Thursday, December 8, 2011
It took 15 million years, but South County oil deposits are starting to flow with the fast ones. At a September auction for federal mineral rights, paddle-wielding bidders drove the price for a 2,343-acre parcel up from $1.50 an acre to $22.50.
That’s still 40 times less than rights to acreage in neighboring Fresno County, but the buyer, Neil Ormond, president of Clovis-based Petroleum Land Management, Inc., says it went for more than he’d expected.
“The Monterey Shale is unproven at this point,” he says, “but it’s soon to be tested, I would imagine.”
Though Bureau of Land Management officials say the buyers could sit out their 10-year leases without ever drilling a well, the competitive bidding indicates the market’s growing interest in the deeper Monterey Shale formation.
Ormond himself won’t set up shop. He’s a landman, or oil industry consultant, and he refuses to name his client for the BLM auction. But big players are poised to expand. Halliburton, for example, recently added to its Bakersfield facilities.
Above ground, Bakersfield is a world away from Monterey County. Underground, though, it’s just at the other edge of the Monterey Shale formation, which geologists say could yield oil through the process of hydraulic fracturing – or fracking – in which operators inject high-pressure water, sand and chemicals into rock to free up reserves.
In October, Denver-based Venoco withdrew three applications for drilling permits that would have allowed fracking; those permits were under appeal by Ventana Conservation and Land Trust, and county planning staff recommended holding off on fracking permits.
Venoco has no plans for Monterey County at this time, according to a spokesperson. The company sent a landman to bid at the BLM auction, but didn’t win any rights.
As big companies are backing down, small operators are showing a surging interest. Bakersfield-based Sunset Exploration finished drilling a well last week off Jolon Road near King City, and will begin testing there next month. They’ll be looking for “attic oil,” heavy reserves left behind in the abandoned King City oilfield, which closed down about 30 years ago.
“If we spend $2 million on a project that may yield 500,000 barrels of oil, that’s a huge, huge reward on our risk,” says Sunset partner Dero Parker. “The little independents are going to be chasing some of these smaller reservoirs.”
Parker hopes to drill another eight to 10 wells on private land he leases from San Bernabe Vineyards.
Abandoned fields and deeper reserves that require fracking are the likely domains of a new generation of oil exploration. “The shallow, easy-to-develop targets have been found,” says Jeff Prude, oil and gas program lead at BLM. “The deeper, riskier targets are what’s out there now.”
This business landscape is a double-edged sword for small operators. The high price of heavy crude enables them to profit on small parcels, but big capital demands make it hard to find investors.
Ray Stewart, owner of Bakersfield-based Quake State Oil & Gas, bought rights to a remaining South County BLM parcel that no one had bid on, paying $1.50 an acre. He says he could develop the 120 acres without fracking, but is still seeking the $3.3 million he needs to operate, most recently having turned his funding search to venture capitalists in New York. “My research shows that it could be a good area,” he says.