GEOL 115: The Earth’s Energy Resources

This post got longer than I expected.  I will be editing it to add some links and clean it up.  I will note when it is finished.

During the California budget debacle there was reporting that one version of the budget would allow development of the Tranquillon Ridge field.  This was reported as “the state’s first offshore oil project in more than 40 years,” “the first new offshore oil drilling on state lands in four decades,” and “new offshore oil drilling for the first time in 40 years.”  None of these statements is exactly correct.  These statements misinformed the public about the history of petroleum development in California waters, about current activity, and about this individual project.  The politics of the California budget process and tax structure are clearly dysfunctional.  Stories like these don’t help: they obscure issues rather than illuminating them.  What follows is the story as I know it, I can’t promise that I’ll get every detail correct but what you see here will be more correct than what is in other media.

In general, land from the mean low water (MLW) line to a line three miles from the shore belongs to the citizens of the adjoining state and is administered by the state government.  Land from 3 miles out to 200 miles from shore belongs to the citizens of the USA and is administered by the federal government.

It is worth remembering that the first offshore oil well was drilled in California state waters in 1896. There were no formal leasing arrangement to govern those early efforts.  The State of California initiated formal leasing procedures for California Tidelands (the area within the three mile limit) in 1929.  The state leased acreage to oil companies for exploration and production from the 1930s’ to 1968.  Among the acreage leased included the giant Huntington Beach offshore field, the Wilmington Field, and 35 leases in Santa Barbara Channel.

The federal government held three lease sales off the coast of California from 1963 to 1968.  The Dos Cuadras oil spill occurred in the Santa Barbara Channel in 1969.  The infamous Platform A was located on a lease that had been acquired in a federal lease sale in February 1968.  Moratoria were placed on drilling in state and federal waters off the California coast in the aftermath of that oil spill.  Those drilling bans were eventually lifted for most leases.  Exploration and production drilling resumed in federal waters in Santa Barbara Channel in 1969.  A series of production platforms were installed in California federal waters from 1967 through 1989.  Development was considered to be politcally difficult in California Federal waters, but these waters were considered very hot exploration targets through the late ’70s and ’80s.  No additional platforms were installed in CA state waters after the 1968 spill (virtually all structures on existing leases had been drilled).  Drilling occurred from these platforms and from floating drilling vessels.  New reservoirs were discovered; the Monterey Reservoir at South Elwood (1982) and Matilija reservoir at Molino (1983) are the best examples.  The former discovery was made form a floating drilling vessel whereas the latter was made from an existing platform.

In May 1981 a consortium of oil companies (Gulf, Superior, Unocal) was the high bidder on a lease in the offshore Santa Maria basin.  These three companies had mapped a NW-SE trending anticline  that covered the bulk of the lease.  The winning bid of $70.7 million for what became OCS-P0441 was largely overlooked in news reports of the sale.  The Chevron-Phillips partnership had submitted the US record for a single lease ($333 million) and Exxon had ponied up $163 million for a lease in the western portion of the basin.  One reason for the relative lack of interest in OCS-P-0441 was that it was small compared to some of the other prospects.  The prospect was centered on the block that became OCS-P-0441with minor extensions to the NW, N and W.   Another reason was that it was difficult to map closure on the SE end of the anticline.  In fact some maps produced around this time didn’t show the structure as closed within the boundaries of the lease.   This could be viewed as a positive (indicating upside potential in the state waters) or a negative (considering that the structure wasn’t closed).  In November 1982 Unocal announced the discovery of the Pt Pedernales field.  While the field was under development during the 1980’s two of the partners were swallowed up by other oil companies (Gulf by Chevron and Superior by Mobil).  Unocal sold their interest in the lease to Nuevo Exploration in 1994.  Nuevo acquired 100% of the OCS-P-0441 lease.  Plains Exploration purchased Nuevo Energy (and the Pt Pedernales lease) in 2004.

It is important to realize that the seismic data in this part of the Santa Maria basin was rather mediocre during the 1980’s.  The platform was set after exploration drilling established that significant reserves were present.  But maps used to delineate the Pt Pedernales field were probably very crude by today’s standards.  The reservoir comprises steeply dipping, fractured, lithified rock.  Much of the state waters are in the surf zone; surf generates a great deal of noise on seismic records.  Maps of the area improved slowly through the 1990’s.  In the mid 90’s the operator realized that there was a structural closure southeast of the P-0441 lease in state waters and that this closure was almost certainly filled with oil.

Torch Energy was the operator (for Nuevo) for the OCS-P-0441 lease in 1997.  They negotiated an agreement with the Feds and the Califonia State Lands Commission to drill a well (OCS-P-0441-A28) that would bottom 50 feet from the boundary between state and federal waters.  This location was mapped to be a low point between two anticlines, Pt. Pedernales on the west and Tranquillion Ridge on the east.  The well flowed oil, thus confirming that Tranquillon Ridge should be a large oil field.

Several issues became apparent to each of the interested parties.  1)The Tranquillion Ridge field is located almost completely within the California State Tidelands.  Most of this oil was off limits to the oil industry unless a lease was issued.  2)The Pt. Pedernales lease holders could recover oil that was under their lease.  Doing so might very well affect the reservoir pressures and the amount of oil that could be recovered from Tranquillon Ridge at a later date.  3)The best way to recover the Tranquillion Ridge oil is to recover it from Platform Irene (the platform on OCS-P-0441).  Irene had sufficient slots (capacity) to do the necessary drilling.  Drilling from Irene would obviate the need to set a platform in the state waters.

Torch put forth a plan that involved development of the Tranquillon Ridge field from platform Irene and it went nowhere.  The are a number of environmental groups that oppose petroleum exploration and development off California and they succeeded in getting the Torch proposal rejected by the state.

Plains Resources made another attempt in the last year.  Their philosophy seems to be that they (Plains) control a number of declining oil fields in the offshore Santa Maria basin.  The price of oil will probably rise, however, and these fields will remain economic to produce for decades (there has been production from similar fields in the onshore portion of the Santa Maria basin for over 70 years). Although Plains could keep the fields in production, they know that there is sentiment to get the platforms removed. So Plains negotiated a deal with Get Oil Out! (GOO), the Environmental Defense Center, and the Citizens Planning Association of Santa Barbara.    Plains agreed to terminate the Tranquillon Ridge project by the end of 2022 and remove platform Irene and associated onshore facilities. They would also remove two platforms from the Pt Arguello field by the end of 2017. This was all in addition to payments to the state of California.  This was viewed as a win-win situation.  The environmental groups dropped their opposition and Plains negotiated terms for a lease with the state under drainage provisions.  The deal was included in one of the state budget bills.

In the end the deal was cut out of the budget.  Califonia’s budget and revenue process is completely dysfunctional and the state is in real trouble.  I think that the Tranquillon Ridge project should be viewed not as a means to close a budget gap, but rather on its own merits.  This was a good arrangement.  An oil company took the initiative to negotiate in good faith with environmental groups and the environmental groups reciprocated.  We may not see that again: neither set of parties gained from this and both may feel a little betrayed by their elected representatives.

But to get back to our initial issue.  How should the media have referred to this item in media reports.  The most accurate description would have been “the first offshore lease for petroleum development issued by the state in over 40 years.”  News reports should have noted that development would occur without the need for a new platform and that the project was not located in Santa Barbara Channel.