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Greasing the wheels of an urban oil-drilling boom

Rising crude prices make it worthwhile for oil companies to reopen abandoned drilling fields now surrounded by homes and businesses, and in some cases, decorated with brightly-colored panels.

By Ronald D. White, Los Angeles Times –

LOS ANGELES — In the early days of California’s oil boom, derricks crowded beaches, covered hillsides and dominated cityscapes. If a road was in the way of the oil, the road was moved.

Nowadays, after years of falling oil production, the state is seeing a new drilling boom because of high petroleum prices. In July, an average of 53 rotary rigs were exploring for crude and natural gas in California, the most for that month in 22 years, according to industry data.

Drillers looking to revive old urban oil fields find themselves surrounded by homes and businesses that weren’t there way back when, and the companies are negotiating increasingly complex agreements with neighbors and local officials on rules governing aesthetics, noise, hours of operation and much more.

In hopes of winning approval for a well near Carson, Calif., one oil company is promising that neighbors won’t hear or see anything remotely resembling an oil derrick. In Whittier, Calif., another oil company has agreed to 90 conditions to win local approval of a project.

“Just 20 years ago, the oil company could go in and do whatever it wanted,” said Mike McCaskey, executive vice president of Matrix Oil Co. in Santa Barbara, Calif., which agreed to the 90 conditions. “The reality today is that you have to agree to a lot of good environmental management practices. The bar has been raised.”

Occidental Petroleum Corp., the fourth-biggest U.S. oil company, has essentially promised to be unseen, unheard and odor-free at a Carson site where it aims to tap the old Dominguez field, which may contain at least 52 million barrels.

At a recent company-funded open house for local residents, a small army of Occidental employees showed up with food, gift pens and water bottles with the Oxy logo prominently displayed and a plan that they hoped would be embraced. A union representative hailed Occidental’s promise to give a large percentage of construction jobs to locals.

But the grumbling crowd was more concerned about fracking, which involves injecting chemical-laced water to flush out oil — a practice Oxy said won’t be employed at the field.

In Carson, James Eastlack, a general manager at Occidental, told the skeptical audience that the site “will be disguised to look exactly like a warehouse.”

“The pumps will not be above ground. Everything will run on electricity. It will be soundproofed, and the oil will be sold to local refineries,” Eastlack said.

The mitigation agreements have intensified not just because of the proximity of neighbors but also because of a legal settlement two years ago by the Los Angeles County Board of Supervisors.

Lawsuits had been filed by several community advocates and environmentalists who argued, among other things, that the county failed to produce an adequate environmental impact report before allowing Plains Exploration & Production Co. of Houston to drill on land near the Baldwin Hills area of Los Angeles.

The settlement established limits on the numbers of wells, where they can be drilled and noise levels. The pact set landscaping rules, required periodic health assessments of nearby residents and increased the amount of air-quality monitoring.

“We knew we had to meet the standards that came out of Baldwin Hills,” McCaskey said.

The Whittier agreement, which awaits final approval by L.A. County officials, took five years of negotiating and two environmental reviews. “Our conditional use permit is about 1,000 pages long,” he said with a laugh. He wasn’t kidding, though.

Whittier City Councilman Bob Henderson said his goal was to enhance the environment, not just preserve it, and to get something back for the city.

“I’m not just a wild-eyed environmentalist,” said Henderson, who is 70 and helps run the family insurance business. “I’m a businessman in a city that needs money, especially in these times when tax revenues have been cut. I know you have to be able to pay for things.”

In exchange for having the right to drill in a 7.5-acre area near the base of the Whittier hills, Matrix has agreed to a long list of conditions. For instance, the city will get royalties of 30 percent to 50 percent of the well’s revenue, before expenses, compared with a more typical 20 percent to 30 percent, McCaskey said.

McCaskey doesn’t look like an executive who has been asked to give up too much. It’s not hard to see why.

The Matrix project sits above Chevron Corp.’s old Whittier oil field. From 1890 to 1990, the year before Chevron closed its operations there, the company extracted about 70 million barrels of oil from an estimated 700-million-barrel field. Chevron shut it down at a time when oil was as cheap as $17.94 a barrel.

Matrix conservatively expects to extract 70 million barrels. Oil lately has been selling for more than $90 a barrel.

In other words, these are affordable conditions, which also help insulate Matrix from legal action.

“We want this to be a model project,” McCaskey said.

“Communities expect the highest standards, and we have to meet them,” he said. “I think this is going to be true for all new oil drilling projects near densely populated areas.”

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