Plains unit breaks impasse on new development drilling off California

John Hankins
OGJ correspondent

SANTA BARBARA, CALIF., Nov. 4 -- A Texas independent has won the right to undertake the first new oil field development drilling off California in more than a decade.

Technically, the project is the expansion of an existing major development project in federal waters. But it targets an untapped reservoir that once had been part of another, nearby unit never approved for development. That enabled it to escape the kind of onerous review and fierce opposition that a "new" project proposal would have invited.

Arguello Inc., a unit of Houston-based Plains Exploration & Production Co. of Houston, late last month easily won permission to drill eight extended-reach wells into federal waters of the Santa Barbara Channel from existing platforms in the Point Arguello Unit.

Drilling is expected to commence by yearend 2004 with the hope that peak production within 2 years will reach 21,000 b/d of oil and 6 MMscfd of natural gas from the new wells. Point Arguello is currently producing about 14,000 b/d and 6 MMscfd and reached peak production in 1993 of 89,000 b/d when it was owned by ChevronTexaco Corp. forerunner Chevron Corp.

Background
The plan to drill new development wells and increase production through 2015 from Arguello Inc.'s project—incorporating Point Arguello Unit platforms Hermosa, Harvest, and Hidalgo—began in 2000 as the Rocky Point Project.

The plan was revised in August 2002 in order to split off a half lease from two others that were embroiled in the California vs. Norton litigation. That lawsuit halted further drilling on the Outer Continental Shelf as the state sued the US Department of the Interior for extending the life of undeveloped leases without more environmental review and a consistency determination with the state's Coastal Act. The Bush administration appealed the decision but lost and this year decided not to continue fighting the issue.

California's governor-elect, Arnold Schwarzenegger, stated during his campaign that he wants the Bush administration to buy back those leases. A similar buyback was negotiated 2 years ago when the Bush administration agreed to spend $230 million to reacquire federal leases in and off Florida in acquiescence to local opposition to drilling there (OGJ Online, May 29, 2002). Current but recently recalled California Gov. Gray Davis has demanded the Bush administration buy back the federal leases off his state as well, insisting the fedeal government bear the full brunt of the cost.

Some leaseholders off California have already begun negotiating lease buyouts, given fierce local opposition to drilling. But there remain disputes over price (OGJ Online, Apr. 8, 2003). Meanwhile, US Sens. Barbara Boxer (D-Calif.) and Mary Landrieu (D-La.) have proposed exchanging the California leases for tracts in the Gulf of Mexico off Louisiana

How it came about
Arguello convinced the US Minerals Management Service to "deunitize" the 2½ Rocky Point Unit leases and allow the half lease (P-0451 East) to be developed.

"Lease P-0451 East is considered a developed lease by virtue of the existing production of the western half [of the P-0451 lease] in the Point Arguello Unit," MMS declared.

The Santa Barbara County Energy Division and the Coastal Commission agreed that the new wells could be drilled as part of the existing project. It now becomes part of the Arguello Project as one lease but defined as P-0451 East and West.

The other 2 leases that were split off from the Rocky Point Unit—P-0452 and P-0453—remain undeveloped leases, joining 34 others for a total of 36 undeveloped leases along California's central coast.

Since drilling the new wells did not require any new equipment on the platforms nor cause any new environmental impacts, the plan escaped major public review and was approved Sept. 3 by the county's Planning and Development Department director. The decision was not appealed by the environmental community.

The half lease is estimated by Arguello to contain about 60% of the oil and gas reserves held by the original 2½ tract Rocky Point Unit.

Arguello intends to drill five wells from Platform Hidalgo and three from Platform Hermosa over the next 2-3 years, with production lasting up to 10 years. Oil processing will occur on the platforms and will be transported to state refineries via the All-American Pipeline, while gas will be sweetened and used as fuel for the offshore turbine generators or sold directly to Southern California Gas Co. Any surplus gas will be reinjected.

Point Arguello history
The Point Arguello Project was originally developed by Chevron, and the leases were once thought to contain the largest discovery on the Pacific OCS at 500 million bbl of oil, but in 1996 that estimate was reduced to a 200 million bbl field. Hit by long delays in the permitting process and low oil prices, Chevron wrote down at least half the value of the $2.6 billion project in 1993.

Plains Resources bought Chevron's interest in July 1999, halting a planned shutdown of the whole project (OGJ, May 10, 1999, Newsletter), and set up Arguello Inc. The project was averaging about 21,000 b/d at the time of sale.

Santa Barbara County eventually approved the transfer of ownership in February 2000 at which time Arguello continued downsizing the project started by Chevron to reduce costs (OGJ, Nov. 30, 1998, p. 26).

The "reconfiguration" process included selling off cogeneration and sour gas facilities at the onshore Gaviota Processing Plant and processing the oil on the platforms instead of onshore. The Gaviota plant is now used only to heat the oil for pipeline transport.

The sale ended Chevron's 41-year presence in offshore California oil and gas production.

Plains bought the project with the hope that it could increase Point Arguello oil and gas production by tapping into nearby reservoirs such as the Rocky Point Unit. Although it didn't get all it wanted, permission to drill in the half lease does help that goal.

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