After almost 25 years of mostly losing ground in unending battles with regulators and environmentalists over oil and gas development off California, producers there may at last be turning the tide.
Signs of that include:
- Progress by Exxon Co. U.S.A. on further development of Santa Ynez Unit in the channel (OGJ, Dec. 7, 1992, p. 20).
- Chevron Corp. and partners winning approval of interim tankering of Point Arguello field crude oil from the Santa Barbara Channel to Los Angeles (OGJ, May 31, Newsletter). If partners accept the permit and no last minute legal roadblocks show up, interim tankering is set to begin in June at a rate of 50,000 b/d.
- A keystone study that found California's onerous regulatory burden on petroleum operations is costing the state's economy hundreds of millions of dollars each year with no requirement that rules provide benefits that outweigh their costs (OGJ, Apr. 19, p. 32).
- A new campaign by federal, state, and industry interests to expedite development of existing offshore leases containing perhaps 1 billion bbl or more without sparking another epic struggle in the courts, media, and regulators' offices (see related story, p. 20).
The bottom line: money or, rather, California's lack of it. The state is desperate for new revenues to fund a budget that exceeds those of many nations but must contend with an electorate that virtually invented the voter initiative tax revolt.
That's the only thing that has shown a few chinks in the armor of what has always seemed an invincible environmental lobby in California. And it suggests an intriguing new approach for the rest of the U.S. petroleum industry in combatting a regulatory regime certain to become bigger and more active during the administration of President Clinton.
WATERSHED PROPOSAL
Perhaps the most dramatic recent turn of events in California's petroleum industry has been the proposal from a state agency hitherto opposed to drilling in state waters. The proposal involves extended reach drilling to develop near-shore reserves.
Mobil Exploration & Producing U.S. Inc. acquired all of ARCO's remaining interests in the Santa Barbara Channel, setting the stage for the agency's proposal and perhaps providing an innovative solution to a long conflict over nearshore development off Santa Barbara County.
Mobil is considering a California State Lands Commission (SLC) proposal for a $1.8 billion demonstration project using extended reach drilling from shore to tap significant oil reserves ARCO had battled for almost a decade to recover with offshore platforms.
Most important, the proposal is backed by Santa Barbara County and other state agencies. That could help end a ban on new development in state waters as well as speed some new development in federal waters.
If it proceeds, the project could serve as a watershed for other efforts to develop oil reserves off California while opposition to new platforms continues to remain strong. The political impetus behind the proposal comes from the new makeup of the SLC and Gov. Pete Wilson's order to all agencies to scour the financially crippled state for new revenue sources.
The transfer of ARCO's interests to Mobil also marks an end to the company's 27 years of oil and gas development in the Santa Barbara Channel, as well as the imminent removal of the last platform in state waters of the Santa Barbara Channel.
"The Santa Barbara Channel is no longer an area of strategic interest to ARCO," said Dan White, manager of ARCO Oil & Gas Co.'s California unit.
ARCO'S TRANSFER
Effective Apr. 1, ARCO transferred all its interests in Platform Holly and related oil and gas facilities in Santa Barbara County to Mobil.
ARCO will continue to operate the platform under contract to Mobil for a transition period of as long as 60 days. Financial terms of the transaction aren't disclosed. The two had been 50-50 partners in the platform and related leases.
About 40 persons are employed at the former ARCO facilities. During the transition, Mobil will determine staff needs and possible hiring from the existing work force.
ARCO and Mobil had jointly owned the platform, installed in 1966 about 2 miles off Goleta, with ARCO as operator. Peak production from the 30 well platform was about 11,000 b/d of oil. Current production is about 4,600 b/d of oil and more than 3.5 MMcfd of gas.
Mobil also acquired ARCO's interests in three associated oil and gas leases, the Ellwood marine terminal and oil and gas processing plant, and two steel containment structures installed to capture natural gas seeping from the seafloor. ARCO had installed the structures as an emissions tradeoff in its campaign to seek permits for drilling in the Coal Oil Point/South Ellwood area (OGJ, May 31, p. 11).
WHAT'S INVOLVED
Details are still somewhat sketchy for the Clearview extended reach development project as put forth by SLC and tentatively embraced by Mobil.
The $1.8 billion price tag covers capital and operating costs for development during the project's estimated 21 year life. It includes an initial capital outlay of $300-400 million that covers:
- Dismantling and disposal of Platform Holly and the nearby Ellwood marine terminal.
- Doubling capacity at the onshore Ellwood oil and gas processing plant.
- Laying a short pipeline link to the All-American pipeline or other proposed pipelines to Los Angeles (see map, OGJ, Feb. 15, p. 40).
- Drilling as many as 40 onshore extended reach wells to tap reserves ARCO discovered in the Coal Oil Point extension to South Ellwood oil field.
At least one onshore drillsite is envisioned, notably to develop Coal Oil Point area reserves southeast of Holly. Another onshore drillsite is under consideration to develop reserves to the west ARCO confirmed with the 1982 discovery.
Of prime interest is an estimated 153 million bbl of oil reserves the 1982 strike confirmed underlying state leases 308 and 309.
BACKGROUND
ARCO had proposed three-later whittled to two-bridge linked, drilling/production platforms to develop the extension. It would have produced 80,000-85,000 b/d at peak.
The company's permitting efforts were stymied in a rancorous dispute with the state and Santa Barbara County, with perhaps the major sticking point the latter's objection to the "visual impact" of adding more platforms to the horizon.
SLC denied ARCO's request to install the two platforms off Santa Barbara County near the University of California at Santa Barbara. ARCO sued SLC and the county for $793 million, claiming their actions were an unjust seizure of property (OGJ, Aug. 3, 1987, p. 28). A state court in 1990 ruled in favor of SLC and the county. ARCO appealed.
ARCO later dropped the suit in exchange for state approval of its proposed $100 million Long Beach Unit (LBU) waterflood expansion (OGJ, Jan. 28, 1991, p. 44). In return for LBU expansion approval, ARCO dismissed all claims against the state and surrendered leases 308 and 309 to the state, which was to add them to its coastal marine sanctuary-making it off limits to oil development (OGJ, Feb. 10, 1992, p. 44).
ARCO earlier had studied the potential for extended reach drilling from Platform Holly and found it not technically feasible.
PROJECT IMPLICATIONS
If it proceeds, the Clearview project could serve as a prototype for nearshore development elsewhere in the world, reducing the need for oil production from offshore facilities, said Charles Warren, SLC executive director.
At the same time, the project could break a long state moratorium on drilling in state waters brought on by political and citizen hostility against nearshore development. The proposal won't be considered by the three member SLC unless Santa Barbara County endorses it, Warren emphasized.
Extended reach drilling is the key, offering environmentally safer production from wells drilled from onshore facilities as much as 3 miles or more away, Warren said. Although nearshore reserves off California have been tapped by deviated wells from shore for years in giant fields such as Wilmington and Huntington Beach, the Clearview project would be by far the longest reach wells from the state's shoreline.
The irony is that the project targets the same offshore field bitterly opposed in 1987 when SLC and its staff denied ARCO's Coal Oil Point project, ordering a statewide assessment of future oil development that effectively slapped on a moratorium within the 3 mile limit.
That was then, this is now, Warren indicated during a presentation to the Santa Barbara County board of supervisors in February. What's changed is a recession plagued state government searching for new revenue and job opportunities, advances in extended reach drilling technology, and the prospect of converting an aging offshore operation into a more environmentally acceptable project that is perceived as dramatically reducing the risk of an oil spill.
ARCO is no longer interested, but former partner Mobil finds it "intriguing enough to take a serious look," said Mobil's Mike Kimmitt.
ARCO said a "climate of hostility" was a factor in its decision, but the company added that it also is pursuing upstream interests elsewhere, mainly in Alaska and outside the U.S.
Mobil, however, is willing to take the plunge, at least initially by putting up money for studies and acquiring interests from ARCO.
"We are evaluating the state's proposal as well as other options," Mobil said.
BENEFITS
SLC estimated that sharing state royalty from the Clearview project with local government would work out as $526 million to the state and $259 million to the county, as well as create 600 jobs.
The project could show that extended reach drilling technology "could well assist California's 'drill-no drill' dilemma", Warren said. "It is now feasible to declare that oil production would not be permitted in state waters and future oil production would take place-if at all-only from approved upland sites.
"The proposal is being advocated by the state and is designed to address the concerns of environmentalists," Kimmitt said. "So we hope it will eliminate that hostility. It could be a win-win situation."
Warren and Kimmitt agree success depends on developing reserves underlying the two leases ARCO relinquished to the state.
Notably, the SLC staff proposes sharing royalties from the project with Santa Barbara County, an idea that requires new state legislation.
Environmental benefits include reducing risk of an offshore oil spill by eliminating offshore facilities, reopening access to lucrative fishing grounds, reduced air pollution, and more incentive for the industry to build a new pipeline from Santa Barbara to Los Angeles refineries, Warren said.
It also would help eliminate tanker, crew, and service vessel traffic in the area.
Warren calls it the Clearview project because it would eliminate the last platform in state waters in the Santa Barbara Channel.
There are five now, but Chevron Corp. recently disclosed it will dismantle four during the next 2 years, including Hazel, the first fixed platform installed off the West Coast in 1958 in Summerland Offshore oil field. The others are Hilda, also in Summerland Offshore, and Heidi and Hilda, installed in the state portion of Carpinteria field.
Chevron last year shut down the four platforms, which had produced 62 million bbl.
Chevron studied the possibility of extended reach drilling and other methods to keep the four platforms running but decided it wasn't profitable with production of only 1,600 b/d, "so we decided to shut them down," said Sandy Cornelius, a Chevron district manager. It will cost the company $35 million to dismantle the platforms.
STUMBLING BLOCKS?
The Clearview project's goals to remove the last platform in Santa Barbara Channel state waters and demonstrate advanced technology still has a long way toward success.
An initial feasibility review, originally scheduled to be presented to Santa Barbara County by SLC Apr. 6, was postponed to June 22 at the request of Mobil and SLC.
Santa Barbara County supervisors granted the delay but insisted on asking the SLC commissioners-all political appointees-if they are truly receptive to their staff's proposal of reopening nearshore leases and if the project would set a statewide precedent. An official letter was to be sent to that effect late last month.
The feasibility review will attempt to answer questions posed by county government, environmentalists, and the industry that could point to stumbling blocks for the project.
They include:
- Legal status of state leases 308 and 309 and whether the project means the state is willing to reopen other tidelands leases.
- Precedent of drilling beneath a marine sanctuary.
- Possible conflicts with nearby residential zoning.
- Proximity of university marine research.
- Changing county policies limiting oil processing to only two sites: Chevron's Point Arguello/Gaviota and Exxon's Santa Ynez Unit/Las Flores Canyon oil and gas processing plants.
- Possibly reopening the settled ARCO lawsuit over the Coal Oil Point project denial.
"The more we delve into this, the more questions we have," said attorney Linda Krop of the Santa Barbara Environmental Defense Center, representing a coalition of environmental groups.
The coalition has decided it can't support the project but isn't opposing it outright-yet.
Other environmentalist groups have said they remain neutral to the project until they can get answers to policy questions and a more detailed description of the project and its effects on the environment.
EXTENDED REACH DRILLING
Extended reach drilling has proved itself off California.
Unocal Corp. in 1991 claimed three U.S. records for extended reach drilling in two horizontal wells it drilled from two platforms off California (OGJ, Sept. 16, 1991, p. 36).
Unocal considered extended reach drilling from onshore to develop an oil discovery in Cojo Bay off Santa Barbara County but put it on the back burner "because it doesn't make economic sense with the current price of oil," said Unocal's Janet McClintock.
Unocal earlier had been rebuffed in its efforts to install Platform Hayley in state waters to develop the Cojo Bay find.
Warren noted extended reach wells cost two to five times as much to drill as a more traditional well.
"However if use of this technology allows the operator to avoid the expense of an additional offshore platform, the extra drilling costs are worth pursuing.
"All this means that it is now possible to reach substantial offshore hydrocarbon reserves within the state's 3 mile jurisdiction from upland drilling sites."
Copyright 1993 Oil & Gas Journal. All Rights Reserved.
