Black-Gold Rush

A vast discovery off California

In May 1981, Phillips Petroleum Co. and Chevron U.S.A., a subsidiary of Standard Oil Co. of California, paid a record $333.6 million for the right to explore for oil on a single 5,700-acre offshore tract in the Santa Maria basin off Point Arguello, Calif. Now that money looks like the down payment on a bonanza. Last month Phillips and Chevron announced that a test well had brought in a gusher, and expectations were heightened by several other successful drillings near by. Then last week Texaco confirmed the existence of a major oilfield by announcing crude flows from an 8,500-ft. well. Experts now say that the Santa Maria basin could be the biggest single find in the U.S. since 1968, when reserves were discovered on the North Slope of Alaska that have now been estimated at 9.5 billion bbl.

As recently as October, the oil companies gauged the field's potential reserves at a conservative 100 million bbl. Since then, the projections have been rising quickly. Just last week a Chevron vice president declared that the new field could contain up to 300 million bbl. Other industry estimates put it as high as 500 million bbl., and one Government expert says the ultimate potential could be 1 billion bbl. Such heady forecasts have drillers scrambling. Texaco is already operating the Glomar Atlantic, a drillship, in the area, and Phillips has dispatched a rig from Africa's Ivory Coast to help with the exploration. Last week Exxon requested federal permission for a $3 billion project to boost production at Santa Ynez, a separate oil deposit only 27 miles away, which the company believes contains an additional 400 million bbl.

Though news of the Santa Maria find began circulating on Wall Street late last summer, it has not made a big difference in the oil companies' stocks, which are currently out of favor with investors. Though the Dow Jones industrial average has risen 27.7% since July 30, Phillips is up only 22.8%; Standard Oil of California, 20.8%; and Texaco, 14.5%.

The California offshore oil could turn out to be quite profitable because it will cost less to produce than Alaskan crude. Moreover, refineries and transportation networks are close by, a formidable advantage when one considers that Prudhoe Bay oil from Alaska must be pumped through 800 miles of pipeline and then shipped 1,000 miles by tanker to reach the nearest customers. Says Oil Consultant Walter Levy: "The fact that the oil companies don't have to spend $8 billion for an Alaskan pipeline is a major advantage." Also, not having to contend with bitter Arctic weather will make it far easier to maintain and operate California wells.

The Santa Maria basin is just 40 miles from the site of the 1969 disaster off Santa Barbara, where an oil well blew off a piece of the sea floor and coated miles of California beaches and thousands of sea birds with sticky crude. So far, environmentalists have not tried to block drilling activity at the new discovery site. Says John Zierold, chief lobbyist for the Sierra Club in California: "We have to await the results of some tests. We're not going to shoot from the hip on this one."

Concern over pollution is one reason the Santa Maria basin was not explored sooner. Only since Interior Secretary James Watt took office in January 1981 have oil companies been encouraged to explore aggressively for new reserves in undeveloped areas. Their recent successes have come after the highly publicized and expensive failures at Georges Bank off the Massachusetts shore and the Baltimore Canyon off New Jersey. Experts have known of petroleum deposits in the California basin for years, but ignored them because early tests showed, inaccurately, that the oil was heavy and hard to refine.

Despite its size, the new find is nearly invisible on a world scale. Should it produce as much as 250,000 bbl. per day (Prudhoe Bay pumps out 1.5 million bbl. daily), the Santa Maria basin would still account for a mere 3% of total U.S. demand. Yet it is part of an encouraging trend that has seen the discovery of new oil in the non-Communist world begin to outstrip consumption. Since 1979, the Western nations have added 112.2 billion bbl. to proven reserves, while they have burned up just 49.4 billion bbl.

More important, the Santa Maria basin will help further reduce the U.S.'s dependence on foreign oil once commercial production begins in 1986. The effects of the discovery may be felt as early as next month's meeting in Vienna of the Organization of Petroleum Exporting Countries. According to Oil Analyst Dan Lundberg, editor of the Lundberg Letter, the offshore gusher could lead to more unofficial price cutting by dissident OPEC members, weakening the links in the powerful cartel.

This file is automatically generated by a robot program, so viewer discretion is required.