If you've been paying attention to the oil and gas sector for very long, then you've no doubt heard all about the famed Bakken and Eagle Ford shales.
The Bakken has transformed rural North Dakota into an energy Mecca, with staggering daily production that would be the envy of many OPEC nations. Producers are already pumping out 700,000 barrels of crude per day, making North Dakota second only to Texas in the U.S. oil producing game.
That success is part of the reason why I once referred to this site as the "Next Great Oil Bonanza."
But North Dakota doesn't have a monopoly on game-changing energy discoveries.
In the fields of south Texas, the Eagle Ford Shale has spawned a boom. Five years ago, the Eagle Ford yielded just 358 barrels per day. Now, the shale is gushing about 352,000 barrels per day, a thousand-fold increase.
Between them, the government estimates the Bakken and Eagle Ford hold 7.0 billion barrels of available oil.
And they've been good as gold for many investors.
That's why I'm so excited about another great oil bonanza.
There is an up-and-coming formation that dwarfs both the Bakken and the Eagle Ford. In fact, you could take all the oil in North Dakota and south Texas combined, double that figure, and throw in another billion barrels -- and it still wouldn't measure up.
This formation, which easily ranks among the world's largest oil deposits, is right in our own backyard. Believe it or not, it's sitting about 10,000 feet below the surface of Bakersfield, Calif.
The Monterey Shale isn't a household name yet, but I strongly suspect that will change in the next few years.
California itself is no stranger to crude oil. The Golden State currently yields about 500,000 barrels per day. Most of this oil comes from shallow pools that have collected near the surface (thanks in part to seismic activity in the region).
But all that oil has leaked from a source. And that source is the Monterey Shale. If you think of the many productive oil basins in southern California as alien vessels, then the Monterey Shale is the mothership.
According to the EIA, there are as many as 15.4 billion barrels trapped inside.
To understand the sheer magnitude of this opportunity, let's put that figure in context. The U.S. Dept. of Energy estimates that there are 23.9 billion barrels of recoverable shale oil in the lower-48 states. That means the Monterey Shale by itself holds nearly two-thirds of the total.
There is some justifiable concern that the state's vocal and well-organized environmental groups could lobby to ban (or at least severely restrict) hydraulic fracturing. Without this breakthrough technology though, there's no way to feasibly extract hydrocarbons from the tight rock -- so millions spent to acquire acreage could potentially be lost.
That's a worst-case scenario.
Politicians in state and local government know that estimates say drilling the Monterey Shale could deliver 3 million jobs and $25 billion in tax revenue over the next few years.
My take: there will be fracking regulations, sure, but no ban.
In time, I think the Monterey Shale has the potential to re-draw the nation's energy picture. And when that day comes, the biggest winner will be a farsighted producer that already knows about California's vast oil potential... Occidental Petroleum (NYSE: OXY).
Occidental has planted its flag in more than 800,000 prospective acres in the Monterey Shale. And who else would be better suited to work in this particular terrain? Occidental already holds 2.1 million acres in California where it drilled 760 new wells last year. It's hands-down the largest producer in the state, pulling out 148,000 barrels per day -- accounting for one in every four barrels statewide.
Let's be clear, though. This is not a pure play. Occidental is a $70 billion company with operations that span the globe. But that diversity will help protect stockholders should the Monterey Shale not pan out. And if it does -- well, nobody has more to gain.
Action to Take --> The Monterey Shale represents an asymmetrical risk/reward proposition for Occidental. If production and reserves are even a fraction of what is predicted, then the upside potential is immense.
P.S. -- Occidental is the best way to profit from the Monterey Shale, but the problem is that it's a $70 billion company. If you want a real shot for triple-digit gains with energy stocks, look for the small producers. I've found one small-cap energy stock with exposure to another game-changing shale formation that experts say has more recoverable oil than the Eagle Ford and Bakken plays combined. To learn more about this opportunity, click here.
StreetAuthority LLC owns shares of OXY in one or more of its “real money” portfolios. . This article orginally appeared at StreetAuthority.com.