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California’s Monterey shale is believed to hold 15 billion barrels of technically recoverable oil. To put that in perspective, the entire proven oil reserves of the United States are just 29 billion barrels of oil. That means that if the oil industry is allowed to responsibly develop the Monterey, it has the potential to be a real game changer for our country.
The Monterey also represents a game-changing opportunity for investors. One company that’s poised to benefit from the development of the Monterey is Occidental Petroleum Corporation (NYSE:OXY), which is already the largest oil natural gas producer in the state. It’s also the largest mineral acreage owner with about 2.1 million net acres, about half of which is prospective for the Monterey. Those two factors really put Occidental Petroleum Corporation (NYSE:OXY) in the driver’s seat for California’s black gold rush. The company has already devoted 25% of its $1.5 billion 2013 California capital budget to its unconventional opportunities in the state like the Monterey. That means that Occidental is the industry’s best bet in unlocking the potential riches of the Monterey and turning it into a commercial operation.
There are a number of other oil and gas companies that hold legacy oil and gas acreage in California that could be prospective for the Monterey shale. For example, Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) which bought Plains Exploration and Production is believed to hold about 70,000 net acres in the Monterey. Meanwhile, energy giant Chevron Corporation (NYSE:CVX) also holds a large prospective acreage position in the play. However, neither are likely to be leaders in the development of the Monterey.
Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) currently has its hands full digesting its most recent oil and gas acquisitions, while it’s also battled falling copper and gold prices which have crimped its profits. The company has even cut the capital it’s spending on the Eagle Ford shale to conserve cash flow. All that to say, if the Monterey hits full development mode in the future, Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) will likely watch it from the sidelines.
That being said, the big question is if the Monterey will actually live up to the hype. Chevron Corporation (NYSE:CVX) really isn’t so sure. CEO John Watson has said that he thinks that the, “jury’s out a little bit on the Monterey Shale.” Part of that is that his company has yet to see the same economic return potential that its peers like Occidental Petroleum Corporation (NYSE:OXY) have seen. That’s why he’s not sure the play will ever prove to be profitable for a company as large as his that needs real needle moving oil production growth.
If the hype is real on the other hand, there are a number of companies that are poised to join Occidental Petroleum Corporation (NYSE:OXY) in a potential California oil rush, however, it might not be other producers. Instead, the other two companies that could be leading this black gold rush are Nuverra Environmental Solutions Inc (NYSE:NES) and Halliburton Company (NYSE:HAL). This is because the biggest problem with unlocking the Monterey other than geology could be its environmental impact. Because fracking involves so much water, and this is California we are talking about, the water recycling solution that Nuverra Environmental Solutions Inc (NYSE:NES) and Halliburton Company (NYSE:HAL) have partnered on in the Bakken could be the key to making fracking more palpable to Californians.
In fact, Nuverra already has its sights on taking its full-cycle water solutions model into the Monterey. CEO Mark Johnsrud specifically pointed out on the company’s last conference call that the “bigger leap will be when we start looking into California, as that potentially develops down the road.” In fact, the dynamic duo could really prove to be in the driver’s seat to help oil companies responsively develop the Monterey given the experience will be gaining in the Bakken as the current partnership programs begin to develop.
Given the amount of technically recoverable oil in the Monterey, oil companies will try hard to find a way to get it out. Occidental Petroleum Corporation (NYSE:OXY) is likely to lead its development on the production side, while Halliburton and Nuverra should be the leaders on the hydraulic fracturing and water recycling side. That makes these three companies the most likely to lead California’s future energy boom.
The article 3 Companies Poised to Lead California’s Black Gold Rush originally appeared on Fool.com and is written by Matt DiLallo.
Fool contributor Matt DiLallo owns shares of Nuverra Environmental Solutions . The Motley Fool recommends Chevron and Halliburton. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold and Nuverra Environmental Solutions and has the following options: long January 2014 $4 calls on Nuverra Environmental Solutions and short January 2014 $3 puts on Nuverra Environmental Solutions .
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