POINT ARGUELLO PROJECT START-UP BLOCKED AGAIN

Nov. 19, 1990
Bob Williams Senior Staff Writer The long delayed $2.5 billion Point Arguello oil field development project off Santa Barbara County, Calif., has slammed into yet another roadblock even amid the specter of war over Persian Gulf oil supplies. Chevron Corp. and its partners in the beleaguered project will appeal Santa Barbara County's denial last week of their transportation plan to bring the project on stream. Permitting snafus have kept the Santa Maria basin project's potential 80,000
Bob Williams
Senior Staff Writer

The long delayed $2.5 billion Point Arguello oil field development project off Santa Barbara County, Calif., has slammed into yet another roadblock even amid the specter of war over Persian Gulf oil supplies.

Chevron Corp. and its partners in the beleaguered project will appeal Santa Barbara County's denial last week of their transportation plan to bring the project on stream.

LONG DELAYS

Permitting snafus have kept the Santa Maria basin project's potential 80,000 100,000 b/d of production mothballed for almost 3 years.

The most recent roadblock involves the county's rejection of the Chevron group's efforts to tanker Point Arguello crude to Los Angeles and its insistence on transportation via onshore pipeline, which Chevron contends won't be economically feasible for several years.

Project partners will appeal the decision, which also rejected a mediated compromise offered by the U.S. Department of Energy in the dispute, to the California Coastal Commission (CCC) by the end of the month. A decision by CCC would be likely in first quarter 1991.

Prospects for a favorable decision by CCC are bleak. The CCC rescinded an earlier interim tankering permit approved by Santa Barbara County.

That rescission is under appeal to the U.S. Secretary of Commerce, and the Chevron group has filed lawsuits against the CCC and the county related to permitting delays and denials.

Chevron hinted at still more litigation in announcing the appeal.

If approved, it still would take about 6 months to de mothball Point Arguello's three platforms and related facilities and about another 6 months to ramp up production to about 75,000-80,000 b/d.

LATEST ACTION

The county board of supervisors voted 4-1 to reject a transportation plan compromise offered by Chevron and DOE the previous week.

It was an unusual move for DOE, stepping in to mediate a 3 year dispute between a local government and a group of oil companies seeking to start production from the biggest oil field discovered in U.S. federal waters. Point Arguello reserves are estimated at 300 million bbl, with earlier estimates placed at as much as 500 million bbl depending on producibility of the complex Miocene Monterey reservoir.

DOE Sec. James Watkins, in announcing the proposed compromise, said, "Events in the Middle East have under scored the necessity to undertake all reasonable actions which can contribute to a reduction in our dependence upon potentially unreliable suppliers of oil.

"The Point Arguello project is the most significant volume of oil that can be commenced in the next year."

Just as unusual was the Chevron group's offer to post a performance bond of as much as $50 million to show its commitment to an onshore pipeline. Chevron had committed to a pipeline within 4 years (OGJ, Nov. 12, p. 34).

A proposed compromise offered by Watkins called for the Point Arguello group to:

  • Move 20,000 b/d of crude by pipeline from the onshore terminal at Gaviota to refineries other than those in Los Angeles, with the rest moved via tanker.

  • Commit to develop a pipeline to transport Point Arguello crude to Los Angeles refineries.

  • Halt tankering after 4 years, whether or not an alternative transportation method is available, with no extensions allowed.

Watkins also called on the county to accept the Point Arguello group's supplemental environmental impact statement (SEIS) as complete, overriding county energy staff recommendations.

The SEIS, required under the new interim tankering permit application, was rejected as incomplete by the county. The county claimed Chevron and partners did not provide enough information on a proposed pipeline along a Southern Pacific Railway right-of-way, which would have avoided urban areas.

Chevron and other Offshore California producers had backed a Gaviota to Los Angeles pipeline in the early 1980s, but it collapsed under a flurry of lawsuits by municipalities along the route.

Currently, Cajon Pipeline Co., Cypress, Calif., proposes a $103 million, 122 mile, 20 in., 150,000 b/d, heated pipeline from All American Pipeline Co.'s system near Barstow, Calif., to Los Angeles to move California offshore and onshore heavy crude to market.

COUNTY'S CHOICE

Santa Barbara County instead wants Chevron and partners to transport Point Arguello crude to Los Angeles via a complicated scheme of using the underutilized All American system to first ship the crude to Bakersfield in Kern County, Calif.

The blended Point Arguello crude would be blended with light crude from the San Joaquin Valley (SJV) to ship through a spur to be built to the Four Corners Pipe Line Co. system to Los Angeles (OGJ, Dec. 18, 1989, p. 14).

SJV independent producers object to that proposal, claiming they need the SJV light crudes for blending to ship their heavy crudes to market. SJV light crudes are already in short supply, they contend.

The result, say independent producers, would be a sharp increase in trucking of heavy crudes in California, likely widespread shutin production for lack of access to market, and increased shipping costs.

The chairman of the Kern County board of supervisors criticized the Santa Barbara County blending proposal's environmental and economic effects as "excessive and unfair." Kern County, in the heart of the SJV, provides about two thirds of California's oil production.

Santa Barbara County officials, in responding to press inquiries after the decision, claimed the Chevron group has a viable pipeline option at hand but wants to maximize profits despite increased risk of an oil spill from tankers.

CHEVRON RESPONDS

Chevron blasted the county's decision, denying its claims that a blending option is feasible.

"Throughout the 8 year permitting of this project, we've agreed to nearly everything requested of us by the county at a cost of more than $250 million (in environmental and socioeconomic mitigation measures)," said Chevron U.S.A Inc. official Richard Hughes.

"We were willing to support the secretary of energy and his compromise proposal, although it would have cost us at least another $200 million. The DOE compromise would have met all Santa Barbara County's stated environmental objectives, including the provision of a new heated pipeline to Los Angeles capable of handling all OCS crude from Point Arguello and Santa Barbara Channel projects."

Chevron said the group had offered almost all that was recommended by the county in recent negotiations but had refused the blending proposal, which it said would have amounted to a $300 million subsidy for the All American system. It estimated the added shipping costs from the All American/blending proposal at $2.40/bbl.

"In the long run, the only difference between our proposals is that we intend to create a heated pipeline option to Los Angeles and guarantee to end all tankering in 4 years," Hughes said.

"It is unfortunate that the county does not believe a long term solution to all Santa Barbara tankering is worth the elimination of an unnecessary subsidy to another corporation.

"Today's decision demonstrates that Santa Barbara officials are not interested in reaching a rational solution."

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