The Story of California Crude

Since peaking at nearly 1.1 million barrels per day in 1985, California crude oil production has declined steadily. Yet, even though it lost its No. 3 rank to North Dakota late in 2011, the state still hosts some of the country’s largest fields and produces more than half a million barrels per day, while supporting 900,000 jobs within the state, according to the American Petroleum Institute. Oil and natural gas account for 59 percent of all the energy produced within the state and 74 percent of its energy consumption. Rig activity has been trending upwards over the past three years, and new, higher assessments of that state’s resources have begun to recognize the relevance of shale plays and the technologies required to access them.

Historic Region

California is one of the oldest producing regions in the country. Drilling was already taking place in the 1860s, just a few years after Edwin Drake’s Pennsylvania well gave birth to the oil industry in 1859. Offshore production began in the 1890s as operators extended onshore fields by drilling from wharfs. The oil collected from many natural seeps was likely evidence enough that there was more beneath the surface that could be unlocked from Drake’s new technology. With discoveries of the Kern River Field in 1899 and the Midway-Sunset field two years later, production boomed. More than a century later, these two fields remain the largest producers in the state.

By 1929, California’s crude oil production had climbed to 800,000 barrels per day, nearly matching that of Texas at the time. Interrupted by a decline following the Great Depression, crude oil production in the state bounced back, eventually reaching a peak of 1,079,000 barrels per day in 1985. Since then, production has dropped steadily to a little over 500,000 barrels per day. Yet the state still holds 15 of the top 100 oil fields in proved reserves, as ranked by the Energy Information Administration (EIA). The majority of these top fields, which are still producing today, were discovered before 1920, and all of them date back to 1947 or earlier. EIA’s ranking of top fields also includes three off the coast of California in federal waters. Moreover, the expanded capability of newer technologies has led to an enlarged assessment of California’s technically recoverable resources.

California Crude

Most of the oil produced in California over the years is believed to have its origin in the Monterey Formation and has migrated to more permeable layers, which has given rise to some of the nation’s largest oil fields. These large fields, including Midway-Sunset, Belridge South, Kern River, Cymric, and Wilmington, are situated in the southern half of California (although oil production is found in other parts of the state, as well). About 77 percent of California’s crude production is from the state’s top 10 fields. The single highest producing county in the state is Kern County, which alone accounts for approximately three-fourths of the state’s crude oil output.

Much of the oil found in California is extremely heavy. While definitions of heavy oil vary, nearly two-thirds of California crude has a gravity under 20 degrees. In fact, the state’s oil fields are estimated to contain more than 40 percent of the country’s heavy oil. The lower the gravity, the more viscous the crude. At some point the crude is too viscous to flow easily without enhanced oil recovery techniques (EOR). While water flooding had been used for many years (and continues to this day), new approaches to the challenge of producing California’s heavy oil began in the 1960s with the application of thermal methods. Early attempts with bottom hole heaters and injected hot water gave way to cyclic steam stimulation (pumping down steam to heat the oil and thus reduce its viscosity, then pumping out the oil), and then to full-fledged steam flooding (injecting steam through injection wells and recovering oil from producing wells).

These and other EOR techniques had dramatic effects on production. For example, Kern River field production jumped from under 20,000 barrels per day in the early 1960s to over 120,000 barrels per day in the 1980s. Today, it still produces more than 70,000 barrels per day. Thermal recovery favors larger projects because of economies of scale for steam generation equipment. In addition to the up-front capital costs, thermal recovery also incurs costs for fuel (such as natural gas) to power the steam generators. Currently, roughly half of California’s crude oil production is due to the effectiveness of these EOR techniques.

Hydraulic fracturing has been used in California for decades – at least 30 years or more, according to the California Department of Conservation. This technique replaced earlier methods of well fracturing in the state that go back to the early 1900s or before. According to the Western States Petroleum Association, more than 600 wells were fractured in 2011 alone.

Offshore production, now well into its second century, continues despite the state’s restrictions and the fact that California has not leased any new areas since 1969 and the federal government has not leased any new areas since 1984. Averaging 88,000 barrels per day in 2011 (54,000 barrels per day federal waters and 34,000 barrels per day in state waters), the total has decreased from the 250,000 barrels per day peak of 1995. While some of the offshore production comes from onshore fields that extend to the offshore, there are significant fields that are entirely offshore. The Hondo, Sacate, and Pescado fields, which were all discovered around 1970 in federal waters, rank among the top 100 U.S. oil fields by reserves. Furthermore, the Bureau of Ocean Energy Management estimates that federal Pacific waters contain another 10 billion barrels of undiscovered, technically recoverable oil – matching current U.S. Geological Survey (USGS) estimates for onshore California.

Recent Activity

After dropping to less than 20 active rigs in late 2009, activity in California has surged to more than 50 rigs, according to Baker Hughes. Many of those rigs are pursuing traditional production, but shale development has been active as well, particularly in the Monterey formation itself. While much of this activity is done through vertical and directional drilling, the state has also recently experienced steady horizontal drilling since 2011. Horizontal wells tend to run deeper than other wells in the state. The Monterey formation’s geology is varied and compartmentalized, but is based on diatomaceous material (the skeletons of microscopic diatoms) that varies from low-permeability diatomite closer to the surface to a more fractured material at greater depths to a quartz phase at the deepest ranges. It presents its own unique challenges, and specific techniques used elsewhere may not be directly applicable in the Monterey. This may be one reason California’s shale potential is more latent when compared to many states around the country.

However, independents are very interested in cracking the code of the Monterey. In April, USGS issued a new study of tight oil in the San Joaquin Basin, where fields such as Midway-Sunset, Kern River, Belridge South, Elk Hills, and others are located. USGS estimated a mean of 6.5 billion barrels of undiscovered technically recoverable oil in the areas assessed, which is a substantial change from an earlier assessment of just 0.4 billion barrels and a considerable addition to the earlier 3 billion barrel assessment for all of onshore California. The new, higher figure does not address potential new reserves in smaller fields in the region nor in other parts of the state.

According to the USGS, “Much of the potential reserves could come from improved recovery in diatomite reservoirs of the Monterey Formation, given continued technological evolution. Additional volumes of oil could come from continued application of thermal-recovery technologies to shallow reservoirs containing heavy oil, although the oil remaining in such reservoirs is more difficult to recover than in similar reservoirs already exploited. In a few reservoirs, particularly deep sandstone reservoirs containing relatively light oil such as sandstone reservoirs within the Monterey Formation at Elk Hills field, additional oil could be recovered with injection of carbon dioxide.”

Moving Forward

California is clearly a key legacy producing state given the sustainability and resiliency of some of the country’s oldest producing fields. The declining production in recent decades continues, but recently, activity has picked up as producers seek new targets. EOR will likely continue to play a dominant role in unlocking these reserves – providing potentially useful intelligence for analog plays in other parts of the country and around the world. Meanwhile, the restrictions imposed by ongoing urbanization in the state have increased the importance of good community relations, while the offshore’s potential has been stunted from decades without new state or federal leasing. What remains to be seen is the shape of the next petroleum chapter in a state that is so important to the U.S. economy, accounting for 13 percent of the country’s GDP. Geology, technology, and policy will interact in a fashion unique to California, and independents will have a major role to play, given their collective experience in bringing states into the shale phase of fuel development.

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