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Greasing the wheels of an urban oil-drilling boom

As rising crude prices make old fields now surrounded by homes economically viable again, oil companies are making many concessions with local officials to revive them.

September 14, 2012|By Ronald D. White, Los Angeles Times
  • Michael McCaskey, left, executive vice president of Matrix Oil, and Whittier City Councilman Bob Henderson tour a site where Matrix plans to drill for oil. The company agreed to 90 conditions to win local approval of a project.
Michael McCaskey, left, executive vice president of Matrix Oil, and Whittier… (Mel Melcon, Los Angeles…)

In the early days of California's oil boom, derricks crowded beaches, covered hillsides and dominated cityscapes. If a road was in the way of the oil, the road was moved.

Nowadays, after years of falling oil production, the state is seeing a new drilling boom because of high petroleum prices. In July, an average of 53 rotary rigs were exploring for crude and natural gas in California, the most for that month in 22 years, according to industry data.

Drillers looking to revive old urban oil fields find themselves surrounded by homes and businesses that weren't there way back when, and the companies are negotiating increasingly complex agreements with neighbors and local officials on rules governing aesthetics, noise, hours of operation and much more.

In hopes of winning approval for a well near Carson, one oil company is promising that neighbors won't hear or see anything remotely resembling an oil derrick. In Whittier, another oil company has agreed to 90 conditions to win local approval of a project.

"Just 20 years ago, the oil company could go in and do whatever it wanted," said Mike McCaskey, executive vice president of Matrix Oil Co. in Santa Barbara, which agreed to the 90 conditions. "The reality today is that you have to agree to a lot of good environmental management practices. The bar has been raised."

Occidental Petroleum Corp., the fourth-biggest U.S. oil company, has essentially promised to be unseen, unheard and odor-free at a Carson site where it aims to tap the old Dominguez field, which may contain at least 52 million barrels.

At a recent company-funded open house for local residents, a small army of Occidental employees showed up with food, gift pens and water bottles with the Oxy logo prominently displayed and a plan that they hoped would be embraced. A union representative hailed Occidental's promise to give a large percentage of construction jobs to locals.

But the grumbling crowd was more concerned about fracking, which involves injecting chemical-laced water to flush out oil — a practice Oxy said won't be employed at the field.

Fracking has gotten such bad publicity of late that a bill to regulate the controversial extraction method was introduced in the state Legislature. It was shelved last month but could be reintroduced during the next legislative session.

In Carson, James Eastlack, a general manager at Occidental, told the skeptical audience that the site "will be disguised to look exactly like a warehouse."

"The pumps will not be above ground. Everything will run on electricity. It will be soundproofed, and the oil will be sold to local refineries," Eastlack said.

The mitigation agreements have intensified not just because of the proximity of neighbors but also because of a legal settlement two years ago by the Los Angeles County Board of Supervisors.

Lawsuits had been filed by several community advocates and environmentalists who argued, among other things, that the county failed to produce an adequate environmental impact report before allowing Plains Exploration & Production Co. of Houston to drill on land near Baldwin Hills.

The settlement established limits on the numbers of wells, where they can be drilled and noise levels. The pact set landscaping rules, required periodic health assessments of nearby residents and increased the amount of air-quality monitoring.

"We knew we had to meet the standards that came out of Baldwin Hills," McCaskey said.

The Whittier agreement, which awaits final approval by L.A. County officials, took five years of negotiating and two environmental reviews. "Our conditional use permit is about 1,000 pages long," he said with a laugh. He wasn't kidding, though.

Whittier City Councilman Bob Henderson said his goal was to enhance the environment, not just preserve it, and to get something back for the city.

"I'm not just a wild-eyed environmentalist," said Henderson, who is 70 and helps run the family insurance business. "I'm a businessman in a city that needs money, especially in these times when tax revenues have been cut. I know you have to be able to pay for things."

In exchange for having the right to drill in a 7.5-acre area near the base of the Whittier hills, Matrix has agreed to a long list of conditions. For instance, the city will get royalties of 30% to 50% of the well's revenue, before expenses, compared with a more typical 20% to 30%, McCaskey said.

Matrix will fund an $850,000 multiyear bobcat study, collaring the animals and tracking their movements. The company also agreed to build a wildlife corridor, to make sure that animals can come and go safely, for $1 million to $1.5 million; and agreed to offer $15 million for a land acquisition fund to buy and preserve more property.

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