Chevron scaling back Point Arguello amid exit

How Chevron is Reconfiguring Point Arguello Project [85,150 bytes]
The future of Chevron Corp.'s Gaviota oil and gas processing plant along the central California coast remains a question mark as the company moves to scale back its related Point Arguello oil field development project prior to exiting Offshore California operations. [33,615 bytes]

Saddled with an unprofitable onshore oil and gas processing plant and declining oil production, Chevron Corp. is scaling back its Point Arguello project in California's Santa Barbara Channel to process oil on platforms offshore and reinject gas into the offshore field-once thought to be the largest oil field found on the U.S. Outer Continental Shelf.

The reconfiguration project will save millions of dollars in operating and personnel costs and perhaps extend by a year or 2 the project lifespan, which has already been reduced from an original 25 years (from the 1991 start-up) to only 10-15 years.

"The decision to do this was not a result of low oil prices, but an efficiency move because of rapid production decline," said Chevron representative Ed Spaulding.

Background

When Chevron and partners first embarked on the Point Arguello project in the 1980s, they estimated reserves at 500 million bbl of oil, but in 1996 scaled back that estimate to 200 million bbl.

The partners effectively "unitized" the project that year by putting operation of three platforms (Chevron's Hermosa and Hidalgo and Texaco Inc.'s Harvest) and the onshore plant under a single management.

At the outset, Chevron had banked on higher prices for its Point Arguello crude, but instead they languished at $7-15/bbl, causing the company to write down at least half of the value of the $2.6 billion project in 1993. Production peaked at 89,000 b/d of oil and 27 MMscfd of gas in August 1993 and currently is 24,000 b/d and 3.6 MMscfd.

Plant cutback

Now Chevron is following up with gas reinjection and processing the oil offshore, resulting in a shutdown of 75% of the operations at the Gaviota processing plant, which will now be used only to heat Arguello crude for shipment via the All-American Pipeline, which extends to Texas and, through various connections, to Los Angeles-area refineries.

The move has sparked a call by environmentalist lobby groups to get rid of the onshore processing plant altogether, but because it is one of two sites (the other being Exxon Corp.'s Las Flores Canyon plant) permitted by the county for shared use, other groups, such as the Western States Petroleum Association, support keeping it open in case it is needed for future oil or gas developments. The most likely candidate for that possibility is Benton Oil Co.'s adjacent Molino extended-reach drill- ing natural gas development project, now in the process of testing wells drilled offshore from an onshore location (OGJ, May 4, 1998, p. 118).

Hearings on the plant's future will be held by the county probably next year, a process that Chevron supports but "has no opinion beyond that process," Spaulding said. "It's kind of a county facility as a 'consolidated' site," Spaulding said, indicating Chevron will go along with either abandoning it or keeping it in mothballs.

Background

The winding down of Chevron's oil and gas production in the Santa Barbara Channel is a story that starts with early success in the 1950s, to the 1970s, when the company had five offshore platforms, most in state waters, four of which were abandoned in 1996 but not before they produced 62 million bbl of crude oil. Its history in producing oil from the federal Outer Continental Shelf, with three platforms (Gail, Hermosa, and Hidalgo) and building the onshore Gaviota plant has been plagued by intense opposition by environmentalists, low oil prices, and disappointing reserves. Although finished in 1989, the Gaviota plant lay idle until July 1991, because new permits were required when higher-than-expected levels of hydrogen sulfide gas were detected.

Chevron's exit also comes when the federal Minerals Management Service has estimated recoverable reserves are much higher than expected in the Pacific region (OGJ, Mar. 16, 1998, p. 93).

Testing under way

The equipment to reinject gas from Platform Harvest and process the oil on Platform Hermosa is already in place and being tested under monitoring by MMS, which previously opposed gas reinjection. If all goes well, Chevron expects the reconfiguration project to have all its permits and to be fully operational soon.

Equipment used includes an existing 1,750-hp injection gas compressor that will compress the gas to 2,700 psig for injection into nonproducing wells. Produced water would also be occasionally reinjected into reservoirs.

Injected gas is dehydrated using glycol absorbers, and the bore holes were flushed with methanol to ensure little or no corrosion. If Chevron's two gas compressors fail, a plan to pack the produced gas into offshore pipelines acts as an emergency back-up.

Oil would be transported via existing undersea pipelines to Hermosa for stabilization, where propane, butane, and hydrogen sulfide are vaporized from the oil and combined with a gas stream for fuel use, gas lift, or reinjection. Heavier liquids, such as pentanes, hexanes, and natural gasoline, will remain in the oil stream.

Equipment includes oil stabilization vessels and reboilers built on new wing decks next to oil surge tanks.

The oil is stored at the Gaviota marine terminal-where tanker loading equipment was never used and eventually abandoned last August-and then sent to the All-American pipeline after heating at the Gaviota Point Arguello Pipeline Co. plant.

The plant would continue operation of oil-heating and produced water facilities along with its desalination plant, cogeneration turbine, vapor recovery systems, and the control room. Equipment shutdown at the plant includes all gas processing machinery, oil stabilization columns, sulfur recovery, low temperature separation, liquids storage and loading, and sales gas compression and fractionation units, among others.

Plant manager George Steinbach said the reconfiguration project "is good for the plant's neighbors, good for the environment, and good for Chevron."

The neighbors are happy that they will no longer have to live with any risk of an H2S release, and environmentalist groups support the project because it reduces air pollution as well as various risks. As evidence of that support, the usually vehement anti-oil groups allowed the project's administrative approval in late August and did not appeal it to decision-makers, making it an extremely rare oil/gas project in Southern California to avoid public hearings.

New owner

Meanwhile, Chevron's impending sale of its Offshore California assets to Santa Barbara, Calif., independent Venoco Inc. (OGJ, Nov. 16, 1998, p. 46), marks the company's exit from Offshore California operations.

Chevron cited "significant operating cost savings" and a desire to focus on its core assets, such as the Gulf of Mexico and the Hibernia project off eastern Canada.

The new owner expects to continue Chevron's reconfiguration project and to become the new project operator.

Venoco Vice-Pres. Rod Eson believes the Point Arguello reserve "is still a great field, although it's unfortunate it wasn't as large as the partners expected it to be." Nevertheless, Venoco bought Chevron's interests "because it fits strategically on what we want to do." Eson said Point Arguello "will be our main project," whereas "Chevron has more interest in their big, overseas projects."

Regarding the onshore Gaviota processing plant, Venoco has not yet offered an opinion on the plant's future, likely to be the subject of hearings by Santa Barbara County next year.

If the purchase goes through, Venoco will gain Chevron's 25% of Point Arguello. Other partners include Phillips Petroleum Co., Texaco, Pennzoil Co., Whiting Programs Inc., Koch Exploration Co., Oxbow Energy Inc., and Oryx Energy Co.

The deal also includes the Carpinteria gas plant; Santa Barbara Channel OCS Platforms Gail and Grace; and interests in Platforms A, B, and C, all located in Santa Barbara Channel state waters. Venoco also owns Santa Barbara ChannelPlatform Holly, which it bought from Mobil Corp. recently.