California is the real OCS prize

Drill Bans Under Greater Scrutiny

American Association of Petroleum Geologists (AAPG)

For over two decades, the oil and gas industry has fought to open restricted offshore areas of the United States to drilling.

That effort primarily targeted the offshore ANWR (Alaska National Wildlife Refuge) area of Alaska and the eastern Gulf of Mexico.

Today, prospects for lifting the drilling ban look better than ever:

  • President George W. Bush ended a long-standing presidential moratorium on offshore exploration in July.
  • A nonpartisan group in Congress quickly came out in support of opening up exploration offshore Georgia, the Carolinas and Virginia immediately, if those states agree.

So, where will the industry want to head first if offshore drilling restrictions finally end?

Straight to sunny Southern California.

The reason for that likely choice involves geology, crude oil prospectivity, weather conditions, existing infrastructure, access to markets and several other important considerations.

What’s so great about offshore California?

“It’s one of the richest petroleum systems in the world,” said Karen Christensen, an AAPG member and partner and geophysicist for Silver Tip Energy and Spyglass Exploration & Production in Santa Barbara, Calif.

Much of California’s offshore oil promise lies in Monterey formation-type rocks, or what the U.S. Minerals Management Service (MMS) calls the “fractured siliceous play.”

“Here you’ve got the Monterey,” Christensen noted, “and if it’s in association with all sorts of traps, it’s productive.”

Regional Reports

According to the MMS, about 574 million acres of the U.S. Outer Continental Shelf (OCS) are currently off-limits to leasing and development.

It evaluated the OCS hydrocarbon potential of Alaska, the Pacific Coast, the Gulf of Mexico and the Atlantic Coast in its “Assessment of Undiscovered Technically Recoverable Oil and Gas Resources of the Nation’s Outer Continental Shelf, 2006.”

The MMS mean estimate of total technically recoverable resources of the U.S. OCS was 85.88 billion barrels of oil  and 418.88 trillion cubic feet of gas.

Oil and Gas Resources in OCS Areas Unavailable for Leasing and Development

OCS Areas Withdrawn from Leasing Area
Undiscovered Technically Recovered Resources (mean estimate)
Oil (Bbbls) Natural Gas (Tcf)
Washington-Oregon 71.00 0.40 2.28
Northern California 44.79 2.08 3.58
Central California 43.68 2.31 2.41
Southern California 88.99 5.58 9.75
Central, Eastern Gulf of Mexico 65.87 3.65 21.46
North, Mid and South Atlantic 259.53 3.82 36.99
Total: 573.86 17.84 76.47

* Does Not include resources in areas already under lease.

In estimating economically recoverable OCS resources, the highest price levels the MMS projected were $80/barrel and $12.10/Mcf. At those levels, it forecast recovery of 73.4 Bbo and 330.54 Tcf.

Using either approach, the most significant productive and prospective OCS area by far was the central Gulf of Mexico, with a mean technically recoverable resource of 30.32 Bbo and 144.77 Tcf.

And second was not offshore ANWR or even Alaska’s Beaufort Sea – high profile areas in the public debate – but the Chukchi Sea OCS area offshore northwestern Alaska.

That area had an estimated recoverable resource of 15.38 Bbo and 76.77 Tcf.

The central and western Gulf of Mexico areas have become the prime driver for offshore U.S. oil production.

The Chukchi Sea remains almost unexplored. But in February this year, the MMS held a successful lease sale that included about a million square miles and 5,355 whole and partial Chukchi Sea blocks.

That sale drew $2.66 billion in high bids on 488 blocks, with Shell and ConocoPhillips the leading bidders.

Ice in Your Drink

Christensen is probably one of the few experts who has worked evaluations in both the Chukchi Sea and offshore California.

The MMS held earlier offshore northwest Alaska lease sales in 1988 with 350 leases issued and in 1991 with 28 leases issued.

“In the Chukchi Sea a number of leases were bought by majors, including Texaco and a Conoco-Shell venture, at the time. They drilled five wells, I think, on big, big structures,” Christensen recalled.

“The problem was at that point it took many billions of barrels to reach an economic field size,” she said.

Northwest Alaska’s large offshore area could become a production powerhouse at some point, but Southern California has certain advantages for exploration.

First, the waters off California tend to freeze less often than the waters off Alaska.

And California gets a lot fewer icebergs.

Christensen described 100-foot-plus water depths in the Chukchi Sea where the sea-bottom is so heavily gouged that pipelines would be problematic.

“When you’ve got the whole ice pack moving south, how do you put a platform in the middle of it?” she asked. “That’s a real logistical challenge.”

California’s existing production also provides an infrastructure in-place and near-shore for future development.

Offshore northern Alaska problems include not only weather and remoteness but a lack of gathering and transportation facilities, especially for natural gas.

A proposed Trans-Alaska gas pipeline could take 10 years to build.

“The Japanese have tried to get the ability to come in with tankers so there are absolutely things that can be done with the gas,” Christensen said.

“The question is, what’s the timeframe for that?”

Signs of Success?

All together, areas currently available for leasing contain about 80 percent of the total recoverable OCS production in the MMS assessment.

Is the industry undertaking a largely symbolic fight to open offshore areas for drilling?

Not when it comes to California.

Offshore California has a technically recoverable OCS oil resource of more than 10.1 Bbo, according to the MMS. That compares to 3.88 Bbo for the eastern Gulf of Mexico and 1.91 Bbo for the North Atlantic OCS area.

The 2006 MMS assessment for the offshore Pacific region closely reflects the agency’s previous assessment for that region, according to Ken Piper.

Piper is senior geophysicist for the Office of Reservoir Evaluation and Production (OREP), MMS Pacific OCS Region in Camarillo, Calif., and served as a lead researcher for the assessment.

“The only thing we changed in the Santa Maria Basin area included a revision of field studies,” he said. “There was a slight change in that there’s been more production, so the reserves numbers have changed a little.

“The other thing is that the economic assessment numbers are reflecting higher dollar values,” he added.

In a previous MMS assessment, the region’s top five prospects were Monterey reservoir-type plays in the Santa Barbara-Ventura Basin and offshore central California.

Nine of 46 assessed plays contained Monterey-type rocks, but those nine plays accounted for more than half of the projected undiscovered oil and about a third of the undiscovered gas.

Piper said the fractured siliceous plays still comprise the most important targets from offshore Mendocino to south of the Santa Barbara Channel – the Los Angeles Basin, offshore Long Beach and offshore Oceanside – where formations tend to include more clastics.

Off southernmost California, a lack of well data makes the assessment work more challenging.

“Only two coreholes have been drilled in the offshore Oceanside-Capistrano Basin area and both are on the northeast side of the Newport-Inglewood Fault near the federal/state boundary,” said AAPG member Drew Mayerson, chief of the MMS Pacific OCS Region OREP in Camarillo.

Both coreholes were relatively shallow – but the Mobil San Clemente did penetrate Pliocene and Miocene sediments, presumably of the Capistrano and Monterey Formations, he said.

“However, high-quality seismic data has been collected on the federal side and it shows a deep basin with well-defined folds all the way up to the Newport-Inglewood Fault Zone, one of the most prolific oil and gas trends in the Los Angeles Basin,” Mayerson noted.

Reality Check

Before the industry starts looking for capital to drill offshore California, it might need to write itself a reality check.

Much of the MMS OCS central California assessment area will be off-limits by inclusion in national marine sanctuaries, including the Cordell Bank and Monterey Bay sanctuaries.

“A lot of the central California areas are in the marine reserve sanctuary,” Mayerson noted. “The large part of the Bodega Basin is in a marine sanctuary or a proposed sanctuary.”

And California’s tendency toward heavy oil is no secret, with some crude in the 10-16 degree API gravity range.

“It varies in parts of California where we have discoveries as high as 34 degrees (gravity), so it can be quite variable depending on where you are,” Mayerson said.

If the offshore drilling ban is lifted, the MMS would have to begin the process of identifying areas for leasing and establishing lease sales. That will depend on which areas are available.

“Over 90 percent of the oil offshore the West Coast is within 25 miles of the coast,” Mayerson noted.

“There are some proposals out there that say it’s OK to drill 50 miles or more offshore,” he said. “That would do very little for offshore California.”

The Tide Turns

Then there’s the question of whether or not the current drilling restrictions will end at all.

In the U.S. Congress, five Democrats and five Republicans have joined together for energy policy reform, calling themselves the Gang of 10.

They proposed a New Energy Reform Act of 2008 – or New ERA – that would open offshore South Atlantic and Mid-Atlantic areas for exploration.

But those areas had a combined total OCS recoverable resource of only 1.91 Bbo and 18.99 Tcf in the MMS assessment, about the same as the North Atlantic OCS area.

In July, Bush lifted a Presidential moratorium on offshore drilling put in place by his father, President George H.W. Bush, in 1990 and extended to 2012 by President Bill Clinton.

George W. Bush has challenged Congress to end its own offshore drilling restrictions, so far without action.

If individual states receive decision-making authority or influence for opening offshore areas, California might opt out.

Still, there are signs that high crude prices and $4-a-gallon gasoline have changed attitudes – even on the West Coast.

John Minch, a longtime active AAPG member and principal of John Minch and Associates in Santa Barbara, noted California’s longstanding antipathy toward offshore drilling proposals.

Since the 1969 Santa Barbara oil spill – actually a blowout on a Union Oil platform six miles offshore – “there’s been a tremendous number of people against it,” he said.

Now Minch senses a turn in the offshore tide.

“Things have changed dramatically. I honestly think you are going to see a real change of attitude,” he said.

One sign of that shift is a recent action by the Santa Barbara County Board of Supervisors.

“The County Board of Supervisors met earlier this week (early September) and asked the state to pursue offshore drilling,” Minch said, and added:

“I never thought I’d ever see that.”  

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