For years, Westwood oil giant Occidental Petroleum Corp. has positioned itself as the biggest beneficiary of California’s massive Monterey shale oil formation. The company claims that 7 billion barrels of black gold are under its holdings there.

But it’s turning out to be harder to reach that oil, even with the latest fracking and other drilling technologies.

The other big oil company in California, Chevron Corp. in San Ramon, earlier this year halted drilling in the Monterey shale, choosing to focus instead on the Gulf of Mexico and elsewhere. Meanwhile, Occidental plans to expand its drilling efforts in the Monterey shale next year.

So why is Occidental staying the course while Chevron walks away? Analysts say it’s because Chevron has easier pickings elsewhere, while Occidental is preparing to sell off its international operations, concentrated in the Middle East. The goal is to turn Occidental into a smaller, more focused company with the hope of boosting shareholder value, which has lagged peers in recent years.

But that also means that Occidental’s efforts in California become a bigger part of the company.

“Chevron looked at the Monterey shale and decided it could turn to other parts of its larger and more globally diverse asset base,” said Pavel Molchanov, energy analyst with the Houston office of Raymond James of St. Petersburg, Fla. “For Occidental, with its relatively smaller asset base, the Monterey shale remains an attractive option.”

The Monterey shale formation mainly stretches along the western Central Valley from near Salinas to southwest of Bakersfield. Another shale formation, the Santos shale, runs along the coast or just offshore, extending south to the L.A. area. Federal government projections say the formation contains more than 15 billion barrels of oil (one barrel equals 42 gallons), more than double the projections for the Bakken shale formation in North Dakota and more than five times the estimates for the Eagle Ford shale region in West Texas. Other private estimates have run several times higher, hence Occidental’s projections.

But the oil is not easily accessible, or it would already have been tapped. After all, it’s been more than 100 years since drilling started in the region. The shale formation has been characterized as a multilayer cake, with the oil buried deep inside rock formations at various levels. Only recently, with improved mapping and drilling techniques, has drilling become feasible.

Also, 3-D mapping technology, which has come into widespread use over the last decade, has helped oil companies more accurately pinpoint where the oil is lodged. High-pressure injections of water, steam, sand, acid and other chemicals help to dislodge oil and allow it to flow into wells and up to the surface. These drilling techniques are known as steam floods, hydraulic fracturing (“fracking”) and acidizing. Companies made big projections of previously untappable oil thanks to the new technology.

But the results so far have been considerably lower than hoped for.

“Progress has been slower than expected, and the play didn’t live up to the hype by investment banks,” said Fadel Gheit, oil and gas analyst with Oppenheimer & Co. in New York.

In Chevron’s case, the oil expected to be in the Monterey shale formation did not turn up.

“Based on our drilling results, our view is that the oil has migrated out of the formation and is now found in pockets outside of the Monterey shale,” Chevron spokesman Kurt Glaubitz told Bloomberg News in April. “We don’t believe it’s going to compete for our investment. We have other opportunities that are more economical for us to develop.”

And it’s not just less oil than expected. Because of heightened concern over the potential environmental and health impacts of fracking, the permitting process for new wells has been slow. In a July earnings teleconference call with analysts, Occidental Chief Executive Stephen Chazen said that it generally takes more than a year to get a single well permitted by state and local authorities. That’s before a single drill rig hits the ground. It then takes more time to drill the well and several more months before the testing is complete. And that’s just for a typical well.

But neither Chevron’s departure nor the permitting delays have stopped Occidental from continuing to drill. In the same teleconference call, Occidental’s Vicki Hollub, then executive vice president heading up California oil and gas operations – who has since been promoted to executive vice president of U.S. operations – said the company has drilled 15 exploratory wells in the state so far this year.

Hollub said that over the last six years, Occidental has drilled more than 115 exploratory wells and that two-thirds of those wells have led to oil or gas deposits.

The company expects to drill an additional 100 wells in the next few years.

“We have been busy over the last few years acquiring 3-D seismic (images) over a significant portion of our acreage,” she said, “and this has contributed to our high rate of success.”

But another problem arose: In many of its drilling operations in the state, production declined faster than expected. More money had to be invested to sustain production levels. One key question is whether Occidental will continue to experience this with the new wells it’s drilling or whether the new 3-D seismic images will help the company avoid rapid production declines.

The other key question is what will happen to the company’s California operations as the company’s board considers restructuring in the next several weeks. Occidental could sell or spin off its California operations, perhaps as early as next year.

“The major restructuring …will most likely involve the Monterey shale either through an IPO, sales or a joint venture,” said Oppenheimer’s Gheit.

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