NEW YORK (TheStreet) -- Estimates of recoverable oil in the Monterey Shale formation have been drastically cut, putting an end to the dream that oil revenue would save California's ailing economy.

This week, the U.S. Energy Information Administration cut its estimates for the amount of recoverable oil in the region by 96%, from 13.7 billion barrels to 600 million.

Geologists had previously believed that the Monterey formation was America's largest reserve of shale oil and gas, with about two-thirds of the country's shale oil reserves.

"From the information we've been able to gather, we've not seen evidence that oil extraction in this area is very productive using techniques like fracking... Our oil production estimates combined with a dearth of knowledge about geological differences among the oil fields led to erroneous predictions and estimates," said EIA petroleum analyst John Staub.

The key word in the announcement is "recoverable." Twelve billion barrels didn't disappear; however, the EIA has decided that getting to them would be a lot harder than previously thought. This marks the second time in two years that the EIA has cut its estimate for the amount of oil it thinks can be produced from the Monterey Formation.

News of the Monterey formation's diminished oil capacity is disheartening to state officials, considering that extracting the reserves would have added millions of jobs to the local economy.

California, which has an unemployment rate around 7.3%, was estimated to add up to 2.8 million jobs by 2020 and boost government tax revenue by $24.6 billion a year while extracting the billions of barrels of oil.

Industry lobbyists had long said the Monterey formation reserves were a game-changer for U.S. oil and gas production.

The Monterey formation stretches beneath Los Angeles to north of the Bay Area, while a large portion stretches east toward the area around Bakersfield.

Political debate could halt extraction of oil in the area because fracking takes a lot of water, and California is in a severe drought. Energy companies using millions of gallons of water to frack oil and gas wells while farms remain parched would have been difficult to justify.

Although there is a lot less oil to be extracted in the region than once thought, extraction of even one million barrels may be on hold for a while as Californians attend to more realistic avenues of growth and investment.

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