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Occidental Petroleum Corp. (NYSE: OXY): The Best Way to Profit From the Monterey Shale

It has been a long time since California seen a profit opportunity like this.

The state's Monterey Shale formation may hold as much as 500 billionbarrels of oil making it more valuable than the gold rush of 1848.

With oil prices expected to hit $150, if not $200 a barrel this year that means the profit potential is limitless.

After all, peak oil isn't a myth - it's a reality.

Traditional oil production is plateauing, while demand in emerging markets continues to rapidly increase.

Meanwhile, turmoil in the Middle East has threatened supplies even further. And the war with Iraq didn't end up being the energy bonanza many thought it would.

And now the Arab Spring and tensions in Iran have escalated to the extent that military intervention there seems to be a foregone conclusion.

That's why the Monterey Shale - a rib-shaped formation that extends from Northern California down through the Los Angeles area and then offshore to outlying islands - is getting so much attention.

And unlike other shale plays in the United States, the Monterey is primarily oil, not gas.

That means Monterey shale does not require hydraulic fracturing, which has come under fire from environmentalists.

It also means companies can extract much of the oil using simple vertical wells, rather than the more expensive horizontal drilling needed for shale gas plays. Some horizontal drilling will be used, but it is not required in all fields, greatly reducing operating expenses.

In fact, in large parts of the formation, production costs are less than $10 a barrel.

Think about what that means for profit margins with crude prices currently near $110 a barrel.

So how can investors profit?

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