California may consider new offshore oil project to ease budget crisis

California’s legislature might vote later this week to authorize the first new oil activity off Santa Barbara in 40 years as a way to help resolve the state’s budget crisis.

The proposal reportedly was part of an agreement Gov. Arnold Schwarzenegger reached on July 20 with majority and minority leaders of the state’s senate and assembly to eliminate California’s $26.3 billion budget deficit. It includes some $15.5 billion in cuts, defers other costs, and takes funds from cities and counties, several news reports said.

But it also could clear the way for Plains Exploration & Production Co. to directionally drill into state waters from an existing platform in federal waters, generating $1.8 billion of revenue for the state by 2022. “We await final legislative action on the bill, and remain committed to work with the state leaders to ensure the legislation allows the benefits of the historic agreement PXP reached with the environmental community to come to fruition,” a spokesman said on July 22.

The Houston independent producer won support from Get Oil Out and other local environmental groups for the Tranquillon Ridge project earlier this year, but the state land commission denied the application in January. The legislature essentially would be voting on whether to overturn that decision.

A spokeswoman for Schwarzenegger would not confirm whether the proposal was part of the budget agreement with the legislature’s leaders. “The governor and legislative leaders have come to an agreement to solve California’s budget deficit. Details will be made available as the legislature drafts language to be voted on later this week,” she told OGJ Washington Pulse by telephone on July 21.

Schwarzenegger has said, however, that while he continues to oppose new oil and gas activity off California’s coast in general, he favors the Tranquillon Ridge project because it would be from an existing structure, Platform Irene, and extend into state waters without disturbing them.

‘Revenue and jobs’

“It would be new revenue. It would not require new taxes. It would generate state and local revenue and jobs, all of which would help in a state suffering a severe economic downturn and a very severe deficit,” observed Joe Sparano, president of the Western States Petroleum Association in Sacramento.

In Washington, US Rep. Doc Hastings (R-Wash.), the House Natural Resources Committee’s ranking minority, called the apparent agreement a responsible bipartisan response to California’s 11.6% unemployment rate and $26.2 billion budget shortfall. “By responsibly developing energy resources in their own backyard, Californians will have access to new, high-paying jobs and over $1.8 billion in revenue to reduce their state’s deficit,” he said on July 21.

“The good news is that the rest of America can also reap economic benefits by opening additional areas to offshore drilling and energy production. The bad news is that the Obama Administration continues to stand in the way of all-of-the-above energy development. With 9.5% of Americans out of work and an unprecedented $1 trillion national deficit, what are Democrats waiting on?” Hastings continued.

While the proposal could be part of the budget agreement reached by the so-called “Big Five” of California’s government, others are criticizing it as the legislature prepares to work on it because it would bypass the state land commission’s oil leasing approval authority which it has held since 1938.

“The governor just put California’s coastline up for sale when he had other options that don’t put our natural resources at risk,” said Lt. Gov John Garamendi, who chairs the commission. “He refused to approve a plan to tax oil companies that now extract oil in California to fund health care services, children’s programs and education. California is the only oil producing state without an oil severance tax, and it would generate $1.2 billion annually for our state.

‘Incredibly reckless’

“Instead, we are taking dirty money. Big Oil has offered to California $100 million to seduce the state into granting the first new oil drilling lease in California since the Santa Barbara oil spill 41 years ago. The loan must be repaid by forgiving future royalty payments to California. This is an incredibly reckless fiscal policy,” he continued.

Garamendi referred to an initial $100 million payment by Plains, which would be followed by annual royalty payments up to $2.3 billion over the project’s 13-year lifespan. The company previously won environmental organizations’ support for its proposal by agreeing to shut down production at Platform Irene in 2022 and three other rigs off Point Arguelo by 2017, close two onshore facilities in Lompoc and along the Gaviota Coast, and donate about 4,000 acres of land to the public.

US Rep. Lois Capps (D-Calif.), whose district includes Santa Barbara and who usually opposes offshore oil and gas development, backed the Tranquillon Ridge proposal when it went before the state lands commission but questioned Schwarzenegger’s using it to help resolve the current budget crisis. “She believes these decisions on important energy and environmental policy should remain with the appropriate policy makers, the State Lands Commission and the Coastal Commission, rather than allow legislators and the Governor to try and use offshore drilling as a silver bullet for their budgetary challenges,” a spokeswoman for the federal lawmaker said on July 22.

Sparano said that the project could show Californians how safely oil could be produced off their coast. “It would use new, slant drilling technology from an existing structure with no new pipes. It would help bring oil which is sitting there to market. It also would help California’s energy supply rely less on imports. With production in the state declining, any new production, onshore and offshore, is a big deal,” he told OGJ Washington Pulse on July 21.

It also could bring new attention to the US Minerals Management Service’s new five-year Outer Continental Shelf plan, which is currently being developed, WSPA’s president continued. The US Department of the Interior agency is having to rely on data that is 20 years old, but which nevertheless suggests that 10.5 billion bbl of oil and 3 trillion cubic feet of gas off the Pacific Coast, most of it off California, he said.

“I think we’ll get a chance, if it goes through, to show what a careful environmental steward the domestic oil and gas industry is,” Sparano said.

Contact Nick Snow at nicks@pennwell.com

Related Articles

Inhofe, Lankford say new BIA rules threaten Osage oil operations

07/10/2015 New US Bureau of Indian Affairs regulations that increase production expenses on tribal lands could put the Osage Nation out of business, Oklahoma’...

BHI: US rig count continues upward creep

07/10/2015 Although the overall US drilling rig count only edged up 1 unit to 863 rigs working during the week ended July 10, it represented the third consecu...

PDO to use solar to displace gas in thermal EOR work

07/09/2015

Petroleum Development Oman (PDO) plans to use a solar plant to displace natural gas in enhanced oil recovery (EOR) efforts in Amal oil field.

Ending crude export ban would help rural US areas, House panel told

07/09/2015 Rural US communities generally have benefited from the nation’s crude oil production renaissance, and potentially could be helped more if restricti...

Husky Energy reports unplanned maintenance at Lloydminster upgrader

07/08/2015

Husky Energy Inc. reported unplanned maintenance at its Lloydminster heavy oil upgrader in Saskatchewan.

Stone confirms oil pay with Cardona development well in deepwater gulf

07/08/2015 Stone Energy Corp., Lafayette, La., encountered 288 ft of net pay in two intervals with its Cardona No. 6 development well on Mississippi Canyon Bl...

EIA: US oil output fell 50,000 b/d in May

07/07/2015 Total US crude oil production dropped 50,000 b/d in May compared with April and is expected to continue falling through early 2016 before growth re...

Cidade de Itaguai FPSO anchors in Lula field

07/07/2015 Petroleo Brasileiro SA (Petrobras) reported that the Cidade de Itaguai floating production, storage, and offloading vessel has arrived at the Irace...

Statoil lets Johan Sverdrup drilling contract to Baker Hughes

07/07/2015

Statoil ASA has let an integrating drilling contract valued at 1.5 billion kroner to Baker Hughes Norway for the Johan Sverdrup development.

White Papers

UAS Integration for Infrastructure: More than Just Flying

Oil and gas companies recognize the benefits that the use of drones or unmanned aerial systems (UAS) c...

Solutions to Financial Distress Resulting from a Weak Oil and Gas Price Environment

The oil and gas industry is in the midst of a prolonged worldwide downturn in commodity prices. While ...
Sponsored by

2015 Global Engineering Information Management Solutions Competitive Strategy Innovation and Leadership Award

The Frost & Sullivan Best Practices Awards recognise companies in a variety of regional and global...
Sponsored by

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by
Available Webcasts


The Resilient Oilfield in the Internet of Things World

When Tue, Sep 22, 2015

As we hear about the hype surrounding the Internet of Things, the oil and gas industry is questioning what is different than what is already being done. What is new?  Using sensors and connecting devices is nothing new to our mode of business and in many ways the industry exemplifies many principles of an industrial internet of things. How does the Internet of Things impact the oil and gas industry?

Prolific instrumentation and automation digitized the industry and has changed the approach to business models calling for a systems led approach.  Resilient Systems have the ability to adapt to changing circumstances while maintaining their central purpose.  A resilient system, such as Maximo, allows an asset intensive organization to leverage connected devices by merging real-time asset information with other critical asset information and using that information to create a more agile organization.  

Join this webcast, sponsored by IBM, to learn how about Internet of Things capabilities and resilient systems are impacting the landscape of the oil and gas industry.

register:WEBCAST



On Demand

Taking the Headache out of Fuel License and Exemption Certificates: How to Ensure Compliance

Tue, Aug 25, 2015

This webinar, brought to you by Avalara, will detail the challenges of tax document management, as well as recommend solutions for fuel suppliers. You will learn:

-    Why it’s critical to track business partner licenses and exemption documents
-    The four key business challenges of ensuring tax compliance through document management
-    Best practice business processes to minimize exposure to tax errors

register:WEBCAST


Driving Growth and Efficiency with Deep Insights into Operational Data

Wed, Aug 19, 2015

Capitalizing on today’s momentum in Oil & Gas requires operational excellence based on a clear view of what your business data is telling you. Which is why nearly half* of oil and gas companies have deployed SAP HANA or have it on their roadmap.

Join SAP and Red Hat to learn more about using data to drive process improvements and identify new opportunities with the SAP HANA platform running on Red Hat Enterprise Linux. This webinar will also show how your choice of infrastructure impacts the performance of core business applications and your ability to achieve data-driven insights quickly and reliably.

*48% use SAP, http://go.sap.com/solution/industry/oil-gas.html

register:WEBCAST


OGJ's Midyear Forecast 2015

Fri, Jul 10, 2015

This webcast is to be presented by OGJ Editor Bob Tippee and Senior Economic Editor Conglin Xu.  They will summarize the Midyear Forecast projections in key categories, note important changes from January’s forecasts, and examine reasons for the adjustments.

register:WEBCAST


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected