“Nothing has more strength than dire necessity.” –Euripides
Posted July 22, 2009 at 11:17 am 
Filed in: Economic Security, Energy Security, Energy Supply, Environment With the impasse over its $26.3 billion budget deficit stretching from days into weeks, California’s lawmakers finally announced a tentative deal yesterday. The final compromise has not yet been formally approved but the details have been reported on based on a summary provided by senior state legislators. You can review the highlights here.
Of great interest to those of us in the energy space is the revival of a proposal initially put forward by Governor Schwarzenegger in May to generate revenues from increased oil production in the Santa Maria Basin off the coast of Santa Barbara. The expansion in drilling would be the first of its kind in decades as far as we know. The details remain to be worked out, but the basic background is this:
In January of this year, Plains Exploration and Production Company (PXP) submitted a bid to the California State Lands Commission. Plains’ proposal involved an expansion of activity from an existing platform in Federal waters on the Outer Continental Shelf. Specifically, Plains proposed to drill horizontal wells from Platform Irene, which sits about 4.7 miles from the coast, into California State waters to access new resources in Tranquillon Ridge. Map 1 below shows the location of Irene and the Tranquillon Ridge unit. And here is a link to another map that shows the location of the geological reservoir in addition to other oil and gas fields off the coast of California.
Map 1: Tranquillon Ridge Administrative Unit
Based on its assessment of recoverable resources, Plains estimated that the new production would generate $1.8 billion in state revenues over the course of the project and $100 million this fiscal year. Because the reservoir rests within state waters, California would not have to split the pot with the Federal government.
If the technological approach proposed by Plains was innovative, the political approach of the company was practically novel. As part of its efforts, Plains committed to eliminating its operations off the coast of California within 15 years and donating 4,000 acres of coastal lands to The Trust for Public Land, a national conservation organization. Plains also agreed to donate $1.5 million to Santa Barbara County for improving public transit and to “mitigate greenhouse gases associated with the [new] project.”
In April 2008, in return for these promises, Plains secured the support of local environmental groups, including the Environmental Defense Center, Get Oil Out, and the Citizens Planning Association of Santa Barbara.
Unfortunately, the total package was not persuasive enough for the State Lands Commission, which voted the proposal down by a 2-1 margin in January 2009.
But, as the title of this entry suggests, dire necessity can often deliver progress much more effectively than human powers of persuasion. By May, Governor Schwarzenegger-who has long opposed expanding offshore oil and gas production in California-was seriously considering the proposal as a revenue generator for the state as the magnitude of the budget crisis came into focus.
California State legislators will vote on a budget compromise today, and the Plains proposal is expected to be included. Even it passes, however, the future of the Tranquillon Ridge project remains somewhat unclear. Both the Federal Department of Interior and the California State Lands Commission ultimately have to approve the plan. It has been suggested that legislators might include language requiring only minority support in the Lands Commission, but such a measure would likely be highly controversial.
One thing that is certainly not unclear is that oil and gas revenue can be a boon for states as the economic downturn erodes fiscal stability. Especially in cases where development can expeditiously begin from existing infrastructure and where states can share in revenues (either in state waters, in 8g areas, or in the Central and Western Gulf), it makes sense for lawmakers to push forward on oil and gas production. The risk of spills is exceptionally low today-according to MMS, the offshore oil industry produced 10.2 billion barrels of oil between 1985 and 2007 with a spill rate of just .0006 percent-and technologies like the ones PXP proposes to employ at Tranquillon Ridge further mitigate the environmental risk.
It is also seems fair to say that PXP has likely pioneered what can become a highly effective framework for smartly developing America’s offshore oil and gas resources. By involving local environmentalists early in the planning process, Plains was able to hammer out a compromise and deliver a powerful proposal to state lawmakers. It also weakened the case of the national environmental groups whose knee-jerk reaction is to oppose all new development at all costs.
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