Somewhere in Kern County, California there is the state’s biggest oil find in 35 years.  Experts say that might stimulate new exploration in California and the U.S

A few years ago, Occidental Petroleum Corp. executives told investors that an oil bonanza awaited any outfit that could “crack the code” of California’s seismically fractured underground.  It seems Occidental’s engineers have done it.

Occidental revealed in July that it had found the equivalent of 150 million to 250 million barrels of oil and natural gas in an undisclosed part of Kern County using techniques that the oil company’s executives would rather not reveal. It was California’s biggest reservoir discovery in 35 years.

It won’t be a secret for long; secrets in the awl bidness just don’t keep.  Others are sure to figure out the Occidental methodology or do it one better.  Competition is a wonderful thing.

The pro-pontificators are chiming in, Daniel Yergin, chairman of IHS Cambridge Energy Research Associates and author of the Pulitzer Prize winner “The Prize: The Epic Quest for Oil, Money and Power, says, “Certainly this kind of success will send other people back to California to rethink the geology and rethink the theories of the area.”

California still ranks fourth in the nation behind the combined federal offshore drilling sites, then Texas and Alaska.  From the California peak production in 1985 of 394 million barrels the slip is almost half now – for 2008 at 214.5 million barrels.

Bruce Bullock, the executive director of the Maguire Energy Institute at Southern Methodist University in Dallas, said there has been renewed interest in many old oil regions long believed to have given up most or all of their crude.  Bullock says, “We’re seeing quite a bit of activity. A: They think they can find more oil; B: They think they can get it out of the ground.”

For more than 10 years Occidental has been busily acquiring leases and drilling rights in California as most other big oil companies have been selling out.  Joe Hahn a former oil reservoir engineer for Arco, now owned by oil giant BP knows firsthand the significance of finding that much crude in California, says exploration in the state has been rife with failures and false leads.  Hahn is now a professor at Pepperdine University’s Graziadio School of Business and Management “We had considerable acreage that turned out to be good as goat pasture. It’s very rare to have a find of this size” this late in California’s oil-production history.  One would surely think so after the stunning gushers at the beginning of the 20th century and continuous production ever since.

Occidental executives are not the only people who thought that California might have a surprising amount of oil left to exploit. The U.S. Geological Survey examines the country’s oil regions to assess petroleum reserves and the potential for new discoveries. In 2003 and again in 2007 just to be sure everyone understood, the USGS geologists said that it was likely that an additional 4 billion barrels “may be added to reserves in existing oil fields.”

Occidental has (so far) kept secret both the location of the discovery and the methods used to find the new oil and natural gas field.  Occidental President Stephen I. Chazen says, “We had a small amount of production in California, historically, but we made a commitment to explore in the state. Even so, it has taken us the better part of 10 years to get where we are now. The way we found it is obviously proprietary. Other people might own acreage nearby that we will want to acquire.”

That is a hint that the land fights of old may just come back again making the wildcatting U.S. oil industry a hugely entertaining story to watch.

“Most of the land was not held by individuals. Most was held by some kind of corporation or institution, some by the federal government. This wasn’t a redwood forest. If you had the water for it, you might be raising cotton, at best, on it. Some of it we owned. We have the oil rights to 1 million acres there,” Chazen said.

Its going to get out, in the company’s latest earnings call with analysts and investors, Chazen said that the oil find “is most similar to deep-water discovery,” later adding, “There is no good analogy that we can come up with that looks like this field anywhere in the Lower 48 states.”  That hint might mean nothing or be a direct line to the structure information.

The non-oil hating folk in California have been having a great time sleuthing out the facts behind the story.  As soon as the discovery was announced, the race was on to figure out the location of Occidental’s find.  Residents were asked whether they had seen or heard any unusual activity. Analysts pored over geologist reports of what was formerly known as the Elk Hills Naval Petroleum Reserve and another naval preserve east of that site. Every drilling permit Occidental obtained since 2008 was reviewed. Taft City Council officials were even surprised to find people reading the minutes of their meetings, because the town with a population of only 7,626 sits in an area virtually surrounded by established oil fields.  Whew!  There must be a lot of new money (and a lot of jobs) out there in oil patch again.

Satellite View of Elk Hills Oil Field.  Click image for more information

Satellite View of Elk Hills Oil Field. Click image for more information

The LA Times suggests that Doug Leggate, an oil analyst with investment firm Howard Weil Inc., thinks he may have figured it out.  Leggate considers Occidental has mainly been drilling in Elk Hills, where it owns an 80% stake, and two nearby oil fields -Asphalto and Buena Vista – where it had acquired drilling rights.  The most intriguing possibility, he said, was that Occidental found a rare instance in which seismic activity had shoved oil-rich strata a mile or two deeper than in nearby fields, which hid the oil from previous drillers.  One hopes that is so, which could make Chazen’s conference call remarks prescient even if less than, understandably, forthcoming.

Leggate says, now get this, “In our view, Oxy’s declared discovery may only scratch the surface of the ultimate potential of its acreage in the San Joaquin basin. We suggest the resource potential could reasonably exceed 1 billion barrels.”  Leggate must be reading those USGS reports.

Back in 1998, Occidental paid nearly $3.7 billion for its stake in the Elk Hills field, a lease of low and dusty hills that gently rises above the surrounding farmland. The only living things are scrubby plants, anthills and the odd tarantula and rattlesnake. The consensus among analysts was that Occidental had spent a huge sum for a field past its prime.

“We analysts were laughing at them, and right after they bought it, oil prices crashed,” recalled Fadel Gheit, senior energy analyst for Oppenheimer & Co. But Occidental wound up increasing output. “That oil field is printing money for Occidental,” he said.

On shore, U.S. production, local jobs, refineries and markets close by.  Let that oil flow while everyone keeps in mind, just because some think it’s all gone; there are surprises to be made in oil patch.

Thanks to the LA Times for kicking off the story for the blogosphere to see.


4 Comments so far

  1. Matt on October 2, 2009 6:58 AM

    My late brother was a directional driller when there were damn few around. He always told me that oil does not pool but instead it fills cracks in the ground that are like fingers pointing out from the palm. Today’s technology allows drillers to drill down to depth and then ‘circle around’, locating oil that was not accessible to earlier drillers.

  2. Brian Hayes on October 2, 2009 10:34 AM

    Using EIA measurements of our daily consumption demand of 19 to 25 million barrels per day, sucking the San Joaquin dry of its store of 1 billion barrels is merely one or two months… that’s scratching the surface all right! Am I calculating incorrectly?

  3. Corinne Rhein on May 26, 2011 9:05 AM

    Nice post! You truly have a wonderful way of writing which I find captivating! I will definitely be bookmarking you and returning to your blog. In fact, your post reminded me about a strange thing that happened to me the other day. I’ll tell you about that later…

  4. Malcolm Geigel on September 14, 2011 5:26 AM

    I’ve been checking your blog for a while now, seems like everyday I learn something new 🙂 Thanks

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