Soon it'll be known as the "Kern County oil flop. . ."

In a year, you'll completely forget this discovery was ever made.

Several weeks ago, I was informed by a few of my readers that all our oil supply troubles were over. Apparently they became a little too excited after reading about Occidental Petroleum's "huge discovery."

I'll admit I should have seen this coming once the news reached my desk.

Here's what happened. These guys saw the headline, "California's Largest Oil Discovery in 35 years," and jumped right to making conclusions. It's true that the potential 250 million barrels of oil equivalent (we'll be generous and use their higher estimate), comes out to about one-tenth of the state's on-shore reserves.

However, when you put the numbers into perspective, please don't hesitate to laugh right along with me. I'd like to reiterate a point my colleague, Chris Nelder, has continually tried to impress upon you: It's all about the flow rates. . .

Let's take a moment to play the devil's advocate, indulging ourselves with the impossible by assuming that Occidental Petroleum defies logic and is able to produce all 250 million barrels in a single day. I'll even entertain the notion that the company has enough storage and pipeline access on this extraordinary feat of production.

Taking our current demand into account, we've managed to free ourselves of foreign oil imports for a mere 20 days.

That's it.

After three weeks, we'd be right back where we started. So much for the greatest discovery in over three decades.

Now, I don't mean to rain on Occidental's parade. They're having enough trouble without people crushing their production fantasies.

No Going Back After the Peak

The discovery certainly won't save California's production from sliding further down the backside of the peak oil curve. California's oil production is more than half of what it was when production peaked in February, 1986. And to think they're still our third-largest producing state in the United States. Of course, there's also the overlooked fact that two-thirds of this new source is natural gas!

As you can see in the chart below, there is no coming back after peak oil. For me, that's not even the disheartening part. . . Just look at how little of an effect the rampant drilling activity has had.

Remember, a drilling frenzy across the country was taking place over the last few years, fueled by triple-digit crude prices. One might expect production to actually increase as a result.

So much for that idea. . .

If California's production remained flat during that oil rush, it's only a matter of time until the state moves further down the list of our country's top producers.

But let's be honest with ourselves: Is this really that unexpected?

I couldn't help but feel that California had already thrown in the towel, even as prices approached $150 per barrel. As I recall, The Division of Oil, Gas and Geothermal Resources at the state's Department of Conservation reported that California's production will remain flat — despite triple-digit prices for crude oil.

It all comes down to the fact that California's fields are mature (some have been pumping oil for more than a century), so it boils down to how efficiently the drillers produce the oil that's left. Rather than rushing to drill new wells, companies were bringing old wells back online, using various injection methods to extract the oil.

Considering California's oil production has fallen about 20% during the last decade, even my most optimistic readers can see where the state's production is headed; and the latest Kern County oil discovery isn't going to turn the tide in the slightest.

Personally, I just don't understand how the latest Kern County oil discovery is so excitable. . . but nowadays, I suppose a few million barrels sounds better than nothing.

Until next time,

Keith Kohl

Energy and Capital

P.S. There's not much to get excited over with the latest Kern County oil flop, so allow me show what a real discovery feels like. Not only have producers in this area been able to practically side-step the recession, but they're also taking investors like us along for the ride. I've prepared a special report highlighting several plays for you to take advantage from natural gas' inevitable comeback. Click here to read more about this opportunity.