New leases reveal an oil land rush in Ventura County
By Timm Herdt, Marjorie Hernandez
Saturday, April 20, 2013
Anticipating that new drilling techniques will make it possible to tap vast oil reserves thought to be unrecoverable, a Los Angeles-based oil company has been aggressively securing mineral rights beneath thousands of acres of Ventura County land.
Documents filed with the Ventura County Recorder’s Office show that Vintage Petroleum, a subsidiary of Occidental Petroleum, has entered into 192 lease agreements over the past six months in deals involving at least 9,000 acres.
Most of the leases, largely on rural land in the Santa Paula-Fillmore area, were recorded during the last week of March.
“They’re making a big play,” said attorney Stuart Nielson, whose A to Z law firm in Oxnard has represented several of the lessors.
Nielson said the pace of oil-leasing activity is unlike anything Ventura County — once a more prolific oil-producing area — has seen in decades. Most of the oil rights involved have long been dormant.
“For the large majority of these, there probably hasn’t been any activity in 50 to 100 years,” he said.
Citing “competitive and proprietary reasons,” Vintage spokeswoman Amy Fonzo said in an email that the company would not comment on its leasing activities.
But among land owners and those who retain mineral rights to land their families previously owned, Vintage’s activities in Ventura County are hardly a secret.
“There’s probably not a large landowner in Ventura County who hasn’t been approached about leasing oil rights,” said John Krist, executive director of the Ventura County Farm Bureau.
Mike Osborn, whose family owns an oil drilling and exploration company in Ventura, said many in the industry are aware that Vintage has dispatched “a huge contingent of landsmen,” perhaps more than 100, across California to secure oil leases in recent months.
Occidental purchased Vintage in 2005 in a transaction the company said at the time was motivated largely by Vintage’s considerable holdings in California.
Ventura County Supervisor Steve Bennett said Vintage officials recently briefed him on their investments and activities in the county, indicating they intended to invest tens of millions of dollars into its local operations.
“I don’t think they’d be reaching out as they were unless they were very serious,” Bennett said.
Other major oil companies are also seeking to exploit potential new opportunities, but Vintage is by far the major player in Ventura County. Elsewhere in the state, Denver-based Venoco has been aggressively testing ways to successfully drill into California shale oil reserves. Venoco holds drilling rights to more than 200,000 acres in the San Joaquin Valley and in coastal areas between Santa Barbara and Monterey.
In addition to leases it has already signed, Vintage is still negotiating with several of the county’s largest landowners. Representatives of Leavens Ranches, the Brokaw family’s Orchard Properties and the Limoneira Co. told The Star they have been approached by the oil company.
Limoneira, a Santa Paula-based citrus and avocado firm, has more than 8,000 acres of agricultural production. CEO Harold Edwards said Vintage is seeking rights to do exploratory testing on 1,200 acres of company property and 300 acres owned by his family’s Edwards Mineral Group.
“They proposed a lease that we’re about to execute,” Edwards said.
Many of those who have signed or are negotiating leases with Vintage are like Edwards — individuals whose ancestors were early landholders in the county who retained mineral rights beneath the land after it was subdivided and sold. Edwards’ great-great-grandfather came to Ventura County in 1880 and the family once owned thousands of acres around Santa Paula.
Driving the interest is the expectation that hydraulic fracturing and other new drilling technologies will allow the industry to unlock oil reserves, estimated at as much as 15 billion barrels, captured in the Monterey Shale formation. The formation underlies 1,750 square miles in Central and Southern California, including much of Ventura County.
“The question in California is whether the geology is compatible with large-scale production from the Monterey,” said Tupper Hull, spokesman for the Western States Petroleum Association. “There’s certainly a lot of interest on the part of our members in exploring and determining whether it’s cost-effective.”
Occidental is one of the major industry players in that exploration. It bills itself as the state’s top acreage holder among petroleum companies, with 2.1 million acres.
In its 2012 annual report, Occidental told shareholders that it spent $2.3 billion last year for domestic oil and gas properties in California, Texas and North Dakota. The report described Occidental’s corporate strategy as “deploying capital to fully develop areas where reserves are known to exist and increase production from mature fields by applying appropriate technology.”
It’s unclear how much of that capital has been directed to Ventura County, but those familiar with typical lease terms say the mineral-rights owners are paid in the range of $25 to $50 per acre in annual rent and will receive royalty payments of about 15 percent to 20 percent of the value of any oil that might be produced. Hull said Occidental’s reluctance to discuss its Ventura County leasing activities is understandable, and, in fact, is the industry norm.
“It’s a reflection of how competitive the business is,” he said. “The low level of interest in talking publicly is probably an indication of expectation and hope.”
The potential economic rewards could be substantial.
A study completed last month by USC researchers estimates that accelerated shale oil development in California could increase the state’s domestic product by as much as 14.3 percent on a per-person basis and create as many as 2.8 million jobs by 2020.
Those eye-popping estimates are based on models of economic activity spawned by recent shale-driven oil activity in North and South Dakota, Wyoming and other states.
Hull, whose industry association partly funded the study, called those economic projections realistic.
“If the technological puzzle can be worked out and we have production rates comparable to other parts of the country like North Dakota, you could potentially see this level of activity,” he said.
There’s nothing new about the Monterey Shale formation; scientists say it formed 10 million years ago. Neither is there anything new about its discovery; geologists have known about it for decades. Indeed, much of the oil that historically has been produced in California has come from oil formed in the shale that migrated into other rock formations above it.
To reach the shale, oil companies will in many cases have to drill thousands of feet deeper than conventional California wells. Once the shale is reached, harvesting its oil will be a challenge.
UC Santa Barbara geology professor Dave Valentine said the shale is unusual in that it tends “to both produce oil and trap oil.”
And the oil trapped in the shale does not flow like a liquid, he said. “It’s pretty unpleasant, goopy, tarry stuff.”
The ability to economically produce from the shale will depend on the efficacy of new drilling techniques, including horizontal drilling, steam flooding and water flooding. But foremost among the new technologies is hydraulic fracturing, commonly called fracking, in which a mixture of water, chemicals and sand is injected at very high pressure to crack rock and stimulate the release of oil and natural gas.
“Shale does not give up the oil in large volumes without hydraulic fracturing,” Hull said.
Crude oil production in California dropped by nearly half from 1985 to 2010, the California Energy Commission reports. The advent of hydraulic fracturing, however, is only part of the reason for hope within the industry of reinvigorating production.
“It is marriage of technology and economics,” Hull said. “We are in an era of relatively stable oil prices in a range that makes hydraulic fracturing cost-competitive.”
Prices of California crude have hovered in the range of $90 to $100 per barrel for more than a year.
Those high prices have been responsible for a slight increase in Ventura County oil activity in recent years. Figures from the state Division of Oil, Gas and Geothermal Resources show that the number of new wells in the county through 2102 and the first quarter of 2013 increased by about 50 percent over the previous two years.
In addition, the Ventura County Planning Division is currently processing an application for nine new wells in Upper Ojai proposed by Mirada Petroleum of Santa Paula, has another application pending for three new wells and expects to soon receive another application for new wells. Last year, 12 new wells were approved. Only the state can regulate the subsurface operations of oil wells, but companies must receive county permits that address surface-level impacts, such as air quality, truck traffic and effects on biological resources.
“There are things happening,” said Brian Baca of the Planning Division. “When oil was $20 a barrel, there wasn’t much interest. That’s different today.”
In a January conference call with stock analysts, Occidental CEO Steve Chazen said his company anticipates California oil production will take off next year.
“As we head into 2014, it will grow sharply as some of the steam floods and other things start to come on,” he said. “So once we get through the permitting phase of that activity, you will see more volume, oil volume growth into 2014, 2015.”
The practice of fracking has raised concerns among environmentalists, triggering calls for regulation.
Earlier this month, a U.S. District Court judge in San Jose ruled that the Bureau of Land Management violated the law by not requiring a full environmental review on the impact of fracking 2,500 acres of federal land in Monterey County, which was leased for oil and gas development land in 2011.
At the state level, the Division of Oil, Gas and Geothermal Resources is conducting hearings on a draft of proposed regulations that would for the first time establish rules specifically governing fracking in California. In addition, several related bills have been introduced in the Legislature.
Among the expressed concerns have been potential impacts on groundwater quality, the effects on water supply caused by heightened oil industry demand and the nature of the chemicals injected deep into the ground.
Many of the mineral-rights holders engaged in negotiations with Vintage also have had questions about the safety of hydraulic fracturing, Nielson said. He noted that several of his clients raised the issue in their negotiations.
Edwards said Limoneira officials have sought assurances, especially since water quality and supply are high-priority concerns of the company’s core business of agriculture.
He stressed that the leases the company is negotiating would allow only for exploratory testing on Limoneira property. If Vintage later decides it would like to drill there, the company then would evaluate whether to allow that to go forward.
“The thing we’re trying to be careful about is the emotional issue of fracking,” Edwards said.