In 1988, when 27-year old Stanford petroleum engineers Hal Washburn and Randy Breitenbach prepared to launch BreitBurn Energy Co. in Los Angeles, people tried to discourage them.
"Everybody said, 'What are you doing here, and why do you want to buy these old fields?'" says Washburn. "They told us the excitement of the business is elsewhere.'"
Today, BreitBurn is enjoying considerable success using advanced reservoir modeling tools and a low-cost structure to squeeze more oil from the Los Angeles basin's venerable urban oil fields.
Based in downtown Los Angeles, BreitBurn today has 70 employees, nine high-quality local oil fields, and 40 million bbl of proved reserves and has created millions of barrels of incremental reserves. The company is looking to buy more oil fields.
On June 15, BreitBurn was acquired by Canadian independent Provident Energy Trust, which reorganized BreitBurn into a limited partnership (OGJ Online, June 22, 2004). BreitBurn now operates as a separate business unit within Provident, with Washburn and Breitenbach running day-to-day operations as co-CEOs of BreitBurn. The pair now have an 8% ownership position in the limited partnership.
Reflecting on starting BreitBurn Energy in 1988, Washburn says: "We saw a niche we thought we could fill. And our timing was good."
Washburn and Breitenbach realized that the desktop computer revolution of the late 1980s gave small independents the same ability to do advanced reservoir modeling as the majors.
"We felt if you were to work a complex old field with more-advanced technical tools, you'd get more oil, you'd increase ultimate recovery by 1, 2, 3%."
"We also felt if we looked at big, old world-class oil fields that hadn't been properly studied for many years because they were in a depletion mode, that we could add some value," says Washburn. He notes that in the Los Angeles basin, they saw many structurally complex, large, old oil fields developed by engineers who didn't have access to today's tools. "We thought we could understand reservoirs much better than the original operators did."
He adds: " If you have an interest in a large Los Angeles field and can increase ultimate recovery by 1-2%, that is very meaningful to an independent."
Today, the Los Angeles basin's 43 active fields and 4,000 wells produce 87,000 b/d of oil. Estimated remaining reserves total 622 million bbl. One of the most prolific oil basins in the world, the Los Angeles basin has produced 8.5 billion bbl of oil to date. The basin's oil fieldsmany found between during 1892-1936have been declining for years. In the 1980s, with oil prices falling, major oil firms began pulling out of the Los Angeles basin in search of fresher areas overseas.
"We got in when the majors were leaving, and there wasn't much competition," says Washburn. "Oil prices were low, so we acquired fields at a good price."
"We wanted to follow the large companies because, as independents, we can pay more attention to fields like these. Our goal was to buy properties where you can grow production."
Successful track record
BreitBurn has enjoyed success boosting production and creating reserves in old fields.
In 1993 Washburn says the firm put itself on the local map by acquiring two West Los Angeles fields from Occidental Petroleum Corp.: the West Pico Unit of East Beverly Hills field and Sawtelle field. BreitBurn upgraded the data and found locations in the fields that had been missed.
At West Pico, Washburn says, BreitBurn reservoir modeling determined that there was much oil left to be recovered. BreitBurn increased the lift capacity of the field, boosting production to 1,350 b/d in 1995 from 1,200 b/d.
At Sawtelle, BreitBurn reservoir modeling revealed that the reservoir was bigger than previously thought. The company drilled some stepout development wells and reconfigured the waterflood, increasing production to 900 b/d from 600 b/d, increasing reserves in the process. At Sawtelle, BreitBurn has produced 2.8 million bbl of oil and 1.1 bcf of gas to date and has added 3.6 million bbl of proved reserves. It estimates there are 7 million bbl of remaining reserves.
In 1999, Washburn says, BreitBurn bought five more fields in the Los Angeles basin from then-Texaco Inc. (now part of ChevronTexaco Corp.) and Unocal Corp., tripling the size of the company. Two of the key fields were Santa Fe Springs and East Coyote.
At East Coyote, BreitBurn slowed production decline and added 74% to reserves.
At Santa Fe Springs field, with about 2 billion bbl of OOIP, Washburn says BreitBurn was willing to take the time and effort to squeeze out a few million extra barrels.
BreitBurn returned some old wells to service. It implemented waterflooding and workover programs, raising production to 2,279 b/d from 1,600 b/d in the first 2 years, while adding 6 million bbl of reserves.
'Drilling' for oil on computers
"We're basically niche oil producers," says Washburn. "What sets us apart from our peers is our Los Angeles basin location and our focus on technology and technical people. We like to say that we 'drill' for oil on the computer."
Washburn says the two main computer weapons in BreitBurn's arsenal are 3D geologic mapping and 3D reservoir simulation. The former gives BreitBurn people a clear picture of structurally complex reservoirs and helps them pinpoint where to drill development wells. The latter helps them understand how fluids move in a reservoir and allows them to efficiently test various field development options.
"You need to put these tools into the hands of smart people," says Washburn, noting that BreitBurn's two top reservoir engineers both have PhDs and many years of experience.
BreitBurn works like this: When they buy a field, they amass field production data, update the data, and use both geologic mapping and reservoir simulation modeling to arrive at a new development strategy.
"We focus on keeping costs down," says Washburn, who notes the firm doesn't have overhead items such as research centers and refineries.
Right now, Washburn says BreitBurn is undertaking aggressive projects in its three biggest Los Angelese oil fields.
BreitBurn, which has already added 0.3% of OOIP to the reserves of the Santa Fe Springs field, wants to add another 1%. BreitBurn reservoir simulation modeling shows many areas with good oil saturation. BreitBurn has implemented a new waterflood in one of the unflooded zones and is looking for drilling opportunities.
At the West Pico Unit, Washburn says a drillsite modernization project has allowed the firm to launch a 25 well development program aimed at boosting production to 3,900 b/d.
In East Coyote field, a six to eight well waterflood expansion is under way.
In its smaller fields, BreitBurn is upgrading operations to arrest decline and, in some cases, boost production. "Some of our smaller fields have very slow decline profiles," says Washburn. "For instance, our Brea Olinda field will be producing for another 50 years."
The Los Angeles basin may be highly prospective for a nimble oil producer such as BreitBurn, but an operator needs a thick skin, says Washburn, because many residents don't want to live near oil fields.
When BreitBurn wanted to upgrade facilities at its West Pico Unit, some neighbors waged a 4 year, unsuccessful fight to block permitting.
Says Washburn: "There is no health risk to neighbors because we have fully enclosed systems and everything is on a vapor recovery system. A producing operation is not a source of air emissions.
"We spend a lot of time explaining to people what we do," says Washburn, who says his pet peeve is people who have knee-jerk reactions without knowing the facts. "We are in the most heavily regulated industry in California and the US. We have no impact on public health and strive to be aesthetically pleasing and quiet."
Along with oil fields, BreitBurn has acquired valuable undeveloped real estate. Washburn says BreitBurn increasingly develops both oil and gas and the surface.
For instance, on the Bullet parcel of its Santa Fe Springs field BreitBurn remediated the site, reconfigured the oil facilities, and then sold the property to a developer who has built a commercial project.
Washburn says Los Angeles is uniqueone of the world's largest cities sitting atop one of the world's most prolific oil basins. In Los Angeles, which was built around oil fields, oil and surface uses have coexisted for years. "Now everyone is looking for every square inch of surface, some of which is in old oil fields where I can squeeze in development.
"We and others are proving that oil development and people can be compatible," says Washburn, who points out that Los Angeles County, local municipalities, and property owners benefit from oil production in the form of property taxes, fees, and royalties.
Washburn is excited about BreitBurn's future in the Los Angeles basin. "We'll continue to expand our business. We have the team, technical capability, and infrastructure that allows us to do more and grow."
Washburn wants to acquire more fields in the Los Angeles basin to increase production. A key challenge, he says, is to make smart acquisitions that fit what BreitBurn does without paying too much.
"We are focused on Southern California. We'll also take our business model and expand in Southern California and [elsewhere] in the US."
Washburn doesn't rule out the possibility that some day his firm, essentially just a producer, could try exploration in the Los Angeles basin, perhaps employing extended reach drilling.
Washburn is excited about the future, especially with the Provident Energy Trust acquisition.
A desire to grow through acquiring more fields prompted BreitBurn to consider merging with a Canadian energy income trust, he says. Canadian energy income trusts operate oil and gas properties but distribute much of their cash flow to their unitholders. BreitBurn's properties, Washburn says, fit perfectly into an energy income trust¿long-lived reserves, low decline, stable cash flow.
"As a small, private independent we've always been capital constrained," Washburn says. "Provident Energy Trust is a public company with the ability to access the public markets.
"The acquisition allows us to continue to do what we've done best: acquire and grow. We've always grown rapidly. But the acquisition will allow us to step that pace up."
Washburn adds: "This will allow us to grow and acquire more fields and take our business model and make it larger. We hope to have significant growth in the near future.
"We'll keep the L.A. basin as our core operating area. But because there's a finite number of fields in the L.A. basin, we'll be looking at properties in other parts of Southern California and in the US, probably more aggressively than if we had not done this transaction."
Meanwhile, the Los Angeles basin will continue to get a lot of attention.
Washburn says that nearly 9 billion bbl have been produced in the Los Angeles basin. But with improved technology, he thinks as much a 1 billion bbl more may be recoverable. The Los Angeles basin is past its peak. But there's a tremendous amount of oil still to be produced for decades, he says.
"We've proved that if you apply technology and good people, you can increase reserves and production in the L.A. basin's oil fields."
Hal Washburn is co-founder and co-CEO of BreitBurn Energy Co. LP in Los Angeles
Washburn worked 4 years in Colorado as manager of engineering for Eastern American Energy Corp., a large independent oil and gas producer.
In 1988, he cofounded BreitBurn Energy Co. in Los Angeles with Randy Breitenbach.
Washburn has a degree in petroleum engineering from Stanford University.
Washburn has been active in a number of industry groups, including the California Independent Petroleum Association and the Independent Petroleum Association of America.