State Lands Commission To Vote On Agreement June 7 To Spur Drilling In Tidelands

By Sean Belk - Staff Writer

June 5, 2012 – With the price of oil remaining high, two separate proposals are gaining traction for Los Angeles-based Occidental Petroleum Corporation (Oxy) to start mining reserves in Long Beach and Carson. If approved, the projects have the potential to generate millions of dollars in oil profits for city and state coffers over the next several years.

One agreement, planned for nearly six years, would provide financial incentives for Oxy to explore oil-drilling options in the tidelands area of the Port of Long Beach at the West Wilmington Oil Field. Plans include initiating a new water-flooding program to increase recovery and control subsidence.

Since 2006, when Oxy acquired the Tidelands Oil Production Company, or TOPCO, the oil company has been in discussions with the City of Long Beach and the California State Lands Commission, which overseas the state’s natural resources, to come up with an oil revenue sharing agreement, planned as a way to financially benefit all parties.

The entire Wilmington Oil Field, which spans 13 miles long and three miles wide from onshore San Pedro to offshore Seal Beach, is considered the third largest field in the United States, producing nearly 3 billion barrels of oil from thousands of wells since 1932. The field also includes uplands oil wells in Long Beach, and the offshore THUMS oil islands operated by Oxy Long Beach.

While much of the reserves have been tapped since the prospecting days, oil companies are salivating at the chance for new production, promoted as a way to lessen the country’s dependency on foreign oil and spur business in the local oil industry.

The new agreement between the State Lands Commission, the city and Oxy is now reaching final approval, set to culminate years of negotiations. The Long Beach City Council unanimously approved the deal at its May 22 meeting. The State Lands Commission is expected to take up the contract at its next meeting on June 7.

In 2008, the state legislature approved a bill to enter into a new contract that would provide Oxy with more financial incentives to drill for oil than the current contract allows for under state law. Environmental groups, such as the Sierra Club, however, criticized the deal, raising concerns regarding environmental regulations.

The existing contract, established in 1989, allows the state to receive 95 percent of net profits and Oxy to receive 5 percent of net profits from all oil and gas production in the West Wilmington field. The new contract, however, would allow for incremental revenues to be split further, with Oxy receiving 49 percent, the state receiving 49 percent and the city receiving 2 percent. The new revenue would start to be realized after development starts turning a profit, expected in the next three to five years, according to a State Lands Commission report.

Oxy is committing to invest a minimum of $50 million in new development during the first two years. However, that depends on if the oil market remains profitable and the price of oil exceeds an average of $65 a barrel for a six-month period, the report states.

Oxy officials declined to comment about this development.

At $100 a barrel, the state projects the new drilling to produce a total of $854 million in net profits over the next 20 years. About $204 million in estimated revenue, contingent on the results of an optimized waterflood program, would be split between the state, the city and Oxy.

While oil market conditions are highly volatile, the state is estimating to net roughly $100 million in additional oil revenue over the next two decades. Long Beach city officials project an income of an additional $6.6 million in revenue, which would be allocated to the city’s tidelands operating fund, over the next 10 years, according to a city staff report.

Initial arrangements had planned to give the money to the Port of Long Beach, however, Measure D, passed by voters in 2010, now allocates the money to the tidelands fund. Under state law, the city is only allowed to spend the oil revenue on infrastructure projects in the tidelands area and is prohibited from shifting the money to the city’s general fund.

However, State Lands Commission staff cautioned in its report that the oil revenue projections are merely estimates and may change depending on a variety of market and industry factors. “It should be understood that the amount of recoverable oil changes with improvements in technology; that the costs to produce the oil in such a mature field are high; and the price received for that oil are highly variable,” the report states.

Dominguez Oil Project

Meanwhile, Oxy has applied for development permits to start a new oil-drilling project in the City of Carson as well. Called the Dominguez Advanced Recovery Project, the proposal involves constructing and operating a new oil and natural gas production facility to tap reserves in the Dominguez Oil Field.

Oxy proposes to develop and operate the facility using state-of-the-art technology, said Occidental Director of External Relations Susie Geiger, via e-mail. The Dominguez Oil Field is approximately five miles long and 1.5 miles wide. Discovered in 1923, the field has been in limited production since the mid-1990s and has an estimated 52 million barrels of oil remaining to be recovered, she said.

Carson city officials said the proposal would involve “slant drilling,” a process where a single drill site is able to access several spots in the field through the latest technological drilling equipment. The surface site would be located at 1450 Charles Willard St. on property owned by Watson Land Company and The Carson Companies. Geiger said Oxy is working with the landowners to move forward with the project.

Carson Mayor Jim Dear told the Business Journal in a previous interview that Oxy has already operated two test wells at the site that look “promising,” adding that the development agreement would “benefit the citizens of Carson.”

City officials said an environmental review of the project is expected to take at least a year to complete. The project would require approval of city, state and federal permits. Oxy hopes to begin construction next year and start drilling in the next few years.

There are opponents to the project, however, including the Sierra Club, which has brought up concerns of potential groundwater contamination and other potential environmental and health hazards.

Although groups have raised issues about the possible use of controversial “fracking,” a process in which hydraulic pressurized fluid is used to reach oil reserves, Geiger said, “There are no plans to use hydraulic fracturing at the Dominguez project.” She added that the facility would be “safe and environmentally responsible.”

If approved the project to revitalize the Dominguez Oil Field would result in the creation of more than 300 jobs, generating $25.5 million in paychecks annually, according to a study by Los Angeles County Economic Development Corporation. Revenues from state and local taxes and negotiated fees could range between $1 million and $8 million per year, according to the study.

Oxy is expected to continue to conduct community meetings on the project in coming months. “Oxy is committed to working with the community to provide a safe and environmentally responsible development of local oil and natural gas utilizing state-of-the-art technology,” Geiger said. “If approved, the Dominguez project could provide millions of dollars in revenue to the City of Carson and the County of Los Angeles as well as provide hundreds of jobs in Carson.”