CALIFORNIA STUDY TO FOCUS ON OFFSHORE OIL DEVELOPMENT PROSPECTS

Oil and gas operators have invested $5 billion in 49 leases off California awaiting development but still must grapple with the question of how to proceed when oil prices are low and regulations and resistance are high. The answer may come from a 2 year study of how to develop California's offshore oil and gas resources without running afoul of relentless environmental opposition.

June 7, 1993

5 min read

The answer may come from a 2 year study of how to develop California's offshore oil and gas resources without running afoul of relentless environmental opposition.

The study is sponsored by Minerals Management Service and involves many state agencies and local governments and more than 30 operators. The oil industry is willing to pick up two thirds of the cost-as yet unknown-and MMS the rest.

FOCUS

After a summit meeting, study participants agreed it should not be a decision document.

"Everybody's sensitive to that notion," said John Patton, head of Santa Barbara County's resource management department.

Rather, the idea is to find solutions to the apparently opposing agendas of environmentalists and the oil industry.

"Instead of continuing to bicker about this, I figured we could all sit down ... and analyze the problems and constraints to developing existing leases," said J. Lisle Reed, Pacific division director of the MMS. It also would define likely development scenarios and effects upon the counties affected: San Luis Obispo, Santa Barbara, and Ventura. It is information sought for years by those jurisdictions.

Reed estimates development of existing leases could result in as many as nine new platforms to develop untapped reserves estimated at at least 560 million to 1 billion bbl of oil in the Santa Maria basin and Santa Barbara Channel. But local governments will be pushing for ways that minimize effects, such as Consolidated facilities-"Oil companies usually don't operate that way," Reed noted-extended reach drilling from existing platforms, or expanding onshore facilities.

In addition, installing enough pipeline capacity to overcome California's resistance to tankers will continue to be a key issue (OGJ Feb. 15, p. 40).

"We hope it won't be just another study that sits on the shelf. If we let it become a political document, it's a waste of time," said Terry Covington, who represents the region for the Western States Petroleum Association.

"It will be an exciting venture," Covington said after the summit meeting. "Everyone in the room recognized that if we come into this with our usual agendas, it will fail.

IMPETUS

The study's goals evolved from a variety of reasons:

New lease sales on hold as a result of former President Bush's offshore oil task force report of 1990.
Fewer options available because of expanding marine sanctuaries, local government moratoriums, and voter approved initiatives.
Increasingly tough and costly regulations, such as the Environmental Protection Agency's new authority over offshore air quality issues and the resulting edict that Outer Continental Shelf emissions are subject to the same regulations as onshore jurisdictions.
Persistently depressed oil prices and the relatively low quality and low gravity of California's offshore reserves, making it more expensive to refine and thus less desirable.
Resistance from local governments and environmentalists toward industrialization of counties that are mainly rural, tourist oriented, and friendlier to "clean" industries.
Negative incidents involving the industry, ranging from the 1969 Santa Barbara Channel oil spill to Chevron Corp.'s guilty plea and payment of an $8 million fine last year for polluting the Santa Barbara Channel (OGJ, July 27,1992, p. 44).
The experience of producers who found it especially difficult to gain permits. For example, it took an added 6 years, after development plans were approved, for Chevron's Point Arguello project to come on line in 1991. That's because of haggling over safety measures concerning higher than expected hydrogen sulfide levels and a tanker vs. pipeline crude transportation dispute that was resolved only this year.
The prospect of increased revenue from more oil development to local, state, and federal governments, all of which have serious budget problems. That was given further momentum recently by a landmark study for the California Department of Conservation that showed excessive and often overlapping regulations affecting oil and gas producers has cost the state more than $100 million during 1990-92 alone (OGJ, Apr. 15, p. 31).

STATUS

Santa Barbara County's Patton said it was a good time to start the study "because we're not in the heat of permit applications," there are no exploration efforts under way, and oil prices remain low.

"It's a time when everyone wants to know what's next" he said.

MMS is scoping the effort, Reed said, which entails outlining what the study should analyze. Requests for proposals to consultants may be ready by late summer with a draft study tentatively expected in 1994.

MMS has set aside money for the study but won't disclose the amount until consultants offer their proposals. Although the Clinton administration will routinely review the overall MMS budget, the agency has no indication the study would be affected.

"While it is true that some companies have lost their interest in offshore California, it also is true that many existing leases remain to be explored and developed," Covington said. "Billions of barrels of oil are at stake."