The US Shale Oil Miracle Disappears

The US shale oil "miracle" has about as much believability left as Jimmy Swaggart. Just today, we learned that the EIA has placed a hefty downward revision on its estimate of the amount of recoverable oil in the #1 shale reserve in the US, the Monterey in California.

As recently as yesterday, the much-publicized Monterey formation accounted for nearly two-thirds of all technically-recoverable US shale oil resources.

But by this morning? The EIA now estimates these reserves to be 96% lower than it previously claimed.

Yes, you read that right: 96% lower. As in only 4% of the original estimate is now thought to be technically-recoverable at today's prices:

EIA Cuts Monterey Shale Estimates on Extraction Challenges

May 21, 2014

The Energy Information Administration slashed its estimate of recoverable reserves from California’s Monterey Shale by 96 percent, saying oil from the largest U.S. formation will be harder to extract than previously anticipated.

“Not all reserves are created equal,” EIA Administrator Adam Sieminski told reporters at the Financial Times and Energy Intelligence Oil & Gas Summit in New York today. “It just turned out it’s harder to frack that reserve and get it out of the ground.”

The Monterey Shale is now estimated to hold 600 million barrels of recoverable oil, down from a 2012 projection of 13.7 billion barrels, John Staub, a liquid fuels analyst for the EIA, said in a phone interview. A 2013 study by the University of Southern California’s Global Energy Network, funded in part by industry group Western States Petroleum Association, found that developing the state’s oil resources may add as many as 2.8 million jobs and as much as $24.6 billion in tax revenues.


From 13.7 billion barrels down to 600 million.  Using a little math, that means the hoped for 2.8 million jobs become 112k and the $24.6 billion in tax revenues shrink to $984 million.

The reasons why are no surprise to my readers, as over the years we've covered the reasons why the Monterey was likely to be a bust compared to other formations. Those reasons are mainly centered on the fact that underground geology is complex, that each shale formation has its own sets of surprises, and that the geologically-molested (from millennia of tectonic folding and grinding) Monterey formation was very unlikely to yield its treasures as willingly as, say, the Bakken or Eagle Ford.

But even I was surprised by the extent of the downgrade.

This takes the Monterey from one of the world's largest potential fields to a play that, if all 600 million barrels thought to be there were brought to the surface all at once, would supply the US' oil needs for a mere 33 days.

Yep. 33 days.

And along with that oil come tremendous water demands, environmental, infrastructure and air pollution damages.

So if you do go for it California, the rest of the country will be your best buddy for a little more than 4 weeks. But don't keep calling us afterwards, as we'll be off to the next oil party (if there are any other ones to be had). But know that, sure, we still respect you.

Of course I'm being sarcastic here. But if I lived over or near a shale formation, I would be putting up a hell of a fight to prevent the many long-term damages and airborne pollutants that inevitably accompany such short-lived fracking operations.

At this point, you might be wondering just how the EIA got its estimate so badly wrong. The answer is that the EIA relied on a private firm, one now scraping corporate relations and PR egg off its face:

U.S. officials cut estimate of recoverable Monterey Shale oil by 96%

May 20, 2014

Federal energy authorities have slashed by 96% the estimated amount of recoverable oil buried in California's vast Monterey Shale deposits, deflating its potential as a national "black gold mine" of petroleum.

Just 600 million barrels of oil can be extracted with existing technology, far below the 13.7 billion barrels once thought recoverable from the jumbled layers of subterranean rock spread across much of Central California, the U.S. Energy Information Administration said.

The new estimate, expected to be released publicly next month, is a blow to the nation's oil future and to projections that an oil boom would bring as many as 2.8 million new jobs to California and boost tax revenue by $24.6 billion annually.

The 2011 estimate was done by the Virginia engineering firm Intek Inc.

Christopher Dean, senior associate at Intek, said Tuesday that the firm's work "was very broad, giving the federal government its first shot at an estimate of recoverable oil in the Monterey Shale. They got more data over time and refined the estimate."


Wait a minute. The 2011 California shale oil estimate that launched a flotilla of excited "shale miracle" headlines, led the EIA to publish an estimate of the Monterey at 13.7 billion recoverable barrels, and helped to form a national narrative around potential US "energy independence" was done by a Virginia engineering firm?

Okay, well who are they exactly?

Looking at their website, clearly put together using cheesy stock photos, early Internet font formats, and touting the fact that they've been a business "since 1998" doesn't quite project the hoped-for aura of gravitas and seasoned competency:


Seriously? A clock in an arch? Typing fingers? A woman gesturing in a meeting and a guy on a phone?

I mean, does anyone other than me have a "no lame stock photos" requirement of the businesses they use to generate the data used to justify a major geopolitical energy realignment? It's the closest thing I have to a hard rule.

Okay, just kidding again....sort of.

At any rate, the bottom line here is that the EIA relied on this firm's back-of-the-envelope calculations which turned out to be -- surprise! -- unreliable. And now, Occidental Petroleum is scrambling to get its assets out of the Monterey and deployed somewhere more promising.

The lesson to be learned here is: don't believe every headline you read. Consider the source, and more importantly -- stock photos or not -- always question the data.

Price, It's Always About Price

However, I cannot completely write off the entire 96% as 'gone' because the media has left off the most important part, as they always do: the role of price.

Without having access (yet) to the latest well data to know exactly what sort of potential disaster we're dealing with, the correct way to write-down an oil resource is to say: at today's oil prices, this asset can yield (or is worth) $X.

At higher prices, it is certainly true that more of the resource will be 'worth' going after.

But as you and I know, the price mechanism is just a means of obscuring the most important variable: the net energy that will be returned from a given play. Generally speaking, the higher the price (which is often a function of the energy required to extract), then the less net energy will come from that play.

So anytime we hear that a given play is being 'written down', as the Monterey is in rather spectacular fashion, what's really being said is that the net energy from the play is a lot less than prior and/or existing plays, and will not be useful to us until higher oil prices come along. In the case of the Monterey, much higher prices.

Whether we have an intact, functioning and highly complex economy of the sort necessary to develop and deliver the technology required to prosecute such low-yielding plays is another matter entirely. My best guess as of today is, 'probably not.'


Today's write down of the Monterey shale asset is a huge blow to Occidental Petroleum specifically, to California's energy and employment dreams more broadly, and to the US's energy dreams at a national level.

This is not surprising at all to anybody following the shale story with a critical eye. We always knew that the best plays were being prosecuted first for obvious reasons; it's human nature to go after the easy stuff first. And this is especially true for the folks in the oil patch.

The best plays were tapped first, not by some accident of technology or lucky holes plunged into the ground, but because they were cheapest to prosecute. The remaining shale deposits are less rich, more costly to explore, and the profitable pockets much harder to find.

Your main take-away is this: the US has a lot less shale reserves on the books today than it did yesterday. Look for future downward revisions as the other remnant shale plays are poked and prodded and found to be wanting.

Investors need to be wary here too. The hype about shale prospects are wedded to a Wall Street cheap capital machine that is showing clear signs of over-heating:

Shale Drillers Feast on Junk Debt to Stay on Treadmill

Apr 30, 2014

Rice Energy Inc. (RICE), a natural gas producer with risky credit, raised $900 million in three days this month, $150 million more than it originally sought.

Not bad for the Canonsburg, Pennsylvania-based company’s first bond issue after going public in January. Especially since it has lost money three years in a row, has drilled fewer than 50 wells -- most named after superheroes and monster trucks -- and said it will spend $4.09 for every $1 it earns in 2014.

The U.S. drive for energy independence is backed by a surge in junk-rated borrowing that’s been as vital as the technological breakthroughs that enabled the drilling spree. While the high-yield debt market has doubled in size since the end of 2004, the amount issued by exploration and production companies has grown nine-fold, according to Barclays Plc. That’s what keeps the shale revolution going even as companies spend money faster than they make it.

“There’s a lot of Kool-Aid that’s being drunk now by investors,” Tim Gramatovich, who helps manage more than $800 million as chief investment officer of Santa Barbara, California-based Peritus Asset Management LLC. “People lose their discipline. They stop doing the math. They stop doing the accounting. They’re just dreaming the dream, and that’s what’s happening with the shale boom.”


I guess there's a little less dreaming going on in the Monterey shale patch this morning.

Not to pick on RICE here, because they are more typical than not, but when you are spending $4 to earn $1, somebody ought to be asking some hard questions. Especially the investors.

More broadly, I have been clearly concerned by the recent reports indicating that the shale operators have been spending far more in CAPEX than they’ve been generating in operating earnings.

That's a larger subject that I've covered in more detail in recent reports, but the summary is this: over the past four years, free cash flow (FCF) has been negative for most of the major shale players.

Which leads us to the really big question: When will all these shale drilling efforts actually generate positive FCF?

In the case of the Monterey, and at today's prices, the answer looks to be 'Never.'

~ Chris Martenson

This is a companion discussion topic for the original entry at

This story is one of unfortunate word choice for the headline.  One could put a much more positive spin on this development simply by choosing a better headline.  Frankly, I'm shocked the MSM and TPTB let this one slip past them without a review and rewrite.  Here are a few of my suggestions, and I bet some of you could come up with a few of your own.
"Monterrey shale oil to be strategically stored in place for future use."

"Excessive taxes make Monterrey shale oil unprofitable."

"Monterrey shale oil getting extreme competition for drilling from other formations."


Someone else also thinks that the "image" of the INTEK company via their website was lacking.  It has already been revised!!  Lots of oil related stock pictures on there now.  When I first went looking for the site a few minutes ago the site was not accessible. I guess they were busy.

The whole thing seems more fishy than before, but maybe it's just the marine images.




Ops!  I was comparing the look of the "home page" with what was shown above in the article which is clearly from the "capabilities" page.  I spoke too soon. 

A very weird occurrence to change the INTEK website design. However, I must say that I do prefer the new series of images much more.I especially love the creepy eye on the contact page
Intek: This is a really creepy image. Please change this too! Thanks!

I've read impatience in some of your pieces, but that sounded like genuine anger. 

John G.


Actually I was going more for light humor with an edge rather than angry.  Looks like I missed!  :)
I do confess, however, that having just recently re-done the Environment chapter of the Crash Course I'm in a rotten mood.  The data is just galling.  Perhaps that's leaking through?

If only there were some rays of hope in the direction my country is headed, but at the national level it seems slavishly wedded to practices that are destined to end in tears and regret.

At the local level there are plenty of bright spots and hopeful activities taking place, so perhaps I need to look there more often?  However, I find it hard to peel my attention away from all the events unfolding at the macro level because those are the ones that will impact us all the most.

Impact us like an on coming truck.  Julia Butterfly Hill looking down from 70 feet in the air.  "I don't know I couldn't do it, so I did it".  Look at what's in front of you and MOVE. Any action is better then no action.  We may be unable to do anything to stop, slow, or even change the direction of the truck, but as least some of us may be able to get out of the way. 
I hope it is of some consolation to you that this site and all who participate in it are "Rays of Hope".  I confess to going out into my garden in a very dark mood recently, having spent too much time looking at the macro picture and feeling very frightened and sick with grief.  After a couple of hours of prayerful meditation while kneeling in warm soil with the sun shining on my back as I planted pinto beans, I was able to look up and take stock.  4000 sq ft garden, 3 new fruit trees, small flock of chickens, humanure pile, hives set up for bees to arrive in June (I'm surrounded by commercial blue berry fields, seems to be very hard on my bees), rain water catchment, grey water catchment in development, etc.

Do the next thing.  You are NOT crazy, the lights ARE flickering.  DO THE NEXT THING!

Thank You,

John G.

You didn't miss Chris. I lolled a couple times.On another note, as someone who live close to the actual city of Monterey, I can't be the only one looking at this news as fantastic. There has been increasing talk about trying to get the state to ban fracking, with the city of Santa Cruz banning it.  The sooner we stop chasing unicorns, the sooner we can stop ruining our homes while chasing dollars.

jgritter: my sentiments exactlyIt is heartwarming to read of other's little local successes.  I feel the same way.  Although my little moments of soil improvements, replacing fossil fueled garden machines with solar-electric powered, increased local sustainability and community development are private to me, it makes me feel good and also knowing that many others are making similar advances by reading so at this blog.  I further note that young 18-22 y olds in the US that I talk to seem to be rather aware  and rejecting the older generation "more development" model (even to the point of not getting drivers licenses in some cases)  and that the situation outside the US (particularly  the rural areas in Japan, which have plentiful, cheap land) are very hopeful, where the biggest problem (too many  people) is getting fixed, and the people know how important their resilience lifestyle is to the sustainable future.  Interestingly, the news outside the US is much different and reflects more collective wisdom than inside.  The good  change in attitudes occurs and is progressing as foretold by Dr. Jonas Salk  in "Survival of the Wisest."   

I think the material point to be taken is that "they," the people who put these forecasts and data points out have little clue about anything and as with other government peddled data points they are either used to feed an agenda or are just science fiction.

Having spend more than a little time in the Bakken area I can tell you that the fact that they don't develop gathering systems because the wells bleed off so fast ( they just have tanks at the wellhead which get emptied by tankers ) that there is nothing long term about the tight oil solution.


With respect to Energy I think I'm probably in the middle of the argument. I am an executive for a Pipeline and Facility construction company in Alberta - so from a hydrocarbon standpoint I don't think it is irresponsible to develop such resources. That being the case adherence to requisite safety and quality procedures and not developing in sensitive areas ( geological or otherwise ) are always a must. Somewhere between all and nothing is a workable state.


On the other hand I am in the process, as probably many of you are of unplugging and moving to a simpler, more sustainable existence and being self sufficient.


In a perfect world I would love to see oil and gas development done responsibly with some form of renewable energy fund being established as a by product. The sad part is that with regulatory capture we have Oil companies behaving badly ( hey thanks for the fracking loophole cheney ) on one side and then money being fed into boondoggles on the side of green energy - so as we try to have sanguine conversations and move forward the deck is stacked against us. I don't think I would shock anyone when I suggest regulations are more in place to punish those not in the club then they are to actually make things better. That I guess comes back to being more self sufficient.


If you own the printing press and everyone is accepting your paper as money, why would you want things to change?
The reason the USA can print money is because the rest of the world has to buy oil with this printed paper. (OK, electronic digits then if you want to get pedantic.)

The point being is that when your back is against the wall- when the jig is up, only then the monkey can let go of the peanut. Then he has a reason to see the world the way it really is.

Let go of the peanut monkey, or you are doomed.

[quote=canadian_dirtlump]Having spend more than a little time in the Bakken area I can tell you that the fact that they don't develop gathering systems because the wells bleed off so fast ( they just have tanks at the wellhead which get emptied by tankers ) that there is nothing long term about the tight oil solution.
(…) The sad part is that with regulatory capture we have Oil companies behaving badly ( hey thanks for the fracking loophole cheney ) on one side and then money being fed into boondoggles on the side of green energy - so as we try to have sanguine conversations and move forward the deck is stacked against us. I don't think I would shock anyone when I suggest regulations are more in place to punish those not in the club then they are to actually make things better. That I guess comes back to being more self sufficient.
Welcome aboard, although I have to confess your avatar image scares me a little.
There are lots of clues that the fracking story is a very temporary reprieve that is being frittered away.  I agree that we really should be directing a portion of the oil remnants towards building out our next energy future.  
But we're not.
Instead we're in such a rush to get it out of the ground that we end up burning off the natural gas in the Bakken without a second thought.
Given this approach to things, it really only makes sense for us to each become as resilient as we can.  Control what you can, keep an eye on the rest.

I console myself with the hope that this news may contribute in some way to shifting the popular narrative Chris talks about and beginning to carve out a space for the new (real) one. Sadly, I think it has more potential to get the attention of Americans than, say, the situation in Ukraine, which most people I know seem to have dismissed (due in no small part, surely, to the lack of media coverage discussed recently on this site). The Monterey downgrade affects everyone on this continent, and it’ll be coming from sources accepted by a larger sector of the mainstream. Of course, there’s always the “technology will save us” portion of the narrative to fall back on, but I’m still interested to see how this gets integrated into our popular discourse.
Chris, the moderate, controlled anger I occasionally detect behind your sound analysis of simple facts has a rebalancing effect that I rely on. It’s vital to know someone is experiencing authentic anger rather than hiding behind the overconfident hipster giddiness we Americans continue to cultivate by distracting ourselves with skinny jeans, $30 bottles of wine, and the belief that if one drives a Prius one has adequately attended to the whole green thing and can commence with the next Facebook post about what one had for dinner. (Or, to put it more succinctly, the “peanut” in Arthur’s post.) When family and friends say, “that kind of talk is upsetting,” I want to yell “but we should be upset! We should be very upset!” (But I don’t, because I’ve realized that ranting only provides another excuse to dismiss the message. Peak Prosperity articles don’t count as ranting.) Although it’s hard not to feel insane for thinking these thoughts against our current cultural context, the true insanity would be to react to the information we discuss here with anything other than some form of distress—of which anger is arguably one of the more constructive since it tends to call folks to action.

Welcome to our little virtual community Hoopers, and thanks for your post!  I too see how this news might be a little destabilizing to the delusion our society lives under.  In fact, I hope that is the case so we can more quickly get down to reality and brass tacks, and start solving some of these problems and adjusting rationally to some of the predicaments.  Actually, this could be the snow flake that starts the avalanche.However, I'm pessimistic.  Bakken crude oil is shipped by rail right behind my house in Philadelphia and ends up in the refinery in South Philly where I work, but I don't personally know anybody else who knows that, cares, or has the faintest idea about fracking, the 3E's as we call them around here, and so on.  We can hope this news starts the avalanche that causes millions of people to wake up and start paying attention, because that's how complex systems change (by a sudden phase transition).
And I resonate with your comments about anger.  As they say, "If you're not enraged, you're not paying attention!"  OTOH, people generally tune you out when you let too much anger out at the wrong time. Nevertheless, this is how I feel (recently posted elsewhere in case you missed it).

Project Gasbuggy

was an underground nuclear detonation carried out by the United States Atomic Energy Commission on December 10, 1967 in rural northern New Mexico. It was part of Project Plowshare, a program designed to find peaceful uses for nuclear explosions.

 Its purpose was to determine if a nuclear explosions could be useful in fracturing rock formations for natural gas extraction.

Following the Project Gasbuggy test, two subsequent nuclear explosion fracturing experiments were conducted in western Colorado in an effort to refine the technique. They were Project Rulison in 1969 and Project Rio Blanco in 1973. In both cases the gas radioactivity was still seen as too high and in the last case the triple-blast rubble chimney structures disappointed the design engineers. Soon after that test the ~ 15-year Project Plowshare program funding dried up.

These early fracturing tests were later superseded by hydraulic fracturing (fracking) technologies

Natural gas stimulation experiment

The final PNE blast took place on 17 May 1973, under Fawn Creek, 76.4 km north of Grand Junction, Colorado. Three 30 kiloton detonations took place simultaneously at depths of 1,758, 1,875, and 2,015 meters. It was the third nuclear explosion experiment intended to stimulate the flow of natural gas from "tight" formation gas fields. Industrial participants included the El Paso Natural Gas Company for the Gasbuggy test; Austral Oil Company; CER Geonuclear Corporation for the Rulison test; and CER Geonuclear Corporation for the Rio Blanco test.

If it was successful, plans called for the use of hundreds of specialized nuclear explosives in the western Rockies gas fields. The previous two tests had indicated that the produced natural gas would be too radioactive for safe use. After the Rio Blanco test it was found that the three blast cavities had not connected as hoped, and the resulting gas still contained unacceptable levels of radionuclides.[9]

By 1974, approximately $82 million had been invested in the nuclear gas stimulation technology program. It was estimated that even after 25 years of gas production of all the natural gas deemed recoverable, that only 15 to 40 percent of the investment could be recovered.

Also, the concept that stove burners in California might soon emit trace amounts of blast radionuclides into family homes did not sit well with the general public. The contaminated well gas was never channeled into commercial supply lines.

The radioactive blast debris from 839 U.S. underground nuclear test explosions remains buried in-place and has been judged impractical to remove by the DOE's Nevada Site Office.

The situation remained so for the next three decades, but a resurgence in Colorado Western slope natural gas drilling has brought resource development closer and closer to the original underground detonations. By mid-2009, 84 drilling permits had been issued within a 3-mile radius, with 11 permits within one mile of the site.


and it is much more to this..


I realise the inmates are running the asylum.

CM told you so… The price of extraction has to be below the market value of the extracted - doh !!!
I guess like everything reality always takes second place to hype and blind optimism or perhaps the reality was conveniently overlooked initially.

Chris-I'm comforted by his words, "America always does the right thing, after first exhausting all the other alternatives."
So what alternatives remain?  Tight oil bubble pops in a couple of years, and then what?
I'm only slightly comforted by the knowledge that bad things happen to the periphery first, and only then do they eventually affect the core.

Thanks Chris I've followed your work for years and am proud of what you do. Your message with the vein of social responsibility without being hysterical is refreshing and I have become more aware and focused in there which gives me ( as you know ) a more balanced view and approach to life. 
I've said for many years natural gas should be pushed as a surface fuel. Funny you mentioned that because I came back to post just that. There has been whispers of this e.g. hybrid diesel natural gas engines. It is fairly clean, the power generation by it has become more efficient, and even starting with mandating or testing it for city fleet vehicles and trains ( to minimize time ). It isn't the final answer but given it is literally going up in smoke it may as well do something as it burns other than light up the night sky. I believe in saskatchewan there is new regulation requiring the capture of this which in my view will help things. I'm sure I've seen some plans for gathering systems which would also help economically.
If I'm not mistaken perversely Iran leads the world in the use of natural gas powered surface fuels which I suppose stems from them being under the full weight of the west.

The good news is that oil will be recoverable once the energy prices go up high enough to justify the research & development, as well as engineering costs! Hurray!
I'm sure the impact on our economy from energy prices high enough to justify reaching the other "theoretically recoverable" reserves will be negligible. And here I was getting worried.

takes tongue from cheek

I think the Mrs. and I need to start fast-tracking our plans for integrating solar power into our household prep plans.