Heavy oil producer Berry Petroleum Co. has cut oil production at its California thermal enhanced oil recovery operations because it's not getting paid for power produced by its cogeneration units.
Berryreduced operations at the cogen plants after Southern California Edison Co. and Pacific Gas & Electric Co. stopped payments for electricity that the company sold to them. By reducing electricity output at the cogen plants, co-produced steam used in steamflooding heavy oil fields also declined.
The small exploration and production company, based in Carpinteria, Calif., owns and operates a QF, or qualifying facility under contract to sell electricity to the local utilities-a program in place for decades as part of federal and state incentives to develop alternative sources of electric power.
Berry's 100 Mw plant produces electricity and steam used in its heavy oil fields in Kern, Los Angeles, and Ventura counties and sells any surplus power to the electric utilities. But after SoCalEd and PG&E. stopped paying, the company reduced its electricity output to 20 Mw.
"When it became clear that we were not going to get paid by the utilities, we shut down all but one turbine," said Jerry Hoffman, Berry CEO. "Four turbines have been shut down since Feb. 1."
CPUC steps in
The California Public Utilities Commission ordered the utilities to pay the QFs going forward. That will do nothing to help get the natural gas-fired cogen facilities back on line, Hoffman said. He contends the CPUC action will actually make it more difficult to start producing electricity again.
Berry has to buy natural gas to fuel the turbines, and it complained about not receiving adequate compensation for reimbursement of its gas costs. The new formula CPUC uses to calculate what the gas-fired QFs are paid lowers the heat rate and the compensation for gas by changing the gas price index used at the Malin delivery point on the California-Oregon border from the Topock delivery point in southern California. On Apr. 5, gas cost $14/Mcf at Topock compared with $6/Mcf at Malin, he said.
"It's just unrealistic what they did," said Hoffman. "What about us? It is ludicrous."
Hoffman said his oil production is falling because he can't afford to run his cogen facilities so as to make enough steam to keep oil production at customary levels.
Berry's stock is off 30-40% from its 52-week high of $19.90 and closed at $13/share Apr. 6. Hoffman maintains that other oil companies in the area are in the same predicament.
"The entire heavy oil business is in jeopardy out here," he said.
Over two thirds of California's oil production of about 837,000 b/d consists of heavy oil. The state accounts for over 80% of US heavy oil production. Most thermal heavy oil producers in California switched to burning natural gas in their steam generators to comply with tighter state air quality rules years ago, ending a long practice of burning lease crude to generate steam.
In many instances, they developed small cogen power plants to capitalize on the synergies of supplying their operations with steam and electricity and to further benefit, as QF operators, from the surplus power sales.
Berry and other heavy oil producers met with state legislators Apr. 5 to see what can be done. "We are hoping the legislature will overturn what the PUC did or come up with something else to get the QFs back in production," he said.
For almost 2 months, about 3,000 Mw of QF facilities have been off line because of similar compensation problems, contributing to electricity supply emergencies in California.