of oil. California’s abundant seismic activity could have forced much of the oil to migrate out.

“These are very effective mechanisms that allow oil to be expelled from the source rock,” says Gautier. “Whereas up in the Bakken, the oil was generated 100 million years ago and has been sitting like a dead lump since.”

Because of these unknowns, many believe there’s huge uncertainty about the amount of oil that can be recovered in the Monterey.

“We just don’t know,” says Gautier. “One of the possibilities is that most of the recoverable oil has already been expelled and migrated. So what’s left behind is residual oil that won’t really yield significant production. That isn’t to say there isn’t a whole lot of oil in the Monterey or even that there isn’t a lot of oil remaining in California.”

USGS is working on its own estimate of recoverable oil in the Monterey, expected early next year.

The seismically warped rock layers in California could also make it challenging to use the same fracking techniques that have been so effective in North Dakota. Oil wells are drilled horizontally for miles sometimes along a layer of rock. California’s roller-coaster rock layers could make horizontal drilling a challenge.

Oil companies are still in the early stages of drilling exploratory wells in the source rock. Until more of that data are available, the jury is still out on the Monterey Shale.

“The fact of the matter is there’ve only been a handful of wells that even intended to test the idea,” says Gautier.

What the Industry Is Saying

Despite the lackluster new estimate, the oil industry says the number has little effect on their efforts.

“The oil is still there,” says Catherine Reheis-Boyd of the Western States Petroleum Association, an industry group.

“It’s just a matter of technology and it’s a matter of the skill and experience and innovative spirit that we really believe the men and women of the petroleum industry possess,” she says. “And they will solve the puzzle and they will improve production rates from the Monterey Shale.”

Several oil companies say their exploratory wells are getting them closer to the answer.

“Preliminary data from our first exploration wells tells us the oil is there,” says Susan Hersberger of Aera Energy, one of the largest oil production companies in California. “But this data has also confirmed that the Monterey Shale has some characteristics that warrant further study and testing, so that we might unlock its potential.”

“Similar to the decades-long exploration of the Bakken, the Monterey exploration process will also be a long and complex journey,” she says. “Whether there are 15 billion barrels or 600 million barrels or something in between, it’s still a lot of oil. We see potential and are in it for the long-term.”

Calls for a Fracking Moratorium

A collation of environmental and community groups called Californians Against Fracking is using the new estimate to raise concerns over groundwater contamination and environmental damage.

“This bombshell from the EIA gives you a new opportunity to make the right call and halt fracking,” they wrote in a letter to Governor Jerry Brown.

The group, which is calling for a moratorium on fracking, says the lower estimate of the Monterey’s potential means that economic benefits touted by the industry are inflated.

Governor Brown has resisted a moratorium, citing the state’s efforts to develop regulations for fracking this year that require groundwater monitoring, new permitting requirements and notification of neighbors in the area.