ARCO has made a novel proposal to California that will enable the two to resolve a dispute over an offshore project while the company proceeds with a significant secondary recovery project elsewhere in the state.
ARCO wants to implement an improved waterflood in the Long Beach Unit (LBU). It would result in an added 50-80 million bbl of recoverable oil and net the state and the city of Long Beach another $200-650 million in revenues.
ARCO would commit as much as $100 million to the LBU project.
In return for approval on the project, ARCO will dismiss all claims against the state in a lawsuit related to its stymied Coal Oil Point development project off Santa Barbara County and surrender its Coal Oil Point leases to the state.
If its LBU proposal is not approved, ARCO will submit an alternative development proposal for Coal Oil Point field.
LBU BACKGROUND
LBU, which covers Long Beach oil field that underlies the tidelands area of Long Beach and extends offshore, is operated by the city of Long Beach.
The city has authority for all operating decisions, and the State Lands Commission (SLC) has control over the unit's budget and new well drilling.
THUMS Long Beach Co. is field contractor for the city. ARCO owns 60% of THUMS, with Exxon Corp. and Mobil Oil Corp. each holding 20%.
The state receives about 87% of annual revenues from the unit and effectively shares 87% of the financial risk through reduced net profits, The remaining 13% is divided among several private interests, the city, and about 10,000 royalty owners.
Since 1965, LBU has produced 725 million bbl of oil and yielded more than $4 billion in operating profits. The state has received about $3.5 billion of those profits, with about $175 million in 1990.
Production has declined in the unit, and the rate of decline is expected to accelerate without intervention. Flow fell to 46,000 b/d in 1990 from about 57,500 b/d in 1987, while field operating costs jumped 25% during that period.
Long under waterflood, the field has had problems with water coning.
ARCO'S PROJECT
ARCO wants to implement an advanced technology waterflood in LBU that will employ proprietary computer analysis tools and new completion techniques to sweep bypassed oil.
It expects existing production facilities will suffice in handling the extra production.
ARCO estimates as many as 300 water injection or oil producing wells will be required for the project. They all would be drilled from existing sites on artificial islands in Long Beach Harbor. The islands, built during the 1960s, are designed to camouflage operations and have specialized environmental protection safeguards.
Under the proposal, the state would provide ARCO with some of its current authority to make recommendations on LBU operations, although projects would be implemented through current procedures.
ARCO will guarantee the state will receive no less revenue than under current LBU operations. It will commit to invest at least $100 million for the state's share of incremental investments. Once the incremental investments have yielded a profit, all incremental profits attributed to the state's 87% share will be divided equally between ARCO and the state.
The balance of unit profits will continue to be distributed as in the past. Each owner will pay its share of costs and receive its share of revenues. Lease terms will remain unchanged.
WHAT'S NEEDED
Because LBU operating arrangements are determined by state statute, new legislation is needed to allow existing tidelands net profit leases to be extended for the economic life of the field.
In addition, the legislation would allow the city of Long Beach to receive the greater of 5% of the state's revenues or $1 million/year for increased city tidelands maintenance.
The city's reserve for subsidence will increase by $2 million/year and can be used for subsidence contingencies and abandonment costs in the Long Beach area.
ARCO also needs approval of the project by the governor, SLC, and city of Long Beach. In addition, it has agreed to acquire Mobil's 20% interest in LBU, which still must be approved by SLC. An SLC hearing on the project tentatively is scheduled for Jan. 31. Exxon, which contends it was not sufficiently informed of the proposal, has asked for a 30 day delay on the hearing.
COAL OIL POINT
Although relinquishing Coal Oil Point leases to the state will mean abandoning the potential 80,000-85,000 b/d the project would have produced, ARCO considers the proposal "a good tradeoff," a company official said.
He noted that litigation over Coal Oil Point is likely to drag on for several years and that ARCO had lost the first round in Los Angeles Superior Court.
ARCO sued SLC and Santa Barbara County to force approval of its Coal Oil Point development project or pay damages of about $793 million to compensate for lost value (OGJ, Aug. 3, 1987, p. 28).
SLC in May 1987 denied ARCO's request to install two platforms off Santa Barbara County.
Copyright 1991 Oil & Gas Journal. All Rights Reserved.
