Oil Industry Wary About Buying New Leases Off California

Despite the lure of large discoveries, the oil industry is wary about risking its money in proposed new lease sales off California's coast because of fierce opposition ranging from small local groups to the governor.

The oil industry has learned the hard way that local opposition in California can bring long delays and add hundreds of millions of dollars to a project's cost.

Opposition in the state to new lease sales has grown beyond environmental groups, sparked by the Valdez oil spill two years ago.

Sierra Club spokesman Bob Hattoy said that retired people, real estate agents, chambers of commerce of local towns, hotel and restaurant owners are all opposing offshore oil drilling.

Environmentalists say new offshore development could mar the area's rugged coastline and rich marine life, and that the government should place greater emphasis on conservation.

Chevron's long fight with the wealthy seaside resort of Santa Barbara, Calif., over the $2.5 billion Point Arguello oil project has made the industry wary of investing large sums off California. Local officials and groups such as the League of Women Voters stalled the startup of the Point Arguello project, one of the largest U.S. offshore oil finds ever, for more than three years.

Chevron has estimated the delays cost the project's partners, which include Texaco Inc. and Phillips Petroleum Co., about $100 million a year.

Point Arguello is now only producing 28,000 barrels of oil a day, about one-third of its capacity, because Santa Barbara has barred Chevron from using oil tankers to carry the project's oil. Chevron has said that local pipelines are inadequate to carry the project's full production.

The Point Arguello project was based on expectations of world oil prices of $40 for a barrel of light, sweet crude, nearly twice current levels. But the field's heavy oil is now valued at only $8.50 a barrel because of its high sulfur level, which makes it difficult to refine.

Other stories from November 1991 issue


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