Venoco may cut Ellwood operation

Energy: Firm also could ask to drill into an adjacent field

5/23/00

By RON TRUJILLO NEWS-PRESS STAFF WRITER

rtrujillo@newspress.com

Venoco could dramatically downsize its Ellwood facility and move gas processing offshore as part of a plan that would cost at least $40 million -- easily one of the largest proposals for an oil operator in recent years on the South Coast, company executives confirmed Monday.

The Santa Barbara-based company may also close its Ellwood marine terminal, used by barges to ship barrels of oil to the Los Angeles area, and establish a much-safer pipeline system as part of its still-evolving proposal. Venoco has not determined where the pipeline would take the oil -- north or south or perhaps to Exxon's Las Flores Canyon plant.

But the company -- already discussing the high-priced plan with various local organizations -- will likely apply to the county for the far-reaching proposal in the next two weeks, said Rod Eson, Venoco's co-founder and executive vice president. If approved, the development would take at least three years.

Venoco's effort is considered an alternative to a controversial amortization ordinance, basically a county-created deadline to close the facility after the oil operator receives an appropriate return on its investment.

As part of the proposal, the company would also ask to collect crude oil and gas from an adjacent field with an extended-reach drilling effort from Platform Holly, greatly increasing production -- though not exceeding the permitted 20,000 barrels a day -- and generating revenue for the $40 million to $70 million project, Eson said. If the plan were approved, the county could also collect $30 million to $50 million in oil royalties during the life of the project.

"There are a lot of positive aspects to it," said Eson, noting that treatment of hydrogen sulfide on the platform rather than onshore at the plant would virtually eliminate odors and health risks to nearby residents. "We're doing this because it's the right thing to do for the community."

The environmental and health effects from eliminating hydrogen sulfide at the plant and moving the treatment process to the platform have not been determined, said county Fire Capt. Ryan Hill.

"But you will definitely reduce the risk for people nearby .Ê.Ê. from (potential) fires and explosions," Hill said.

Venoco battled hydrogen sulfide gas releases from Platform Holly and the onshore plant last year, prompting a county-mandated shutdown and much-stricter operating requirements. But the company then installed a flare on the platform, eliminating the problem in the past several months, county officials say.

"They've been very forthcoming, very candid," Hill said. "They're making a sincere effort to be a good neighbor."

Venoco collects about 4,500 barrels a day from the field, about the same amount for the past eight years, Eson said. Extending the field could increase production, but not the lifespan of the project.

Venoco says that at least 50 million barrels of crude -- and possibly as much as 100 million -- remain offshore, while state officials estimate about 30 million barrels.

"From a technical point of view, it (the plan) makes sense," said Frank Holmes, coastal coordinator for Western States Petroleum Association in Santa Barbara. "There's a large oil field to be developed there."

But extending the field goes against an earlier legal settlement, said Linda Krop, chief counsel for the Environmental Defense Center in Santa Barbara. Former owner ARCO agreed not to develop leases as part of a settlement with the Sierra Club and the State Lands Commission in the mid-1980s.

"They bought knowing that," said Krop, referring to the oil operator's purchase from then-owner Mobil in 1997. "For Venoco to come back now (with that proposal) is simply inappropriate."

But the company could argue that the extended-reach drilling is not development of a new field but simply a new way of reaching reserves it is already tapping, said Paul Thayer, executive officer of the State Lands Commission.

Eson said Venoco's proposal would benefit both the company and the community.

"Amortization is not good for anybody," said Eson, though he acknowledged that greatly lower oil prices could derail the project. "We think this is a much better plan (compared) to amortization.

Steve Cushman, executive director of the Santa Barbara Region Chamber of Commerce, agrees. The chamber coordinated a meeting Monday where Venoco described its tentative proposal.

"All of the players have to get together and work on a solution," Cushman said.