Nuevo's bid for new development lease in California state waters quashed

Nuevo Energy Co.'s bid to slant drill from Platform Irene in federal waters of the Santa Barbara Channel off California to tap reserves under state waters was denied 3-2.

Sep 26th, 2002

By an OGJ correspondent

SANTA BARBARA, CALIF., Sept. 26 -- Nuevo Energy Co.'s bid to slant drill from Platform Irene in federal waters of the Santa Barbara Channel off California to tap reserves under state waters was denied 3-2 by the Santa Barbara County Board of Supervisors Tuesday.

"The project was denied, so that's it—there is no next step," Jim Bray of Houston-based Nuevo told OGJ.

The project would've been the first new offshore lease application within the state's 3-mile limit since the infamous 1969 Union Oil Co. of California platform blowout in the channel—although new wells have been drilled on existing leases since then.

Nuevo had targeted recovering reserves of up to 200 million bbl of oil and 50 bscf of natural gas over 30 years. Had the project—entailing as many as 30 development wells—been approved, the company estimates its oil production would have increased to a peak of 30,000 b/d from the current 6,500 b/d.

A final vote by the board was set for Oct. 22, but Bray said he sees nothing coming up within the next month that would change the decision. Whether or not Nuevo will pursue the project in the future "has not been decided," Bray said.

There is speculation that if a recall on the Nov. 5 ballot is successful against one of the dissenting supervisors, Gail Marshall, a more "oil friendly" supervisor could entice Nuevo back to the table, but otherwise the project appears lifeless.

Denial was rendered partly because Nuevo filed suit against Santa Barbara County alleging it has no jurisdiction to impose more-stringent regulations on operations originating in federal waters, but last week a state Court of Appeals ruled otherwise. Since the court upheld the county's ability to regulate, Bray thought "that took away the concerns of the Board of Supervisors."

Supervisor Marshall explained that "this vote has to do with safety . . . with trust and the fact that the people of Santa Barbara County and California have firmly said no to oil development."

Safety concerns
Santa Barbara County Energy Division staff and the supervisors' majority cited a history of safety problems by Nuevo and its previous operator, Torch Operating Co. Most dramatic was a 1997 pipeline rupture about 2½ miles from shore that spilled up to 1,240 bbl of oil (OGJ, Oct. 6, 1997, p. 38). The spill volume grew because Torch operators "failed to rule out a leak or rupture as the source of the low-pressure condition and overrode the pipeline system's leak detection system," according to the county staff report.

The rupture cost Nuevo and Torch about $4 million in fines and resulted in tougher maintenance conditions by the county, which Nuevo unsuccessfully challenged in court. The county insisted on continued oversight because "the crude oil pipeline has had a history of internal corrosion problems, both onshore and offshore."

However, Nuevo officials said they do not contest the stringent permit conditions so much as the jurisdictional issues. In addition, Nuevo Safety Manager John Deacon claimed the company had a safety record better than the industry average.

But even one of the supervisors who voted for the project, Tom Urbanske, told Nuevo, "If you do not agree that the county has jurisdiction, you're not going to get anywhere."

Located off the coast of Vandenberg Air Force Base, Platform Irene started production in 1987, when Unocal won permits for its Point Pedernales project that included the Lompoc oil and gas processing plant in northern Santa Barbara County.

Torch Energy Advisors, parent of Torch Operating, bought the project and later sold its interests to Nuevo. In 1995, the project was split into three separate operations, with Nuevo retaining the platform, processing plant, and connecting pipelines.

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