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Los Angeles Quietly Pumps a Wellspring of Oil

Posted on: Tuesday, 6 September 2005, 15:01 CDT

As thousands of Los Angeles-area motorists take to the freeways during this Labor Day weekend, they are feeling the bite of record- high oil prices.

But soaring prices for light, sweet crude are music to the ears of the region's remaining oil producers, who continue to tap oil from some of the thickest and richest underground reservoirs in the United States.

Arco, Chevron and the oil industry's other corporate icons have long since abandoned the Los Angeles basin, a historic oil- producing region that sprawls across Los Angeles and Orange counties. But 150 small- and medium-size companies pump more than 82,000 barrels of oil a day from wells that dot the landscape from the Harbor Area to Santa Fe Springs to Beverly Hills.

Most of the oil is sold to local refineries and winds up in the gas tanks of motorists around the region.

With the price of a barrel of crude briefly reaching $70 last week -- more than 10 times what oil companies were able to get for their product only eight years ago -- local oil producers are reaping windfall profits. Many are plowing money back into their operations by modernizing their equipment -- or drilling for more oil.

Through the first week of August this year, 82 new wells had been drilled in the Los Angeles region, up from 33 in all of 2004. Meanwhile, available drill rigs and work crews have become scarce as companies scramble to maximize production while prices are still high.

"This is a time when oil companies are making more money than they ever did, but they're also investing more," said Hal Washburn, co-founder and chief operating officer of Breitburn Energy Co., one of the largest producers left in the Los Angeles area. "And every barrel of oil I produce is one less barrel of oil that has to come in from off the coast on those tankers."

That's small solace for consumers in the greater Los Angeles area, who on average paid an all-time record of $2.92 per gallon for self-serve regular gasoline Friday, according to the Automobile Association of Southern California.

Few are likely to take comfort, either, in knowing that the state took in $190.3 million in oil and gas revenues during the 2004-05 fiscal year, an increase of $70 million over the previous year that's largely due to rising oil prices. Nevertheless, the lion's share of that money is generated by oil pumped from Los Angeles- area fields.

"The Los Angeles basin is still a huge oil-producing basin, even now," said Washburn, whose company operates more than 650 wells -- including many in Harbor Gateway and the neighboring, unincorporated community of Rosewood north of Carson -- that produce a total of about 5,000 barrels of oil a day.

Oil was discovered in the Los Angeles area more than a century ago by Edward Doheny, who dug his first exploratory shaft in downtown Los Angeles in 1892. Drilling rigs soon mushroomed across the region as oil became the preferred fuel for locomotives and ever- more-popular automobiles.

The skyrocketing demand for "black gold" spurred the development of a deep-water port at San Pedro. By the early 1920s, Los Angeles was supplying one-fourth of the world's oil, and a parade of tankers carrying local crude to refineries on the East Coast via the Panama Canal helped make the city's new port the busiest in California.

By the 1930s, Signal Hill and Huntington Beach boasted virtual forests of oil derricks, and real-estate developers in more than one city around the region sold lots for houses or oil wells -- or both. Some of those properties -- including a number in Beverly Hills -- were subsequently sold over and over with the oil rights intact, and the current homeowners earn royalties for every gallon that's pumped from beneath their lawns.

The region's production peaked in 1969 at 465,000 barrels of oil a day. During the 1980s, most of the big companies -- including Arco, Chevron and Exxon -- moved on to other sites around the world "where they perceived that they could get a better return on their dollar," explained Richard Baker, Los Angeles district deputy for the state Department of Conservation's Division of Oil, Gas and Geothermal Resources.

Nevertheless, the oil-bearing strata beneath Los Angeles are unusually thick and still contain large amounts of oil, local producers say. Some of the oil fields extend from just beneath the surface to a depth of 10,000 feet, noted Washburn of Breitburn Energy.

"It's like a rock sponge -- you can't ever get it all out," he said. "You're always leaving a bunch behind."

Breitburn and other so-called "secondary" producers are willing to go to extra lengths to remove as much as they can. One common method involves injecting water deep into the ground to force oil closer to the surface, where it can be pumped more easily.

New and reactivated injection wells are among the things that local producers are spending their recent profits on. But not everyone is excited by the prospect of more oil production here.

Jesse Marquez, executive director of the Wilmington-based Coalition for a Safe Environment, said workers at an injection well in Wilmington ruptured a pipeline two weeks ago, sending an oily liquid pouring out into the surrounding yard and sickening residents who live nearby.

"We don't believe there should be more oil drilling," Marquez said. "The investment should be in alternative fuels."

Baker, of the state's Division of Oil, Gas and Geothermal Resources, noted that some local oil producers sold their land to housing developers as the region's population steadily rose, hemming in their wells. "Trying to have 50 different oil fields coexisting with a high-density population is always problematic," he said.

Still, many independent producers have persisted, including some who own only one or two wells that have been operating for decades. Most have seen a gradual decline in their wells' productivity, said Rey Javier, vice president of Brea Canon Oil, which operates about 120 active wells in the Los Angeles basin -- including 60 in the Harbor Area.

In 1990, his company produced 1,200 barrels a day. "Now we're down to 700 barrels a day, roughly," Javier said.

Even he thinks it's "crazy ... absurd" that each one of those barrels currently sells for more than $60.

However, Javier and Washburn are quick to point out that independent oil producers have nothing to do with setting the price of oil, which depends on a complex formula involving worldwide supply and demand -- spiked with a heavy dose of speculation.

"We're like farmers," Washburn said. "We produce a raw material, like wheat, and take whatever we can get for it."

Javier remembers how the price of oil sank below $7 a barrel in 1997, and Brea Canon had to lay off longtime employees from its small work force of about two dozen people.

Californians haven't exactly weaned themselves off oil since then. With shortages caused by Hurricane Katrina and the conflict in the Middle East, and soaring demand from rapidly industrializing China, don't look for oil prices -- or production in the Los Angeles area -- to plummet any time soon.

"This is our good time," Javier said. "A lot of people gave up on the oil out here in California, but there's still quite a bit down there."

Source: Daily Breeze

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