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Region attracts oil firms

By   /   Friday, February 27th, 2009  /   Comments Off on Region attracts oil firms

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Oil prices have crashed and U.S. Interior Secretary Ken Salazar has clamped down on new drilling within federal lands and waters, but one firm has hit a gusher using a new approach to a decades-old oil lease in Oxnard.

Tri-Valley Corp. has drilled seven wells at its Pleasant Valley site in Oxnard, and so far three have shown the ability to produce more than 1,000 barrels of oil a day.

“This is an area in which practically every major oil company has played at one time or another, but during the more than two-decades-long [oil price] downturn last time round, most of them fled the scene,” said Lynn Blystone, chief executive of the Bakersfield company. “As a result, none of the new recovery technologies were ever applied effectively in that area.”

Beneath the Oxnard site lies the equivalent of a giant sand dune that has soaked up oil over thousands of years, Blystone said. The oil is too thick to pump conventionally, but by steaming the sands and adding lighter oil, Tri-Valley can get at the reserves.

All that extra energy adds cost, of course. Those extra dollars seemed a lot less significant when oil traded near $150 per barrel in July 2008 rather than the roughly $40 per barrel it trades for these days.

“I like to use the surfing analogy: You can only surf on the crest of a wave; you can’t surf on the trough,” Blystone said. “But you have to paddle through that trough to get to the next wave. That’s what we’re doing now. When the next price increase comes, we’ll be riding the crest big time.”

The company is getting pipes, pumps and tanks in place to take advantage of its Oxnard site and hopes the equipment will be ready when prices recover. Tri-Valley took some gambles to get where it is – other oil firms thought well bores in its Oxnard tar sands would collapse and become contaminated with sand.

“The conventional wisdom was that even if you could get a well drilled, you wouldn’t be able to steam it property because it was deeper than most projects,” Blystone said. “But we’ve been producing for more than a year now.”

The company recently acquired and drilled another lease adjacent to its exiting one and is steaming it. “While we expect it to be as productive as its companion lease, you never really know in this business.”

Price spike: Round 2?

Oil insiders around the Tri-Counties are confident prices will go back up and point to recent moves by Interior Secretary Salazar. Salazar has shelved the Bush administration’s immediate plans for new offshore drilling in federal waters and canceled scores of onshore leases the Bush administration rushed to grant before it left office.

“[Salazar’s move] supports oil prices going higher because any time you diminish supply, you’ll eventually run into a bind in demand,” Blystone said. “This is classic U.S. government non-energy policy at work. When gas got over $4 a gallon, everybody was eager to drill offshore. Then it was forgotten again. Most of these projects take years of lead time, so you can’t just turn it on and off.”

“California’s [oil] production has been declining. As we say no domestically, invariably that increases the sources of supply that are coming over the ocean from elsewhere,” said Bob Poole, spokesman for the Western States Petroleum Association. “Clearly, with the secretary’s actions, there aren’t options to consider further exploration offshore,” he said.

Though Salazar’s recent decisions won’t have an immediate impact on his company, Mike Edwards, vice president at Venoco, which has onshore and offshore oil wells in Ventura and Santa Barbara counties, agrees that oil prices are bound for recovery.

“We all think oil prices will come back because of global supply-demand imbalance,” Edwards said. “We’ve all been through cycles of boom and bust in the oil and gas industry.”

To make more of its existing oil leases, Venoco is looking at flooding underground reserves with carbon dioxide to help boost production. The technology could become much more cost efficient if carbon sequestration catches on – a distinct possibility after President Obama called on congress to pass cap-and-trade legislation for carbon emissions.

“That’s something that’s out there,” Edwards said of the technology. “The recovery factor is pretty significant, and besides producing oil it also sequesters CO2.”

But using new methods of getting at oil in existing leases mainly depends on prices, Poole said. And independent operators might be able to take financial chances that the major companies can’t.

“You’ve got different companies making different decisions,” he said. “One company may need to make a certain profit per barrel, and another company, because of the way it’s structured, may not.”

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