Business

Mixed reactions after U.S. drastically cuts Monterey Shale outlook

Economy, Business and FinancePetroleum IndustryEnergy ResourcesUC DavisAmerican Petroleum
'If there's oil out there, the oil companies will find some way to get it, no matter what the government says'
Some are bristling at new findings that slashed the estimate of oil able to be pulled from the Monterey Shale

Kim Owens, daughter of an oil rig supervisor who once worked on a fracking crew, now pours drinks for oil workers every day as a bartender at the Foxy Lady in this tiny town 18 miles northwest of Bakersfield.

To Owens and many others in Kern County, petroleum is the economic lifeline that provides jobs, fills the hotels and keeps the restaurants open.

That's why she was bristling Wednesday at new federal findings that dramatically slashed the estimated amount of oil able to be pulled out of the Monterey Shale, a vast stretch of Central and Southern California that is estimated to contain two-thirds of the nation's deep-rock oil deposits.

"If there's oil out there," said Owens, 55, "the oil companies will find some way to get it, no matter what the government says."

The Energy Information Administration cut by 96% the estimated amount of recoverable oil buried in the shale, saying Tuesday that only 600 million barrels are likely to be extracted by existing technology, from 13.7 billion barrels originally expected.

That deals a sharp blow to hopes that the 1,750-square-mile formation could spark an economic boom in the Golden State. Oil industry advocates had often compared the Monterey Shale to the much smaller Bakken formation in North Dakota, where an oil boom has pushed down that state's unemployment rate to 2.6%.

But the federal energy agency said it had wrongly assumed that oil in the Monterey was as accessible as other shale formations using techniques such as horizontal drilling and hydraulic fracturing, or fracking. It said current technologies are not producing good results so far.

From oil field workers to corporate leaders looking for a gusher, reaction was mixed. Some believe it's just a matter of time before the shale produces big numbers. Others said the potential for extracting huge amounts of oil has been overhyped.

"That is a phenomenal cutback," said Adam Rose, a USC professor who co-wrote a study last year on the shale's economic effect. "It's amazing in terms of that much refinement in the numbers."

The USC study originally forecast that tapping the Monterey could generate 2.8 million additional jobs in the state by 2020. California now employs about 800,000 workers in the oil and gas industry and in fields such as hospitality that support energy workers, according to the American Petroleum Institute.

If the new federal estimates are accurate, Rose predicted that only 110,000 jobs may be created instead.

Oil industry executives said the report backed up what they had been seeing on the ground: They just weren't finding the oil they had been expecting to find. And many big rigs already had been stilled as anti-fracking sentiment grew.

But there was no immediate threat to jobs.

"The oil industry has always been cyclical," said Carl Hathaway, an executive with Kenai Drilling Ltd. in Santa Maria, Calif., which drills wells.

"But our company is busy right now, and we anticipate being busy throughout the year," he said. "The best way to put it is: Be a little bit worried, but not right away."

Many California oil experts remain defiant about the Monterey's future prospects.

"The academic geologists said the same thing about the Barnett Shale" in Texas, said Amy Myers Jaffe, executive director of energy and sustainability at UC Davis. "They said it wasn't recoverable and it wasn't going to produce. That didn't turn out to be right."

Jaffe said the companies drilling on various Monterey sites rely on their own engineers and will not be swayed by a broad pronouncement by the government.

"Some of those companies are not going to give up," she said. "The first companies that went into North Dakota had problems too. It's very early to be making a definitive judgment."

Tapping the Monterey Shale has proved to be more difficult than in other formations. Earthquakes in the state have crumpled and folded oil deposits so they are far harder and more expensive to extract.

Chad Brownstein, chief executive of Rocky Mountain Resource in Beverly Hills, which is not involved in the Monterey, said the new estimates may put a temporary damper on fresh investment in the shale.

"In the near term, it might curtail speculation and wildcatting," he said. "But once the majors start to produce, you'll see an influx because it is such a prolific shale."

In Shafter, oil workers hope the Monterey pans out. But they are more concerned with just making a living.

"Nobody's really thinking about it," said one 30-year-old electrician, who did not want his name used for fear of losing his job. "Wasn't nobody going to do any hiring till they got to that oil anyway."

shan.li@latimes.com

Twitter: @ByShanLi

diana.marcum@latimes.com

Twitter: @DianaMarcum

Marcum reported from Shafter; Li from Los Angeles.

Copyright © 2014, Los Angeles Times
Related Content
Economy, Business and FinancePetroleum IndustryEnergy ResourcesUC DavisAmerican Petroleum
Comments
Loading