Eco-friendly Calif. poised to be top U.S. oil producer in 10 years

The Monterey Shale (or Modelo Formation) is a deepwater deposit of shale, sand and diatomaceous earth that is exposed widely along the California Coast.

SACRAMENTO – Even as it seeks to be an environmental leader, California is a top contender for the title of the largest oil-producing state in the next 10 years, laying the foundation for the country to reach its once lofty goal of energy independence.

The potential for booming production comes from the Bureau of Land Management’s sale last week of 15 leases covering about 18,000 acres of Southern California’s Monterey Shale. Los Angeles-based Occidental Petroleum Corp. led the bidding, along with some smaller companies.

Monterey’s prospects, coupled with favorable oil prices, mean “that renaissance is coming to California,” said Phil McPherson, chief financial officer of Citadel Exploration Inc., a California-focused oil company. The state is already the No. 3 oil producer in the country.

State regulators this week issued a draft of new rules to increase oversight of hydraulic fracturing, the extraction process that will make oil and gas production possible in the shale play.

California’s strong environmental lobby is expected to keep a close eye on companies’ compliance with those rules.

“There’s a strident environmental community that’s always very concerned about the possibility of ecological damage,” said Amy Myers Jaffe, executive director for energy and sustainability at the University of California, Davis. “It’s going to be a much more intense operating environment” for companies drilling in sensitive areas, she said.

Oil and gas proponents say the benefits could be transformative for the economically ailing state. For example, in North Dakota, since drilling began in its Bakken Shale, unemployment in the state has dropped to 3.1 percent. California’s unemployment rate currently stands at 10.1 percent, and it has uniquely high gasoline prices.

“The potential economic benefits are enormous,” said Tupper Hull, spokesman for the Western States Petroleum Association, an industry trade group. “If you look at what has happened nationally, it is one of the most encouraging trends that we’ve seen of late.”

In what might be a signal of trends to come, producers, including Occidental, say energy development approvals have come at a quicker pace, allowing them to continue drilling after a recent slowdown. In the California Legislature this year, a bill that would have banned fracturing failed to gain traction.

“You certainly won’t see enthusiasm in Napa and Sonoma, some of the bluer parts of the state,” said Severin Borenstein, director of the Energy Institute at the University of California, Berkeley’s Haas School of Business. “But many areas have been more depressed economically, so I think many people would welcome it.”