State Official Says ‘Fracking’ So Far Has Been Small And Well Below Water Aquifers

By Sean Belk - Staff Writer

July 3, 2012 – Los Angeles-based Occidental Petroleum, known as Oxy, is betting $50 million that it will be able to reach new local oil reserves with the latest technology. A recently approved agreement is expected to spur new drilling in the West Wilmington Field, located in the Port of Long Beach and harbor area.

Under the new oil revenue sharing agreement between Oxy, the State of California and the City of Long Beach, the oil company is required in the next three months to start investing and assembling new technology and equipment, while beginning the planning process. But the actual drilling is still contingent on the price of oil staying either at or above $65 a barrel for a six-month time period. So far this year, oil prices have declined to about $80 a barrel, but remain relatively high. The agreement allows Oxy to keep 49 percent of all new oil revenue from the field, while giving the state 49 percent and the city 2 percent. At about $100 a barrel, state officials estimate to receive about $100 million in additional oil revenue over the next 20 years, while Long Beach officials estimate to receive about $6.6 million in the first 10 years.

Susie Geiger, spokesperson for Oxy, told the Business Journal in a statement via e-mail that specifics of the new oil-drilling program are unknown at this point. But she said the deal will help stimulate oil production and will benefit all parties involved. “We view this as a positive thing for all the stakeholders involved as it will result in additional production and will help promote and sustain jobs for the local community,” she said.

After six years of negotiations and a bill being passed by the state legislature, the revenue sharing agreement came to a head on June 7, when the California State Lands Commission approved the deal in a 2-1 vote.

Curtis Fossum, executive officer of the state lands commission, said the agreement came out better than what Oxy originally proposed. He said it essentially gives Oxy more of a financial incentive to be able to tap oil resources where the company has already been drilling. “It’s basically drilling from the same locations,” he said. “The only difference is they’ll be investing more money . . . because they have more of an incentive now.”

The new agreement is similar to other agreements with the THUMS oil-well islands and tidelands areas, both also operated by Oxy, that already provide financial incentives to encourage additional investment and coax new oil reserves from the reservoir.

Geiger said the THUMS agreement was executed in 1991 and is still in existence today, while an agreement between the port and Oxy to drill in the tidelands area was executed in January 2010 and has resulted in more than 40 new wells being drilled.

The entire Wilmington Field spans 13 miles long and three miles wide, from onshore San Pedro to offshore Seal Beach, and is considered the third largest oil field in the United States, producing nearly 3 billion barrels of oil from thousands of wells since 1932. Last year, the field produced 13 million barrels of oil, which was down by almost 2 million from 2007, according to state documents. About 9.5 million barrels came from offshore wells and 3.5 million barrels came from onshore.

‘Fracking’ In Question

While Oxy is expected to utilize a new water-flooding program to increase recovery and control subsidence, it’s uncertain whether the company will use controversial “fracking,” or hydraulic fracturing, a process in which hydraulic pressurized fluid is used to reach oil reserves.

Hydraulic fracturing, used mostly in areas with lots of shale, has become an environmental and safety concern, especially in California and in the Los Angeles area where there are heavy oil reserves. According to state officials, fracking has been linked to high levels of radioactivity in wastewater and other toxic effects, while some claim it may spark earthquakes. Under current law, the process is not tracked or regulated.

Recently, Assembly Bill 972 was introduced by Assemblymember Betsy Butler to put a moratorium on fracking in California until the California Department of Oil, Gas and Geothermal Resources implements a form of regulation. The bill recently passed the Senate Natural Resources Committee.

Geiger said specifics on whether the process would be used in the West Wilmington program are still unknown. But she said Oxy has not had to use the process in drilling in tidelands in the last five years.

In the Wilmington Field, Fossum said fracking has been used for some time. But he said there were only five wells that used any hydraulic fracturing, which is a relatively small amount compared to other areas where there are thousands of wells. Plus Fossum said, the fracking was done about half a mile below the closest water aquifer.