California Oil Investing

Keith Kohl

Written By Keith Kohl

Posted July 23, 2013

I’ll confess that whenever I bring up oil production on the West Coast, it’s usually to show how bad things can get.

The steady decline of California’s oil production has been painful to watch. In fact, the Golden State’s oil industry has only managed to increase its annual production three times over the last 28 years.

Believe me, nobody else in this country could use some good news more than California’s oil industry.

Well, they just might get their wish…

That’s right. For the first time ever, the state may be on the verge of turning things around.

State of Denial

Despite being a beacon for renewable energy in the United States, every last bit of green energy on the West Coast still hasn’t managed to make much of a dent in the state’s oil consumption.

In fact, petroleum shipments to the West Coast area, also known as PADD 5, have been fairly consistent (click chart to enlarge):

PADD 5 oil

West Coast refineries have been receiving about three million barrels per day for the better part of three decades!

Unfortunately, there’s an even bigger issue here. Shipping that much crude out West is overshadowed by the declining quality of oil that makes up California’s oil supply.

That’s mostly due to the fact that up until now, California has relied heavily on just one area, Kern County.

Just to give you an idea of how important this county is to the state’s oil output, consider the fact that Kern County accounted for approximately 73% of California’s total production in 2011.

In other words, if Kern County were its own state, it would be the fourth largest oil-producing state in the U.S. (and that would mean knocking the Golden State way down the list to tie with Wyoming at the No. 8 spot).

Barring some unforeseen secession by Kern County residents, let’s see how this area stacks against other California counties (click table to enlarge):

ca county oil

Source: State of California Department of Conservation

Now, as I mentioned earlier, there is a catch — and that’s the quality of the oil coming out of Kern County.

You see, we’re taking about heavy crude here.

The way we know this is through its API gravity.

Simply put, the API gravity is used to show how heavy petroleum is compared to water: A rating of 10o or higher means it’s lighter — and floats — on water, while anything less than 10o will sink.

West Texas Intermediate, for example, carries an API gravity of about 39.6o.

The light, sweet crude that flows out of North Dakota’s Bakken wells is usually between 40-42o.

Oil produced from the Kern River oil field, on the other hand, typically weighs in between 10-16o.

Naturally, the heavier the oil, the costlier it is to refine.

Venezuela’s extra-heavy crude produced from the Orinoco Belt, for example, can have an API gravity as low as 4o. Not exactly ideal…

Crude Feuds

While California oil companies are struggling to reverse the state’s production decline, you’d expect to see others take advantage of it.

As my readers are well aware, some states are having a much easier time boosting oil production…

Last Friday, I explained how the renewed activity in the Permian Basin has helped spark a good, old-fashioned oil boom in Texas. Now those Texas producers are looking to tap into a California oil market beset with production problems.

Kinder Morgan Energy Partners was recently looking to ship the light West Texas crude by building a pipeline that runs westward out of the Permian Basin. Once completed, the pipeline would handle 277,000 per day.

However, Kinder Morgan’s plans were scrapped in late May after a lack of interest from California refiners, who instead chose to receive that oil by trucks and railways. Essentially, putting the kibosh on the pipeline project would give them more flexibility to receive more California oil in the future.

Could things finally be on the up and up for California’s oil production?

The truth is the key to its future success will be from more than just Kern County…

The state may be on the verge of experiencing its very own shale boom in a relatively short period of time.

This is a bet a few California oil companies are ready to make — with more than 15 billion barrels of recoverable crude at stake.

It’s what drove me to rush nearly 3,000 miles across the country recently.

You see, I’m putting the finishing touches on my latest investment report that’s targeting the brighter side of the California oil industry…

Look for it to hit your email inbox on Thursday.

Until next time,

Keith Kohl Signature

Keith Kohl

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A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.

For nearly two decades, Keith has been providing in-depth coverage of the hottest investment trends before they go mainstream — from the shale oil and gas boom in the United States to the red-hot EV revolution currently underway. Keith and his readers have banked hundreds of winning trades on the 5G rollout and on key advancements in robotics and AI technology.

Keith’s keen trading acumen and investment research also extend all the way into the complex biotech sector, where he and his readers take advantage of the newest and most groundbreaking medical therapies being developed by nearly 1,000 biotech companies. His network includes hundreds of experts, from M.D.s and Ph.D.s to lab scientists grinding out the latest medical technology and treatments. You can join his vast investment community and target the most profitable biotech stocks in Keith’s Topline Trader advisory newsletter.

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