Drilling/Production Mobil drops California extended reach project

Mobil's Clearview Chronology [49620 bytes]

Mobil Exploration & Producing U.S. Inc. has canceled a $1.8 billion project to tap Offshore California oil reserves via extended reach drilling from shore.

Mobil's controversial Clearview project was heralded as a way for industry to finally regain access to untapped reserves in California's state waters (OGJ, July 5, 1993, p. 20).

The company canceled its project 7 months after the University of California-Santa Barbara (UCSB) refused permission to use its beachfront land for a drilling rig, leaving the project without a drillsite and the state without a demonstration project.

Supporters immediately blamed Santa Barbara County's tough regulations and persistent opposition from environmentalists, but in the end it was economics that drove Mobil's decision.

Mobil's rationale

"Frankly, when you consider all the business factors, there are better opportunities for Mobil and our stockholders than the Clearview project," said Terry Laudick, Mobil's Clearview project manager.

Those opportunities include focusing on onshore reserves in California's San Joaquin and Salinas valleys and capital investments outside the U.S. Laudick noted Mobil this year is earmarking 75% of its upstream capital spending for non-U.S projects, an increase of 10% from last year (OGJ, Feb. 5, p. 39).

Ultimately Mobil's action can be traced to UCSB's decision that Mobil could not use its land for an onshore rig, designed to use the latest extended reach drilling techniques to drill at ratios of as much as 5:1 as far as 3 miles offshore and 4,500 ft subsurface.

UCSB Assistant Chancellor Robert Kuntz said the decision was based on Clearview's "incompatibility with surrounding land uses, both current and proposed," including the campus' plans to build 400 housing units adjacent to the proposed site.

Mobil could find no other site that could enable it to fully develop the Miocene Monterey extension of South Ellwood oil field discovered in 1977, Laudick said.

Project background

Reserves targeted by the Clearview project underlying state leases 308 and 309 total as much as 155 million bbl of oil and 155 bcf of gas.

The existing Platform Holly, which had produced from state lease 3242 since 1966, reaches only about a third of that. With Clearview, Mobil had proposed to dismantle Platform Holly in exchange for permission to develop the South Ellwood extension from onshore.

It was those same reserves ARCO sought to develop when it proposed its $500 million Coal Oil Point project, but its plan to build three dual drilling-production platform complexes was rejected by the state in 1987. It was then the state imposed a de facto moratorium on drilling in state waters.

Mobil, then a 50% partner, bought ARCO's interests in April 1993, which included Platform Holly and the related Ellwood onshore processing plant and Ellwood marine terminal.

Mobil responded to a suggestion by former State Lands Commission (SLC) Executive Director Charles Warren in 1992 that "this new technology (extended reach drilling) could well assist California in resolving its 'drill-no drill' dilemma, for it now appears possible to reach most oil reservoirs in state waters from a drillsite on uplands and with wellbores several thousand feet below the surface."

Warren was referring to 37 undeveloped leases in state waters covering 94,600 acres.

Since then, the state passed the California Coastal Sanctuary Act of 1994, which imposed an indefinite ban on drilling in virtually all state waters along its 1,100 mile coastline (OGJ, Oct. 3, 1994, Newsletter). It bans drilling in state waters except during national emergencies and exempts the 37 outstanding leases and any drainage tracts adjacent to federal leases. It also permits expanding existing leases to take in whole fields, an exemption specifically written for the Clearview project.

State role

With the sanctuary act, there is little or no chance for any oil and gas drilling in state waters except for those exemptions, says Rick Ludlow, SLC senior counsel.

Ludlow said SLC never took a position on Clearview and the staff "had to back off and be in a neutral position" once Mobil started pursuing the directional drilling project.

There is one extended reach drilling proposal still alive-Molino Energy Co.'s bid to develop as much as 60 MMcfd of gas from state leases PRC 2920 and 2199 about 20 miles up the coast from Mobil's Clearview project, tapping reserves estimated at 150 bcf.

To counter both proposals, environmentalists last year proposed Measure A-on the Mar. 26 ballot-that would give voters the final word over any oil project not within existing consolidated coastal sites. To avoid that hurdle, Molino in January redesigned its project on a new site less than a mile from Chevron Corp.'s Gaviota oil and gas processing facility. The new site allows Molino to tap into additional reserves on leases 2199 and 2894 and avoid a vote if Measure A passes.

Facing the voters on Clearview-if it were approved by county supervisors first-"played a small role in our thinking; we believe Clearview would pass muster (with the voters)," Laudick said.

Still, Santa Barbara's often drawn-out hearings and regulations were at least factors in Mobil's decision. "The uncertainty of getting an economic project approved in a timely manner" was an additional consideration, Laudick said.

In addition Mobil's disclosure last December that it would cut U.S. operations, with the loss of as many as 600 jobs, was another nail in Clearview's coffin.

Mobil's options

In the next few months, Mobil will decide its next step. Among the options are status quo, increasing production from Platform Holly, selling the assets, or abandonment.

"The platform does make money," Laudick said.

The project also spawned an idea to share state oil royalties with affected counties as incentive for approvals. Legislation to allow that move, SB 1187, is pending.

Mobil said the project would give the state as much as $900 million in royalties, while the county might have received $225 million of that if the royalty legislation and the project were approved, along with $184 million in property taxes.

"Chalk up another victim to the liberal job killing machines of South County," a Santa Maria Times editorial said of Mobil's scrapping of Clearview.

In contrast, opponents such as attorney Linda Krop of the Santa Barbara Environmental Defense Center, said she was happy with the news. "UCSB is a more important part of the community's economic base than an industrial facility in the middle of a residential neighborhood."