Concerns persist about Point Arguello project

March 6, 2000
California's Santa Barbara County has approved transfer of Chevron Corp.'s 26% ownership in the Point Arguello project to Plains Resources Inc. but by mutual agreement named a Plains subsidiary as the project operator instead of Torch Operating Co.

California's Santa Barbara County has approved transfer of Chevron Corp.'s 26% ownership in the Point Arguello project to Plains Resources Inc. but by mutual agreement named a Plains subsidiary as the project operator instead of Torch Operating Co.

The two companies agreed to the exchange for undisclosed terms in July 1999, ending more than 40 years of Chevron involvement off California (OGJ, July 12, 1999, p. 28).

The other partners in Point Arguello remain the same: Phillips Petroleum Co., Texaco Inc., Whiting Programs Inc., Devon Energy Corp., Kerr-McGee Corp., Koch Exploration Co., and Oxbow Energy Inc.

The change of ownership already has 33 permits from other agencies, such as the US Minerals Management Service, but ran into delays due to questions from the county's planning commission over Plains Resources' financial ability to cover worst-case accidents.

Plains, Houston, appealed the commission's rejection to county supervisors, who were satisfied Plains and its seven partners had enough financial backing and insurance ($261 million). But in interim negotiations, the county required the parent Plains be listed as co-operator along with Arguello Inc., a subsidiary Plains set up to run the project, which consists of three offshore platforms, an onshore processing plant, two natural gas pipelines, and one crude oil pipeline.

Operator distinctions

"Torch is the contract operator but not the decision-maker or supervisor-that's Arguello Inc.," explained Dianne Meester, manager of the county's energy division. Plains-Arguello said it plans to manage operations with Torch acting as a contractor. Originally, Torch was to be designated operator.

The county's board of supervisors will review even this designation Mar. 21, citing the need to take a look at Torch's safety record. Torch and Nuevo Inc., both of Houston, are currently facing a lawsuit by the county over a subsea pipeline rupture on Sept. 28, 1997, from Platform Irene, part of the Point Pedernales project (OGJ, Oct. 6, 1997, p. 38).

Tom Gladney, Plains-Arguello project manager, said, "We have a tremendous degree of confidence in Torchellipseit has an exemplary safety record," and mentioned that the company is getting a safety award from MMS.

Project plans

The hearing also revealed plans of Plains-Arguello to simplify oil heating at the onshore facility and sell its cogeneration and sour gas plants, along with other idle equipment.

These moves continue the downsizing of the project, started by Chevron in 1998 (OGJ, Nov. 30, 1998, p. 26). Chevron reconfigured the project by switching oil processing from onshore to an offshore platform and reinjecting gas, using the onshore plant only to heat the oil.

Reducing the project's scope, which caused Chevron to write down about half its $2.6 billion 1992 value, followed revised estimates in 1996 of 200 million bbl of reserves, much lower than the original estimate of 500 million bbl, which was once thought to be the largest find on the US Outer Continental Shelf.

Production from the project is averaging 21,000 b/d of oil, down from a 1993 peak of 89,000 b/d.

However, Plains-Arguello believes it may be able to increase production by tapping into nearby undeveloped fields from existing platforms, Gladney said.

In another twist, Chevron will still be listed on the permit as ultimately responsible for future abandonment, if Plains-Arguello is itself unable to abandon the project.

Plains issues

Questions over Plains Resources' ability to pay for worst-case accidents were raised because the company is not known in Santa Barbara and because of $160 million in losses from an employee's unauthorized trading from its subsidiary, Plains All American Pipeline (PAAP), which operates the only West Coast-to-Texas oil pipeline.

That loss, announced by Plains on Nov. 29, 1999, crimped operating results, causing it to infuse $64 million into the pipeline company.

Gladney said that the trading loss "is not germane to the topic at hand" because debts and liabilities of PAAP do not transfer to the parent company. Besides, Gladney explained, Plains has since sold a portion of the pipeline-the leg from Emidio, Calif., to McCamey, Tex-for $129 million and the oil still contained within it for $100 million.

This purchase, by El Paso Natural Gas Co., was announced Feb. 3 (OGJ, Feb. 7, 2000, Newsletter). El Paso intends to convert the pipeline to gas and reverse the flow to provide gas to California.