California sees a new wave of oil drilling

Apr 25, 2005 02:00 AM

by Dana Calvo

Firms are focusing on areas off California's coast where work is allowed while pushing to end federal bans on new exploration. As Congress moves toward opening protected Alaskan wilderness to petroleum drilling, energy company activity is picking up in California's coastal waters, where new exploration has been blocked for more than two decades.
Drillers are reworking wells and considering reviving old platforms in places where exploration is allowed. They're attempting to extend the life of leases on undeveloped offshore tracts holding a combined estimated 1 bn barrels of oil and 500 bn cf of natural gas that the companies have been forbidden to tap. And, most controversial of all, the industry has been pushing quietly to lift federal bans on new oil exploration off California's coast, prompting an outcry by environmental groups.

The manoeuvring comes as Congress grapples with broad energy legislation intended to increase domestic supplies of oil and natural gas. Propelled by sizzling energy prices, the Senate and House of Representatives have passed separate measures that lift the federal moratorium on drilling in part of the Arctic National Wildlife Refuge, commonly known as ANWR. The legislation deals only tangentially with offshore oil drilling, but opponents worry that near-record energy costs could create enough momentum to soften long-standing prohibitions on drilling in the waters off California and parts of the Atlantic Seaboard and Gulf of Mexico.
"We're sacrificing pristine areas with the disingenuous claim that it will relieve high gas prices tomorrow, and that's just not true," said David Newman, spokesman for the Natural Resources Defence Council, one of 10 environmental organizations that recently sued the Bush administration for recommending the extension of 36 leases of undeveloped tracts off the California coast.

Since the nation's first offshore well was drilled in 1896 from a wooden pier at Summerland, just south of Santa Barbara, the waters off the state's southern half have produced a steady stream of hydrocarbons -- and controversy. Californians' sensitivity was heightened by the 1969 oil well blow-out off Santa Barbara and resulting oil spill that fouled Southern California beaches.
About half a dozen companies are extracting oil and natural gas from state and federal waters from Huntington Beach to San Luis Obispo. In 2004, they pumped about 43 mm barrels of oil and 47 bn cf of natural gas, or about 16 % of California's oil production and nearly 14 % of its natural gas production.

With prices high and output on the decline in recent years, companies are investing in new wells or reworking old ones. Most are scrappy independents that bought the properties from big-name oil corporations when oil prices were much lower and profits from the region's thick oil were elusive.
Carpenteria-based Venoco, for instance, is thinking of restarting oil production at one of its platforms off Santa Barbara County that had been "shut in," in industry vernacular, meaning its sunken columns had been filled with concrete. The platform, named Grace, also is the proposed home of a terminal to receive LNG. For now, Grace serves as a way station for oil from Venoco's nearby Gail platform as it is pumped through a pipeline to shore.
"The economics have changed, going from record low prices to record high prices," said Venoco spokesman Mike Edwards. "The oil and gas business is all about economics."

Another dormant platform about 9 miles off Long Beach could be returned to production. Pacific Energy Resources is talking with Aera Energy of Bakersfield about jointly reviving Platform Eureka, which is one of three that Aera operates in the area, said Vladimir Katic, president of Long Beach-based Pacific Energy.
And in the last few months, ExxonMobil and Arguello completed new wells off California, the companies' 14th and third, respectively, said John Romero, spokesman for the Interior Department's Minerals Management Service, which manages the nation's offshore energy resources. Drilling in West Coast waters falls somewhat short of a boom, he said, but could be characterized as "constant activity."

The more than a dozen companies that hold leases to the 36 undeveloped tracts are pushing the White House to let them drill or sell back the leases, which were granted from 1968 to the early 1980s in waters at least three miles off the coast.
California for many years has blocked new exploration in state waters, which lie within three miles of the coast, where leases have not already been granted. Drilling in new federal unleased areas is prevented by a presidential moratorium instituted in 1990 and due to expire in 2012 and a congressional moratorium that has been renewed each year since it was enacted in 1981.

Minerals Management Service Director Rejane Burton told a Senate panel that the agency had been negotiating for three years to buy back the leases but hadn't been able to reach a price. The management service said in February that it found "no significant impact" on the environment by continuing to extend the offshore leases. The leases were supposed to have run out in 5 to 10 years if not developed, but were repeatedly extended by the agency at the request of the oil companies.
That prompted the March 8 lawsuit by several environmental groups, which accused the agency of minimizing the effect of extending those leases on ocean and coastal ecosystems. Although they can't drill on the leased parcels, oil companies can conduct surveying activity that critics contend harms marine life.

Government officials say the Minerals Management Service's conclusion is just one step in a lengthy process. The agency's findings are now before the California Coastal Commission, which must ensure that any activity off the coast is within the state's environmental laws.
"Realistically, any drilling would be years down the road. Some of the plans, if they come in, could be within 5 to 10 years," agency spokesman Romero said.
Justice Department lawyer David Glazer said the government's response was expected by early May.

For conservationists and some politicians, the recent progress of federal energy legislation and the government's offshore lease recommendations are signals of movement toward allowing oil companies into untouched areas. In addition to expanded Alaskan exploration, the House and Senate have separately voted to place offshore waters under Interior Department jurisdiction, which state officials and environmentalists say could reduce state control.
At the hearing on offshore drilling, an industry representative complained to the Senate Energy and Natural Resources Committee about restrictions on domestic energy exploration.
"The sad fact... is that only some 10 % of US waters outside of Alaska are available for us to apply the best energy technology in the world," said Nobel Energy CEO Charles Davidson, who was also speaking on behalf of the Independent Petroleum Assn. of America.

At the same hearing, Sen. Dianne Feinstein (D-Calif.) said most Californians were against drilling in coastal waters.
"Californians are all too familiar with the consequences of off-shore drilling," Feinstein said, recounting the 1969 spill that "killed thousands of birds, as well as dolphins, seals and other animals. We know this could happen again."
Gov. Arnold Schwarzenegger has maintained his resistance to any increase in offshore drilling. In an April 4 letter to members of Congress, California Resources Secretary Mike Chrisman said the state is against "any effort to lift the congressional moratorium on offshore oil and gas leasing activities." One such effort, environmentalists say, is evident in draft legislation prepared by the Republican staff of the House Resources Committee.

The State Enhanced Authority for Coastal and Offshore Resources Act of 2005 would allow states to waive the congressional moratorium on development in the offshore region known as the "outer continental shelf." The American Gas Assn. has come out in support of the concept, and a version of the act concerning natural gas exploration was introduced in the Senate this month by Sen. Lamar Alexander (R-Tenn.).
Some aren't so sure that the oil industry is primed for offshore drilling. Energy analyst Fadel Gheit of Oppenheimer & Co. said oil companies remember the rough waters encountered by ChevronTexaco when it developed the Point Arguello project in the 1980s.

Drilling was held up for years by lawsuits, red tape and political opposition from local groups. It cost $ 2.6 bn and yielded less oil than expected.
"The industry is in no mood for another disaster like that," Gheit said.
But H. Sterling Burnett, senior fellow at the non-profit and non-partisan National Centre for Policy Analysis in Washington, says energy company officials are eager to tap the outer continental shelf, where untouched energy reserves may be bigger than estimated, perhaps exceeding those in Alaska.
"The companies would not be fighting to have the leases extended if they didn't think there was the potential of a big find," Burnett said. "We suspect there's more oil off the coast than there is in ANWR."

Source: Los Angeles Times
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