California's Shale Crisis

Keith Kohl

Written By Keith Kohl

Posted May 27, 2014

We don’t often hear about the other side of U.S. oil production.

Today, all we hear about is the good news. We read about the Bakken’s billionth barrel of oil, or how the booms in South and West Texas revitalized the state’s oil industry.

What many fail to realize, however, is that the situation is radically different elsewhere.

Unfortunately, nobody is immune to bad news. And we get a sobering dose of reality in the U.S. shale patch every once in a while.

Believe me, nothing makes a young Saudi Prince smile more than when this kind of news hits the United States’ oil industry.

The Revision Heard Around the World

In a matter of seconds, nearly 13 billion barrels of oil were suddenly wiped off the books in California. At least, that’s what happened a week ago, when the EIA drastically cut its estimates for the amount of recoverable oil in California’s Monterey Shale.

Remember, this formation was expected to become California’s version of the Bakken. Now, the EIA believes just 600 million barrels of oil are presently recoverable.

Say goodbye to the 2.8 million new jobs California’s oil boom would’ve created. And the Golden State can forget about spending the $25 billion in tax revenue it would have generated.

So, is the sky really falling? Or is this new estimate a nail in the coffin for California’s oil industry?

Don’t believe the hype… yet.

Crisis Breeds Opportunity

As harsh as the EIA’s revision was to the Monterey, it certainly isn’t the first time the U.S. government has dropped this kind of bombshell on us.

In 2012, the USGS slashed its 2002 estimates on the National Petroleum Reserve in Alaska by 90%! That report also knocked off billions of barrels of oil and set Alaska on a path toward exporting LNG.

In the same year, the Department of Energy cut its estimate for recoverable natural gas in the Marcellus by 80%. It turns out the 410 trillion cubic feet of natural gas they thought was recoverable is only around 84 trillion cubic feet.

In the latter case, the harsh revision didn’t hinder drillers, who are producing about 14 billion cubic feet of Marcellus-trapped natural gas every day.

Well, so much for throwing in the towel.

The Only Safe Bet in Oil Profits

Few investors today believe in a sure bet these days. After the EIA’s latest revision of the Monterey Shale, I can’t exactly blame them.

For California, peak oil has been a reality since February of 1986. That month, the state pumped 1,109,000 barrels of oil out of the ground. Over the next 28 years, output has declined more than 50%.

Truth is, they’re wrong to panic over media headlines.

Despite the new projections, let’s be clear about one thing: there is still a massive amount of oil underground.

Remember, the EIA is strictly reporting on the amount of reserves it believes is recoverable using current technology.

Whenever I read these reserve estimates (specifically from the U.S. government), I’m always reminded of a little-known company named Meridian Oil Inc

Don’t feel too bad if you’ve never heard of them — I don’t meet many people who have.

Twenty-seven years ago, Meridian Oil Inc. drilled and completed the first horizontal well in the Bakken. Even though the well produced a lot of natural gas, it was Meridian’s success in the upper Bakken that was a precursor to the boom taking place today.

Also, don’t forget that these revisions can go both ways.

I’m sure more than a few of you remember when the USGS increased its estimates of technically recoverable oil reserves in the Bakken from 995 million to 4.3 billion barrels.

That single report officially launched the Bakken into the spotlight.

And if there’s one thing I refuse to bet against, it’s technology. I’ve told my readers countless times that the next stage of the U.S. shale boom won’t come from a new, massive oil discovery, but rather from finding new ways to tap into plays we’ve known about for decades.

But is it really possible to stay ahead the curve and successfully trade your way through the U.S. shale boom?

Learn the five must-own oil and gas stocks in 2014 and find out for yourself.

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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