Legacy of an Offshore Disaster

It was at a strand of California beach in the little resort town of Summerland that the search for oil broke free of the land and plunged into the sea.

Lured by discoveries of crude in Ojai and Los Angeles, the wildcatters came west and threw up hundreds of derricks on the hills and streets of the hamlet east of Santa Barbara. Driven by ingenuity and greed, oilmen a century ago marched the derricks right into the surf like towering wooden soldiers, opening the oceans to petroleum prospecting.

Men got rich, but Summerland became so polluted a newspaper editor at the time lamented that “the whole face of the townsite is aslime with oil leakages.�

In time, drilling rigs would sprout up and down the coast. They would pump $7 billion in royalties into government coffers. They would also cause one of the biggest environmental disasters in American history.

It was 30 years ago today that the drill from Union Oil Co.’s Platform A, boring nearly a mile beneath the waves, punctured a high-pressure pocket of petroleum. Oil exploded from the breach so violently that it shattered the sea floor and gushed uncontrollably into the blue Pacific, congealing into a chocolate mousse mat a foot thick. Winds carried part of the oil southwest to San Miguel Island, and the rest was tugged by currents toward Santa Barbara.

“The thing I remember most about it was the noise of the waves breaking on the beach ended,� said Robert Sollen, author of “An Ocean of Oil,� a book about offshore drilling. “The water was heavy and lubricated with oil. There was total silence.�

Captured live on TV, the images of dying animals and frantic cleanup crews changed the consciousness of the nation. The spill “was the most important event that led to the environmental revolution of the 1970s,� says U.S. Interior Secretary Bruce Babbitt. “That was the event that galvanized public awareness of the environment and support for a decade of profound change.�

Today, the industry’s go-go years are over. Production peaked in 1995 and is down 25% since. Most of the oil feeding the platforms dotting the horizon is gone, and the rest may be gone in a decade. Although vast deposits remain untapped off the Central Coast, the oil in those fields is thick and gloppy--best suited for producing not gasoline, but asphalt.

Nonetheless, the battle over offshore drilling--fueled by the memories of the 1969 spill--rages on. Big Oil is retreating from the offshore fields. Smaller companies are buying up the remaining leases and vowing to open new fields off Ventura, Santa Barbara and San Luis Obispo counties. Environmentalists, worried that the new companies lack the deep pockets and expertise to respond to another giant spill, promise to block them.

Today, 23 platforms in federal waters and nine in state waters pump oil off the California coast and send it to refineries in San Francisco, Los Angeles, Bakersfield and Texas. Eight of every 10 gallons of oil taken from beneath the ocean off California comes from the Santa Barbara Channel, said J. Lisle Reed, Pacific regional director for the U.S. Minerals Management Service, which overseas oil development in federal waters.

All along the coast, offshore oil deposits that took nature millions of years to make are being depleted at breakneck speed.

California’s offshore oil reserves now supply less than 1% of the United States’ daily petroleum consumption, according to the Energy Information Administration. With world crude oil prices dropping--December’s price, adjusted for inflation, was the lowest since 1919--there is little profit to be made offshore.

Two-thirds of the oil in 43 federal offshore leases now in use has been consumed. Similar declines have occurred in near-shore oil fields controlled by the state. In all, 900 million gallons of offshore oil has been taken from under the ocean and used to make gasoline, jet fuel, diesel, paint, plastics and asphalt.

Companies are laying off workers, consolidating through mergers--as Exxon Co. U.S.A. and Mobil Oil Corp. are trying to do in an $80-billion deal creating the world’s largest oil company--and reducing exploration. Across the United States, just 634 drilling rigs--offshore and on--were exploring for new oil deposits in December, 40% fewer than a year earlier and the lowest number in 50 years, said Sam Fletcher, senior editor of the Houston-based Energy Intelligence Group.

Grim as conditions are industrywide, it is even worse for California offshore oil.

“It’s a declining industry,� said Mark Schniepp, director of the UC Santa Barbara Economic Forecast Project. “There’s been rapid depletion of oil deposits.�

Offshore California crude is junk compared to other types. Much of it is so thick it’s virtually solid at room temperature. It is expensive to suck out of the ground and is so rich in sulfur and metals that it is costly to refine. It fetches about $5 a barrel, less than half the average price.

“You don’t get a good price for it, so it is one of the first products to fall out,� Fletcher said.

This and the state’s burdensome regulations are causing big oil companies to abandon the California coast. They are heading to Saudi Arabia, the Caspian Sea in Russia and West Africa, where oil is easier to get, sells for a higher price and involves less red tape.

Phillips Petroleum Co. pulled out in 1990, selling to Pacific Operators Offshore Inc. Arco sold much of its offshore holdings to Samedan Oil Corp. and Mobil. Mobil sold its assets to Venoco Inc. of Santa Barbara. Unocal Corp. sold to Nuevo Energy Co. Texaco Inc. relinquished operation of its platform to Nuevo. And Chevron is selling its offshore oil holdings to Venoco.

“Big oil is pulling out of California. You’re seeing a major exodus,� said Tobe Plough, an industry consultant in Santa Barbara.

‘Rigs to Reefs’ Proposal

That exodus has raised a new problem--how to dispose of obsolete platforms.

“For the past 30 years there’s been a lot of platforms going into the water. For the next 10 years there will be a lot of stories about rigs coming out of the water,� Reed said.

Well, maybe. Oil companies are required by law to remove drilling platforms, cap their wells and restore the sea floor to its original condition when they shut down. But under a proposal called “rigs to reefs,� they are seeking permission to cut the skyscraper-sized platforms off at the knees and sink them to the ocean floor for fish habitat. That would save companies millions of dollars in decommissioning costs.

Reed said the Minerals Management Service is working with the state to grant the companies permission to go forward with rigs to reefs. State Sen. Dede Alpert (D-Coronado) plans to introduce a bill this year to charge oil companies about $30 million for each rig they sink.

Environmentalists are appalled at the idea. They claim that the oil industry doesn’t take seriously its obligation to clean up after itself.

Wells are still leaking at Summerland. The oilmen stuffed lumber, rags and sand into wells in an attempt to plug them in 1912, but it didn’t work and tides threw chocolate-tinged waves and tar balls onto the beach for the next 80 years. Regulators spent $1 million to plug the wells in 1993, slowing the leaks but not eliminating them. No more cleanup is planned.

Environmentalists also cite a multiyear 8.5-million-gallon Unocal spill at Avila Beach that the company failed to report, and a tank fire 75 years ago that still soils hills near San Luis Obispo.

“When those guys leave, they just walk away and leave all this junk and pollution,� said Sierra Club attorney Mark Masarra. “The legacy of offshore oil is a cycle of environmental damage.�

Bullish Independents

As big oil departs the California coast, independent companies are stepping in to take their place. The next generation of oil speculators is bullish about California offshore oil.

Twelve of 23 platforms on California’s outer continental shelf, where most of the oil originates, are now operated by independent companies. Houston-based Nuevo Energy Co. operates 11 platforms, more than any company. Once Venoco Inc. acquires Chevron’s holdings, independent companies will control 17 platforms.

What makes the little companies think they can turn a profit from underwater oil fields jettisoned by the big companies?

For starters, despite nearly a century of drilling, about 500 million barrels of crude remain in the current leases. Even at today’s depressed prices, that’s about $2.5 billion worth of crude.

The situation is ideal for small companies, which can operate on a narrower profit margin than big companies. They don’t have to hunt for the oil or build costly platforms and pipelines to get it. They sell directly to refiners, so they don’t have to raise capital to build refineries, distribution lines or gas stations. And they bought many of the leases for pennies on the dollar.

“Independents are more flexible, more streamlined and smaller, so they don’t have as much overhead,� said Charles Cappel, director of Santa Barbara-based Pacific Operators Offshore Inc., which operates two platforms and an onshore plant near Carpinteria.

Environmentalists and some government officials are concerned that independent companies lack the money and expertise to respond to a major spill.

“If they do have a problem, they are certainly not going to have as deep a pocket as, say, an Exxon,� said Plough, the oil industry consultant.

Reed agrees that, at first blush, mom-and-pop oil companies are a concern. However, he said the Minerals Management Service requires companies to post bonds of $150 million to pay for any oil spill as well as prove that they can afford to remove platforms. Sometimes, major companies help the small companies, as Chevron is doing by providing a letter of credit for Venoco to show that it has the money to pay for platform removal.

Said Reed: “Any time you have a small company coming into a business like offshore oil, it can make you worry. It’s a valid concern. But in this case, the companies pass muster.�

The biggest spill from offshore oil drilling recently occurred near a platform operated by Nuevo in September 1997. About 6,500 gallons of crude gushed from a ruptured pipeline near Vandenberg Air Force Base, fouling beaches and killing 150 marine birds. The company paid $4 million to clean up the mess.

‘There’s a Lot of Oil Out There’

The biggest dispute brewing over offshore oil involves the fate of 40 untapped oil deposits off the Central Coast. It is a vast expanse of petroleum hundreds of feet beneath the ocean known as the Santa Maria Basin. Two of the undeveloped tracts are next to Channel Islands National Park.

The basin contains about 1 billion gallons of crude and a seemingly infinite amount of natural gas. It is more oil than companies have pumped from the California coast since they first plunged wells into the ocean near Summerland 103 years ago.

“There’s a lot of oil out there,� said Holmes, the oil industry trade representative. “It’s a very important asset to the nation.�

Oil companies have long sought to drill on the Central Coast. They have paid the federal government $1.6 billion for the opportunity. With Big Oil out, independent companies want to collect on the investment.

“All along we’ve wanted to do it. It shouldn’t be a surprise to most people,� said Arthur Boehm, business development manager of Nuevo Energy Co. “You have to realize we have a valid lease and right to what is out there.�

They will have to move heaven, as well as Earth, to prevail. Since companies bought the leases in the early 1980s, expanded oil production has been repeatedly blocked by the decidedly anti-drilling attitude of Central Coast residents and opposition from leaders in both political parties.

Newly elected Gov. Gray Davis is a longtime opponent of offshore drilling. Expanding the drilling areas “ain’t gonna happen,� said his spokesman, Michael Bustamante.

Sen. Barbara Boxer (D-Calif.) has asked the Interior Department, which oversees the Minerals Management Service, to deny permits to oil companies seeking to open the undeveloped leases to drilling. The California Coastal Commission has the authority to deny new drilling permits.

As an option of last resort, Interior Secretary Babbitt said the federal government can buy back the leases. Lease buybacks have occurred in Florida, Alaska and North Carolina.

“The coast is so much a part of the California psyche and landscape,� said Peter Douglas, executive director of the Coastal Commission. “Its protection is not in the domain of one political party or the other. It’s bipartisan and always has been.�

Nevertheless, the oil industry and the Minerals Management Service are undaunted and determined to proceed.

Although President Clinton last year extended a moratorium on drilling off California to 2012, that does not apply to the 40 existing but untapped leases.

The industry is confident enough of its prospects to initiate a $1.5-million investigation called the California Offshore Oil and Gas Energy Resources study, to find the best places to drill. Companies must submit applications and development plans for the untapped leases by June 30.

“They will be developed over the next 10 to 15 years,� said Reed of the Minerals Management Service. “It’s important to the country, it’s important to the companies that own the leases.�

Even environmentalists accustomed to winning battles with oil companies say those untapped leases might finally be vulnerable.

“The widespread public perception is that what you’re looking at out there in terms of offshore oil drilling is the last of it and that’s not necessarily true,� said Ann Notthoff, coastal planner for the Natural Resources Defense Council.

Reed says that getting the oil would be less intrusive than in the past. Modern drilling platforms utilize “extended reach� technology to send feelers like an octopus to recover oil miles away. Five platforms could remove all the oil in the undeveloped tracts, Reed said.

But the oil is of even lower quality than the product coming from existing leases. Rick Barton, manager of new ventures for Aera Energy Co. of Bakersfield, California’s largest oil producer with options on 23 of the 40 undeveloped offshore leases, said two-thirds of the crude pumped from the basin would be used to make asphalt if the leases were in use today. Only dramatic changes in price or technology would alter those plans, he said.

Still, that asphalt could be a valuable commodity. The oil could be used to make a high-grade material known as Superpave, which lasts 30 years, five times longer than conventional roads. Three-quarters of the states have adopted Superpave standards for highways, said Gene Chew of the American International Refining Institute and the Asphalt Institute.

In today’s market, Barton said, low-quality oil from the Santa Maria Basin would fetch about $3 a barrel if used to make gasoline. Premium asphalt mixed with polymers to make Superpave sells for up to $30 a barrel.

Environmentalists say that companies should not be allowed to risk California’s coastal environment to make more freeways.

“They say we need to have more oil production to reduce imports from foreign sources, but most of it is just going to asphalt,� said Hanna Eckberg, president of Get Oil Out, formed the day of the Santa Barbara oil spill. “It’s our environment and coastline they are jeopardizing. We need to decide if we want to risk it all for asphalt.�

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Offshore Oil

Thirty-two oil rigs sit off the Southern California coast, siphoning 186,000 barrels out of the earth daily. Although further offshore oil drilling is banned until 2012, the moratorium doesn’t apply to the 40 untapped leases that companies seek to develop.

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Offshore Oil Production

California production peaked in 1995 and is in sharp decline because of tumbling crude prices.