Two long-time California oil producers have divested key producing assets, resulting in the complete exit of one of the companies from offshore California production.
Chevron Corp. sold its interest in Point Arguello field in the Santa Barbara Channel to Plains Resources Inc., Houston. For Plains, the purchase complements its previous acquisitions of the All-American Pipeline and production facilities in the San Joaquin Valley.
The transaction ends Chevron`s 41-year presence in offshore California oil and gas production.
"Completing this exit allows Chevron to shift its resources to international growth prospects and will result in significant cost savings, both key corporate strategies," said Chevron official George Steinbach.
In the other deal, Houston`s Nuevo Energy Co. has continued its purchases of California production facilities by paying Texaco Inc. $61 million for certain onshore and offshore California fields.
Arguello acquisition
The purchase of Chevron`s interest in Point Arguello field halts the shut-down of the Point Arguello project (OGJ, May 10, 1999, Newsletter). The development consists of three offshore platforms-Hidalgo, Hermosa, and Harvest-and the onshore Gaviota processing plant.
Chevron began shutting down the operation, starting with Hidalgo, after negotiations with Venoco Inc. of Santa Barbara fell through, but with the purchase, Plains is getting the platform back on-line.
The field was once thought to be the largest discovery on the U.S. Outer Continental Shelf, with reserves of 500 million bbl of oil. In 1996, however, the reserves estimated was reduced to 200 million bbl.
In addition, long delays in the permitting process and low oil prices caused Chevron to write down at least half the value of the $2.6 billion project in 1993.
Neither Plains nor Chevron would disclose financial details of the sale, but Plains now takes over Chevron`s 26% interest in Point Arguello and has hired Torch Energy Advisors Inc. to operate the facilities. Torch provides similar services for 13 other California offshore platforms, notably for Nuevo Energy.
Plains set up a subsidiary called Arguello Inc. to buy Chevron`s interests and act as the official operator. The other partners in Point Arguello remain the same; these include Phillips Petroleum Co., Texaco, Whiting Programs Inc., PennzEnergy Co., Kerr-McGee Corp., Koch Exploration Co., and Oxbow Energy Inc.
Approval of the sale by the U.S. Minerals Management Service and Santa Barbara County is pending. This will require a review of the buyer`s financial responsibility and ability to meet permit conditions and accomplish lease transfers.
Prior to Chevron`s May 1, 1999, announcement that it would shut down Point Arguello, the field was producing about 23,000 b/d of oil and 1.76 MMcfd of gas, down from a 1993 peak of 89,000 b/d and 27 MMcfd.
To save money, Chevron decided last year to scale back, reinjecting gas and processing the oil offshore, using the onshore plant only to heat the oil for transport in the Plains All-American Pipeline (OGJ, Nov. 30, 1998, p. 26).
Plains Vice-Pres. Jim Hester said his company intends to retain those operations in the near future, "but we`ll be more aggressive in going after more oil." However, if Plains` Arguello subsidiary intends to revive gas processing, it would have to gain new permits, says Kevin Drude of the county`s energy division. This is because, a few weeks ago, Chevron "de-permitted the tail-gas unit onshore."
Plains will also inherit a new county review of the onshore plant to determine if it should be abandoned or allowed to continue processing with various options.
The review was sparked by a permit condition requiring a reevaluation if the plant`s throughput falls below 3% of the permitted capacity, which occurred when Chevron started reinjecting the gas and process the oil offshore.
Environmental groups and some legislators are calling for a full shut-down and abandonment of the Gaviota processing plant, while the Western States Petroleum Association says it should be retained, if only in shutdown status, in case other oil and gas projects materialize.
A draft analysis is due within a month or two, Drude said.
The Gaviota plant is a required consolidated site, meaning other oil and gas companies may use it. It is one of only two permitted along Santa Barbara`s south coast to handle state and federal lease production; the other is Exxon`s onshore plant handling production from its Santa Ynez Unit.
If Plains wants to further downsize the onshore facility and shut down equipment that won`t be used, it will likely have to wait until the county makes a decision on the future use of the Gaviota plant, Drude noted.
A big plus for Plains is owning some of the oil that goes into its All-American Pipeline, Hester said. It handles 85,000-90,000 b/d from the OCS (mostly from Exxon`s Santa Ynez Unit), and picks up various amounts from inland sources and connects with other pipelines going to California refineries. About 61,000 b/d is transported to Texas.
Nuevo-Texaco deal
Nuevo Energy`s purchase of Texaco properties involved reserves totaling 34 million boe. The properties are producing 5,000 b/d and will increase Nuevo`s production in California by 11% to 52,000 b/d, according to Barbara Forbes, Nuevo director of investor relations.
"Those are not core properties for Texaco," explained Greg Hardy of Texaco`s public affairs office in Bakersfield, Calif. They were sold "so that we can focus our resources on growth opportunities in our core fields," primarily in Kern County, where Texaco produces about 170,000 b/d.
The transaction includes Texaco`s interests in the offshore Dos Cuadras and Pitas Point fields. After selling these stakes, Texaco`s only remaining interest in California offshore fields is its stake in Point Arguello.
The sale benefits Nuevo also, Forbes said, because "all of the new reserves are part of or near existing Nuevo producing properties (in) Kern County and offshore Ventura County."
The Kern County assets include: added interests in Cymric, East Coalinga, and Monument Junction fields, in which Nuevo already held stakes; and partial ownership in gas producing assets at Buena Vista Hills field.
Offshore, Nuevo`s acquisition of Texaco`s interests in the Dos Cuadras field doubles its ownership to 50% in leases that are producing from Platforms A, B, and C. Previously, Nuevo bought an interest in Platform Hillhouse in Dos Cuadras.
In Pitas Point field, the deal boosts Nuevo`s interest to 100% from 61%; production is from Platform Habitat.
"With new technology, we can extract more from older reserves," Forbes said. One method that will be used is Nuevo`s proprietary technology known as "triple completion," in which one casing contains three different sizes of tubing, allowing it to reach three different zones. The technique is being emplolyed at Cymric and Midway fields.
Nuevo also expects to use horizontal drilling and water flooding to increase production.
The purchase, made possible by Nuevo`s sale of East Texas assets in January, means the company`s California holdings now represent 87% of its total reserves and production. The rest comes from properties off the Republics of Congo and Ghana in West Africa.