Syed Rashid Husain Ever since the Energy Information Agency (EIA) lowered the technically recoverable resource (TRR) estimates of Monterey Shale formation by a ‘whopping 96 percent', the announcement has been garnering and gathering rather nasty headlines and adverse comments. “Write-down of two-thirds of US shale explodes fracking myth,” headlined The Guardian, whereas, the Investing Daily counter posed, “Is Shale Drilling a Sham?” The Seeking Alpha site said “The US Shale Oil Miracle Disappears and Motley Fool underlined, ‘The California Shale Bubble Just Burst” - just to name a few. Is the shale revolution literally over now? The EIA is coming out strongly, saying ‘no' to the very hypothesis. The technically recoverable resource is significantly different from daily output and the revision would have little or no impact on the US shale output estimates, it is asserting. While technically recoverable resources (TRR) is a useful concept, changes in play-level TRR estimates do not necessarily have significant implications for projected oil and natural gas production, which are heavily influenced by economic considerations that do not enter into the estimation of TRR, underlines the EIA head Adam Sieminski in a mail to this correspondent in response to the last week's column. The projected oil production from the Monterey play is also not a material part of the US oil production outlook in either Annual Energy Outlook (2013) or (2014), and remains largely unaffected by the change in TRR estimates between the 2013 and 2014 editions of the AEO. EIA estimates US total crude oil production averaged 8.3 million barrels/day in April 2014. In the Annual Energy Outlook 2014 (AEO2014) Reference case, production of economically recoverable oil from the Monterey averaged 57,000 barrels/day between 2010 and 2040, and in the AEO2013 the same production averaged 14,000 barrels/day. So EIA actually has increased its production estimate (in contrast to the TRR downgrade). Clearly, there is not a proportional relationship between TRR and production estimates – economics matters, and the Monterey play faces significant economic challenges regardless of the TRR estimate, EIA is now pointing out in rather bold letters. Every year EIA re-estimates technically recoverable resources (TRR), which are resources in accumulations producible using current recovery technology but without reference to economic profitability. Estimates of TRR are highly uncertain, particularly in emerging plays where few wells have been drilled, Sieminski points out. And then he emphasizes: “TRR estimates will likely continue to evolve over time as technology advances and as additional geologic information and results from drilling activity provide a basis for further updates.” Citi Research in a report “Much Ado About Nothing” released last Wednesday emphasized that the ‘96% write down of Monterey Shale reserves, although represents a big chunk of the EIA assessed 58 billion barrels of tight/shale oil resources in the US and indeed looks dramatic, but has ‘little impact on US oil production growth path.' The revision is less important than at first blush, it adds. The write down reflects longstanding recognition of challenges in the complex, faulted geology of the shale play, the report said, pointing to companies operating in the formation such as Occidental and Venoco, who have indicated significant challenges in tapping the shale play. Even taken at face value though, the implications of the reserve write down are not particularly impactful for nationwide shale production projections, the Citi report emphasizes. US oil production projections have not been based on significant volumes of Californian shale production, instead is driven by the three major tight/shale oil plays – the Bakken in North Dakota, and the Eagle Ford and Permian Basin in Texas – plus contributions from smaller plays across Oklahoma, Colorado, Wyoming and elsewhere. For instance, driven by these plays, the EIA's 2014 Annual Energy Outlook has a base case for US crude oil production to rise +1-m b/d to 9.6-m b/d over 2014-2020, and a high case of +2.5-m b/d to 11.4-m b/d, also over 2014-2020. Further, reserves can be revised up as well as down, if technology and economics become more favorable; the oil-in-place in the Monterey Shale remains formidable and could provide upside in the future. Independent pundits too are backing up the claim, stressing the downward revision is a reflection of current technology being deployed in the play rather than its long term potential. Richard Behl, a geology professor and director of the MARS (Monterey and related sedimentary rocks) Project at California State University, Long Beach, while talking to Richard Nemec of Natural Gas Intelligence Shale Daily underlined, “I would guess that E&P in the Monterey will not slow by the active players - both large and small - but this change in EIA perspective might shake out speculators without experience and understanding of the complexities of these rocks.” Behl was also of the firm opinion that the latest EIA assessment would prove to be “just as wrong” as the earlier, bullish one. While he acknowledges that the new assessment could hurt California economically in the short term, he thinks that in the long run it will cause exploration/production activity to be done “more carefully, properly and consistently.” “It might also allay the intense, emotional opposition to petroleum development that was engendered by visions of Bakken-like intensive development and hydraulic fracturing in previously unexploited areas of California.” The head of the Western States Petroleum Association (WSPA), Catherine Reheis-Boyd, told Nemec, “we have a great deal of confidence that the skills, experience and innovative spirit possessed by the petroleum industry ultimately will solve the puzzle and improve production rates from the Monterey Shale.” Independent Southern California geologist Donald Clarke told the daily that the chemical complexity (of Monterey) is further complicated by “structural deformation and the resulting fracturing. What is needed is a set of models that will help target the sweet spots or certainly the less risky targets.” Clarke is of the opinion that if this can be done, the recoverable oil in the Monterey may actually be a large number, possibly 10 billion bbl. “Creative minds can open up the Monterey just like they opened up the Marcellus and Bakken. We need to give them a chance to. I guess you can put me with the bullish group.” The reduced production number “is the government's estimate of how much oil drillers can get out of the earth with existing technology and at current prices,” said Sabrina Lockhart, spokeswoman for Californians for a Safe, Secure Energy Future. “The fact that the technology doesn't exist today, doesn't mean that it won't exist tomorrow,” said Tom Tanton, with the Energy & Environment Legal Institute, while talking to Steven Greenhut. The oil is there. Technology is missing. Efforts to fully tap the Monterey Shale will have to wait for some time - until the right technology is available. And that seems to be the sole outcome - until this day - of the ongoing debate.
