I'll confess that California was the absolute last place I expected to see an oil revival...
I've been known to liken the state's oil production over the last couple of decades to a ball rolling steadily down a never-ending hill ? at least, that's how it looks on practically every chart I've come across.
Since peaking in February of 1986, the Golden State's daily crude output has plummeted 51%. In fact, 2013 could be the year it finally falls below 500,000 barrels per day.
California's problem with Peak Oil is only one item on a growing laundry list of issues facing the state today...
Among the heavy-hitters dragging California down: an unemployment rate of 9.8%; the IOUs residents received in lieu of their tax refund in the past; state governors luring businesses away with promises of greener pastures on Texas soil; and the reality that one-third of the nation's welfare recipients reside there.
What they need is another gold rush to help get things back on track?? better yet, a black gold rush.
The Crisis is Political, Not Geological
Nobody's arguing there's an abundance of energy resources begging to be developed beneath California soil; no, the problem with California's oil is purely political.
The anti-fracking sentiment has reached a feverish pitch (many of us have witnessed this firsthand over the years), but it might interest you to know anti-fracking campaigns could be taking a backseat on the political stage in 2013, as the president starts to warm up to the idea of an energy boom ? and to hydraulic fracturing as a means to this end.
Personally, I feel Obama understands the reality of the situation more than he lets on, that an overwhelming number of new oil and gas wells being drilled today require some form of fracture stimulation.
And our president is about to show his hand when he appoints the next Energy Secretary to replace Stephen Chu... ?
Reuters recently reported Ernest Moniz is a likely candidate?? meaning the prospects for developing unconventional oil and gas resources just got much, much brighter. Moniz is being both praised and vilified for his accepting stance on hydraulic fracturing. If the Beltway gossip turns out to be true, California's oil industry will have an opportunity to reverse its misfortune.
California's Black Gold Rush
After losing its second and then third place position on the list of largest oil producers, California is due for some good news.
Well, it turns out their story has striking similarities to the Bakken play in North Dakota.
It all revolves around the Monterey Shale. The immense number of barrels contained within the formation has been "common knowledge" for a long time. Fact is there are USGS reports focusing on the Monterey Shale dating back more than a hundred years!
Last week we mentioned that at last count, more than 15 billion barrels of oil are contained in the formation...
Will it be enough for the state to climb out of the hole it's dug for itself over the last 25 years?
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If the Monterey's potential proves to be anything like the Bakken Formation, California residents won't be sent IOUs once a year?? nor will they be anywhere close to double-digit unemployment. (Remember, North Dakota's 3.2% unemployment rate doesn't even tell the whole story, because some areas actually have negative unemployment rates.)
Now, this isn't some optimistic portend of the consequences of an oil boom.
It's a formula for success. And players like Continental Resources have been perfecting this formula for a decade...
Should you have any doubts on how investors fared when North Dakota ramped up state oil production, let's compare Continental's performance to Occidental Petroleum, one of California's biggest oil drillers:
If we can put politics aside long enough, California could kick-start its oil industry ? and I could just as soon be eating my words for mocking the state's ability to increase oil production.
If an oil revival ever happens there, it may very well be Texas oil companies that up and leave for greener pastures on the Pacific Coast.
Until next time,
Keith Kohl
@KeithKohl1 on Twitter
A true insider in the energy markets, Keith is one of few financial reporters to have visited the Alberta oil sands. His research has helped thousands of investors capitalize from the rapidly changing face of energy. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital as well as Investment Director of Angel Publishing's Energy Investor. For years, Keith has been providing in-depth coverage of the Bakken, the Haynesville Shale, and the Marcellus natural gas formations ? all ahead of the mainstream media. For more on Keith, go to his editor's page.
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