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Oil firm, foes strike major deal

The company would donate land and halt production off Santa Barbara years early so it could tap new wells.

April 11, 2008|Kenneth R. Weiss | Times Staff Writer

A Houston oil company has agreed to shut down its offshore oil production off Santa Barbara County decades early in exchange for approval this year to drill into untapped undersea reserves and cash in on the nation's record oil prices.

To sweeten the deal, Plains Exploration & Production Co. -- known as PXP -- also has agreed to donate about 200 acres of oceanview property along the sparsely populated Gaviota coast and an additional 3,700 acres in Santa Barbara's premier wine-growing region for public parkland. It would withdraw a proposed housing development on that land and pay millions to fund projects that offset carbon dioxide emissions, such as low-emission public buses.

The unprecedented deal, announced Thursday by PXP and its fiercest environmental opponents, was designed to make a long-stalled drilling proposal more palatable to county and state officials in an area where a 1969 oil spill helped launch the modern environmental movement in California.

"It's hard for me to imagine that they won't approve this," said Linda Krop, chief counsel of the Santa Barbara-based Environmental Defense Center. Negotiations among these adversaries, she said, resulted in more concessions from PXP than any state or local agency could ever muster.

Steve Rusch, a PXP vice president, said the company was willing to make concessions because it wanted to do more than simply neutralize offshore oil's traditional opponents -- it wanted to enlist their support. Since the 1980s, most offshore oil development in California has been met with fierce opposition, including protracted litigation, congressional moratoriums and bureaucratic delays.

So beginning later this month, Krop and her clients will support PXP in its petition to use "slant drilling" from one of its four offshore platforms to tap into an undersea oil field, the Tranquillon Ridge, that could yield as much as 200 million barrels of oil and 50 billion cubic feet of natural gas.

It will be the first time in 39 years that one group, Get Oil Out, or GOO, has supported oil drilling. The group was formed by Santa Barbara County residents horrified by the gooey crude that coated their beaches after the 1969 offshore platform blowout.

Abe Powell, president of GOO, said it took "blood, sweat and tears" for his board members to abandon their historic role.

"Once we realized that we had put together a good deal for the community, we got it together," he said.

PXP wants to drill 22 wells using slant-drilling technology from platform Irene, which is 4.7 miles from shore, outside the three-mile limit of state waters. These wells would burrow on average 3,000 to 5,000 feet into the seafloor and reach as far as five miles from the platform to tap the reserves beneath submerged state lands.

Existing pipelines from platform Irene would transport the oil to processing facilities onshore, greatly reducing the risk of problems.

The agreement must win approval from county officials, the State Lands Commission, the California Coastal Commission and the federal Minerals Management Service, part of the Department of the Interior. It's a deal Rusch hopes will fall quickly into place so the company can begin sinking wells before the end of the year.

"There's an urgency to get on it as fast as possible," Rusch said, noting the surge in oil imports and the agreed-upon 14-year deadline for abandoning PXP's operations. In the highly speculative oil business, he said, PXP could drain this field in eight years or leave the oil in place. Right now, he said, it's hard to tell. "We hope to get as much as we can out of it."

Light, sweet crude for May delivery fell 45 cents to $110.42 in electronic trading Thursday on the New York Mercantile Exchange.

That's about four times the price of crude when Santa Barbara County rejected a similar drilling proposal from Nuevo Energy Co. in 2002. Environmental groups opposed the project, arguing that it would extend the life of offshore oil platforms in the Santa Barbara Channel, which are rarely disassembled.

Nuevo, like many oil companies, grew frustrated with its inability to develop offshore energy and sold platform Irene, its onshore oil processing facilities and its offshore lease to PXP in 2004. PXP had already acquired three other platforms off Point Arguello from Chevron and Texaco in 1999.

When Rusch learned that the objections to slant drilling focused on extending the life of offshore platforms, he approached Krop with the idea of setting a deadline to pull out. The sides spent months hammering out the details, including how to make such an agreement enforceable.

Under the terms, PXP would shut down its three platforms off Point Arguello by 2017, as well as its Gaviota gas processing plant. Five years later, platform Irene would also be closed, and removal would begin.

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