California's Love-Hate Relationship with Oil and Gas
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Occidental Petroleum (NYSE: OXY) has considerable oil and gas assets in California and plans to explore its large leasehold position here to help grow the company’s production and reserves over the long term.
California Oil and Gas
California has a long history of oil and gas exploration and development, which belies its current reputation as being inhospitable to the industry. In the mid-19th Century, oil was collected from natural seeps in the ground and tunnels were dug to increase access to oil deposits. The first wells were drilled in the early 1860s with the first successful commercial oil well in 1876.
California produced 530,000 barrels per day of crude oil in July 2012, according to the Energy Information Administration (EIA). This level of production makes California the third largest producer of crude oil in the United States, right behind Texas and North Dakota. Oil production in California has declined steadily since reaching peak levels of 1.1 million barrels per day in early 1986.
OXY California Overview
Occidental Petroleum has 1.7 million acres of developed and undeveloped leasehold in California and approximately 7,500 producing wells across the state. The company reported crude oil production of 88,000 barrels per day in the second quarter of 2012, along with 15,000 barrels per day of natural gas liquids.
Occidental Petroleum also produces considerable amounts of natural gas and reported average production of 269 million cubic feet of natural gas per day in the most recent quarter.
Occidental Petroleum’s largest operation is at the Elk Hills Field in Kern County, where oil production first began in 1919. The company acquired its interests in the field in 1998, paying $3.65 billion to the U.S. government for a 78% ownership stake.
Chevron (NYSE: CVX) is involved at the Elk Hills Field and owns a 22% non-operated interest here. The company is also a major operator in California and reported average production of 183,000 barrels of oil equivalent (BOE) per day in 2011 from its operations in the state.
Occidental Petroleum is active in Long Beach, where the company has an interest in the Wilmington Field. The company is involved with the THUMS Long Beach Co. and the Tidelands Oil Production Co. and produces from both onshore and offshore portions of this field.
Occidental Petroleum also owns Vintage Production California LLC, which has interests in dozens of oil and gas fields spread across the Sacramento, Ventura and San Joaquin Basins.
Exploration and Development Activity
In 2009, Occidental Petroleum reported the discovery of oil and gas resources in various shale formations in Kern County. The company is currently appraising these resources across its leasehold here and other parts of California.
Occidental Petroleum said that these shales compare favorably to the Bakken and Eagle Ford Shale plays on many factors, including porosity, total organic content, thickness, depth, and permeability. The company’s development program called for 140 shale wells in the first six months of 2012. Occidental Petroleum is also targeting conventional oil and gas resources in California and believes that its California leasehold is under explored.
Other California Operators
BreitBurn Energy Partners L.P. (NASDAQ: BBEP) is also active in California and reported average daily production of 3,200 BOE per day in 2011. The company’s proved reserves totaled 20.6 million BOE at the end of 2011.
Berry Petroleum (NYSE: BRY) has diversified its oil and gas operations over the last few years, but is still heavily concentrated in California. The company is the fifth largest producer in California with production of approximately 19,000 barrels of oil per day. Berry Petroleum has interests in several storied fields in the San Joaquin Basin, including the Midway-Sunset and McKittrick oil fields.
National Fuel Gas (NYSE: NFG) is a diversified energy company with utility, pipeline and exploration and production operations. The company has most of its exploration and production assets in the Appalachian Basin, but is also active in California.
National Fuel Gas is focused on lower risk oil opportunities and plans to spend between $70 million and $90 million in capital in California in 2013, up from $50 million in 2012.
California has an abundance of developed oil and gas resources that have been producing for more than a hundred years and also has considerable potential resources spread across millions of undeveloped acres. The state should develop these resources in a responsible manner and help reduce dependence on foreign sources of oil and gas.
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