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Santa Maria Sun / Cover Story
The following articles were printed from Santa Maria Sun [santamariasun.com] - Volume 14, Issue 18
Moving targetOil companies watch closely as the discussion over where to set the greenhouse gas emissions bull's eye in Santa Barbara County holds up Santa Maria Energy's expansion plan
BY CAMILLIA LANHAM
There’s diatomaceous earth, and then there’s diatomaceous earth with crude oil in it. The two look different.
Most people are used to seeing the oil-free type that can be dug up and used in filtration systems. It’s a smooth-looking rock with white and beige coloring. But the good, oily stuff looks rough, with swirls of brown and black. It’s packed together like a glistening mud pie with fossilized shells imprinted between layers.
Bob Poole, Santa Maria Energy’s legal and government affairs guy, carried a large piece of the oil-carrying stuff into the company conference room like it weighed a ton.
“It looks heavy, doesn’t it?” he said as he hefted it onto the table.
It’s not. Diatomaceous earth is super light, and what’s packed inside doesn’t always look like oil, or anything remotely similar. It looks dirty and old. Not exactly what you would expect from something that has cost Santa Maria Energy more than $100 million—and the company hasn’t even started putting up drilling rigs for its big expansion project yet.
If it were up to Poole, the energy company would have plowed forward with drilling plans after the April 24 Santa Barbara County Planning Commission meeting. But commissioners decided to continue approval of the project until May 1. At that meeting, commissioners opted 3-2 to send the project’s environmental impact review back to the county staff for revisions to the section covering greenhouse gas emissions.
After spending $2 million on the review and working for nearly three years with the county and various state agencies, Santa Maria Energy is in wait-and-see mode. Poole said the changes should be completed and ready for circulation around the beginning of August.
The 110 wells Santa Maria Energy wants to drill outside of Orcutt make up the first gigantic emission-producing project that’s come before the county since California passed the Global Warming Solutions Act in 2006. The project has citizens, elected officials, and environmentalists buzzing about what the county’s greenhouse gas emissions threshold should be. And with oil prices hitting that sweet spot for drilling economics, some local oil companies are watching the greenhouse gas discussion with an eye trained on what could be in store for future development projects.
It’s not that the project doesn’t comply with the guidelines laid out in California’s greenhouse gas laws; in fact, the project more than complies. But there are people in Santa Barbara County who feel those guidelines don’t go far enough to address the global emissions problem.
Poole gets visibly frustrated when he talks about the emissions hold-up, and his voice rises as he makes his point.
“As is the case in Santa Barbara County, there are people who don’t want oil, and who want to be the leader,” he said. “So whatever the law is, that’s not good enough.”
What’s not good enough for some is costing Santa Maria Energy more money. Every second the project is delayed, the company moves farther away from realizing a return on its investment.
Since its founding in 2002, Santa Maria Energy has pushed most of its effort into figuring out how to efficiently mine the oil trapped in the diatomite formation 400 to 1,000 feet below our feet. The company’s current focus is within the Careaga lease, which lies a couple of miles east of the green vines that make up White Hills Vineyard off Highway 135. In a small valley, between dry hills decorated with the tall pump-jacks associated with traditional oil wells, sits the company’s operations hub: a couple of portable structures, some industrial-sized tanks and machinery, and a ton of piping.
Much of the infrastructure runs a 26-well pilot project that produces 160 to 200 barrels of oil per day out of the diatomite formation. The wells are short, maybe hip-height, with pipes running in and out of the ground. Two sets of computers a few hundred yards away run the whole thing.
Approximately 45 to 50 pump-jacks on the lease are active and run independently of the main operation. They pull roughly 200 barrels of oil per day out of the Monterey shale, which is much deeper than the diatomite. Many of the jacks have been producing from the Careaga lease for decades, since well before Santa Maria Energy bought the lease in 2007.
Although the company has increased Monterey shale production since taking over, that improvement is from re-drilling wells rather than punching new holes in the ground. Poole said re-drilling wells to bring them up to current standards is probably the farthest his company will go to mine the Monterey shale.
The big crude prize the energy producer is banking on hangs in the diatomite formation. If the environmental review gets its eventual gold star from the county, Santa Maria Energy predicts production levels of between 3,000 and 3,300 barrels a day for the 50-year life of the project. Poole said they estimate that the Central Coast alone has four to eight billion barrels of recoverable oil under it. Throughout California, the formation is estimated to hold anywhere from 12 to 80 billion recoverable barrels of oil.
Poole said diatomite is dense, and the oil inside the formation is thick. It hangs out in what he calls “pores” in the rock. Getting oil out of those pores is what will increase the company’s greenhouse gas emissions in the future.
To harvest it, Santa Maria Energy is using cyclic steam injection. Essentially, workers heat water until it becomes steam, push that steam into a well, and let it soak for a few days. Then pressure pushes a more fluid oil back up the same pipe that brought the steam down. After one week to a month’s worth of producing oil, a well will start to dry up. It then gets re-injected with steam and the process starts over again.
“Diatomite likes water, so it spits out oil on one end and sucks in water on the other,” Poole said. “It basically replaces the oil in the little pores.”
Heating water to a steaming temperature is where major greenhouse gas emissions come into play. When running all 136 of the steam-injected wells, Santa Maria Energy would emit an estimated 88,000 metric tons of greenhouse gas every year. That sounds like a lot, but the company has agreed to mitigate that number by 29 percent, mostly by buying greenhouse gas credits on the global market. State regulations require mitigation levels of 16 percent.
“Because we’re in Santa Barbara County and we want to do the right thing, we agreed to reduce our emissions almost double of what’s required,” Poole said.
To many who agree with Poole, that sounds like a good compromise. To others—Nathan Alley of the Environmental Defense Center, for instance—zero emissions are the way to go.
Alley said the project is a sign of things to come, and the county needs to get a hold on such developments before they get too big too fast.
“Any emissions are significant,” Alley said. “What we can’t afford to do is just sort of sit back and let it happen.”
In the pilot project area on the Careaga lease, the air above a metal chimney vibrates with heat. The chimney is attached to a large cylindrical piece of equipment that combusts natural gas to heat water. It’s a less visible emitter than what’s on display just across the well yard, where a huge orange flame jumps from what looks like an oversized barrel. The flame burns off the natural gas often produced alongside oil from the Monterey shale formation. Poole said the amount of natural gas the lease produces isn’t enough to be commercially viable, so they burn it.
The roaring flame produces 16,000 metric tons of greenhouse gas emissions every year, and because it’s grandfathered in with the lease, Poole said it could burn forever and nobody could do a thing about it.
Eventually, though, the plan is to get rid of the open flame and use the already produced gas to heat water for steam injection. It won’t be enough to run the whole 136-well operation, but it would put a dent in Santa Maria Energy’s future emissions.
The flame’s eventual disappearance, however, is included in the expansion project, so its emissions aren’t part of that 88,000-metric-ton calculation that stirred up dust in Planning Commission meetings.
Changing the rules
Greenhouse gas emissions weren’t even a blip on the radar when oil made its Central Coast debut at the turn of the 20th century. Even through the tightening of regulations that came after the big oil spill off the coast of Santa Barbara in 1969, emissions were nowhere to be found. It’s only within the last eight years that greenhouse gases have become part of California’s regulatory laws.
When the first gusher, Old Maud, erupted from Orcutt Hill in 1904, there was nothing to hold it back. Oil simply flowed into the world until it stopped. That was back in the day before computers, cement drill casings, and endangered species.
Charlie Perry has seen the world of oil change in the Santa Maria Valley since he was a child, either because of the economy or new laws. He grew up in the valley and worked briefly for an oil production company in the 1960s before starting his own production business, which he sold in 1986.
“You would go out [to Orcutt] and see puddles of oil with ducks flapping in the muck,” Perry said, remembering his youth. “They would build one sump after another for the oil to collect into because there were no holding tanks back then.”
Perry explained that a sump is a hole where the oil can pool as it gushes out of the hill. But those days are long gone. Technology has come a long way since then—and so has the country’s environmental consciousness.
Perry said safety and environmental regulations governing oil changed a lot in the ’70s, mostly for the better. Laws continued to change into the ’80s, but that was also when California’s oil rush pretty much ground to a stop because of the price of oil.
In 1986, oil was $19 a barrel, “and it immediately went overnight to zero,” Perry said. “And everything shut down … we were out of business, and they were importing Arab crude in to Louisiana at $6 a barrel for the sweet stuff.”
The sweet stuff is light and viscous, not heavy and thick like what’s farmed from the Monterey shale and the diatomite in Santa Barbara County. Eventually, companies like Union Oil put the kibosh on new oil exploration in the county, and while some kept wells pumping, other companies completely shut down operations.
In the last 20 years, a new generation of oil companies has bought the leases. These companies aren’t part of the traditional oil conglomerates; they see a resource that needs to be developed, and they also see the need to comply with regulations because that’s how business is done. With the price of oil currently around $90 a barrel, it makes sense to companies to spend millions of dollars on exploratory projects that will eventually tap the mother lode.
Since this new round of oil exploration has started, only one other company has offered up a project similar in size to what Santa Maria Energy is proposing. In 2006, Pacific Coast Energy Company received the go ahead from the county to drill 96 new wells into the diatomite formation below Orcutt Hill.
When Pacific Coast submitted its project to the county, the California Global Warming Solutions Act wasn’t law yet; therefore the 96-well project didn’t have to comply with a stringent set of greenhouse gas rules. Pacific Coast’s legal and government guy, Jim Bray, said his company finished drilling the last of those wells in December 2012.
“We think there’s more potential up here,” he said. “There is the capacity for more wells.”
The cyclic steam injection wells on Orcutt Hill are separated into pods of about 20 wells each. They’re tall and skinny. Some buzz with electricity. And they’re all run from a set of computers at the operations center on the hill. It’s a similar setup to what Santa Maria Energy has going, but the machinery that runs it all is three times the size.
If the company did decide to realize its full potential, it would have to deal with the emissions tangle Santa Maria Energy is currently up against, so Pacific Coast higher-ups are watching closely, Bray said.
From zero to 16 percent
Santa Maria Energy is the county guinea pig for oil projects and greenhouse gas emissions, but the company isn’t the only one submitting projects to drill new holes.
Doug Anthony, director of Santa Barbara County Planning and Development’s Energy Division, said there are also oil and gas development projects coming in under the county’s threshold of 10,000 metric tons of greenhouse gas emissions. Any project over that number requires an environmental impact review such as the one Santa Maria Energy completed. He also said many are holding their breath until the issue at hand is decided.
“I think there are a lot of eyes on the Santa Maria Energy project right now in the local industry,” Anthony noted.
The county’s discussion over greenhouse gases is complicated. While explaining the ins and outs of the discussion to the Sun, Anthony referred to the Global Warming Solutions Act, a number of revisions, governor-mandated additions, and separate county standards.
Basically, the Global Warming Solutions Act sets California on a course to reduce greenhouse gases to pre-1990 levels by 2020. The act lays out the way to do this as cutting emissions by 16 percent of business as usual. So in the case of Santa Maria Energy, business as usual is predicted to produce 88,000 metric tons of greenhouse gases per year.
The way to mitigate most of the greenhouse gases is through a cap-and-trade program, which takes credits from companies that have reduced their emissions and sells them to companies that need them.
Anthony said the county asked Santa Maria Energy to mitigate by 29 percent because the state will most likely set stricter guidelines in the future. Both the county staff and the Santa Barbara County Air Pollution Control District agreed that 29 percent was the right number for the project, and recommended that planning commissioners approve the project at the April 24 meeting.
Alley from the Environmental Defense Center takes issue with the county’s case-by-case basis when it comes to dealing with greenhouse gases. He feels that all projects should be held to the same standard. For him, zero is, of course, the magic number, but he’d be happy with a 10,000-metric-tons bright line, where any emissions exceeding that would need to be mitigated.
On May 1, commissioners voted to direct staff to find alternatives to that 29 percent and lay them out in the review. The thought is that the alternatives can also be used to potentially set a countywide standard, rather than handling matters on a case-by-case basis. Those alternatives include 50 and 90 percent of business as usual, zero emissions, and the 10,000-metric-ton bright line. Anthony said he thinks county staffers will be done with their work on the project by August.
The findings will then be re-circulated for public comment, and any comments will be responded to. The staff will finalize the document and come up with recommendation for the Planning Commission, which will vote on the project. After that, there’s a 10-day appeal period.
Anthony added that whatever the Planning Commission decides would most likely be appealed to the Board of Supervisors by one side or the other. If commissioners vote to go ahead with the 29 percent threshold, the environmental side might appeal; Santa Maria Energy would likely appeal any threshold higher than that. Then, of course, there’s the added fact that a decision by county supervisors could be litigated.
Ultimately, the decision needs to be able to hold up in court—backed up by the laws in place and what Anthony calls “substantial evidence.” The biggest issue with the greenhouse gas emission discussion is that it’s still fairly new, and there’s not much that’s happened outside the county that can be used as an example.
“There’s not a lot of experience out there with this—and there’s been a lot of litigation,” Anthony said.
Contact Staff Writer Camillia Lanham at email@example.com.