Occidental Petroleum, the unpredictable mid-size producer, holdssome wild cards in California’s unfolding natural gasrestructuring, and it’s so far playing them close to the vest.Independents in the south San Joaquin Valley oil patch think Oxy is”up to something,” perhaps a merger with another Californiaproducer, while others are watching the company put increasinglymore gas supplies on the market since buying Elk Hills reservesfrom the federal government two years ago.

Participants at the ongoing Southern California Gas settlementtalks among the state’s 75 major gas industry players report thatOxy attends these sessions but rarely participates in thediscussions, preferring to mostly listen.

A spokesperson at Oxy’s corporate headquarters here said thatsometimes the very closed-mouth company will say more than what hasbeen on the record publicly, but in the case of Elk Hills andCalifornia gas it prefers to stick with a one-paragraph summaryfrom its financial “Mid-Year ’99 Report.”

That acknowledges that Oxy has begun work at Elk Hills on “asecond natural gas pipeline to enhance revenues” by expanding gassupply availability to northern California markets, presumablythrough a Pacific Gas and Electric transmission pipeline that flowsfrom the Arizona border northward through California’s centralvalley.

The pipeline is expected to be completed by the first quarter of2000, the Oxy mid-year report states.

“Gross natural gas sales from Elk Hills for the first half ofthe year averaged 352 MMcf/d, nearly two-and-a-half times as greatsince Occidental took over the field in early 1998.”

Whether the new pipeline for northern markets increases thosetotals by 100 to 200 MMcf/d, as some local producers suspect, Oxywill not confirm or deny further growth figures. “We’ve definitelybeen doing more drilling, but I’m unsure how many more holes wehave punched in the ground,” the corporate spokesperson said.

Oxy, in partnership with an affiliate of Sempra Energy, parentto SoCalGas and San Diego Gas and Electric, has a proposal beforethe state energy commission to build and operate a 500 MW gas-firedmerchant generation plant in close proximity to Elk Hills, andthere is at least one other major merchant, gas-fired plant closeto Elk Hills that is in the approval queue at the energycommission.

A closely watched receipt point drawing a lot of attention inthe ongoing SoCalGas settlement discussions, Wheeler Ridge, is inthe general vicinity, and what Oxy does with Elk Hills gassupplies, the capacity for which under an old California law issupposed to be given priority over interstate supplies, is one ofthe key uncertainties at this point in the omnibus talks.

Tri-Valley Corp., a publicly held independent oil/gas developerin Bakersfield, states unabashedly in its Internet web site that itthinks there “may be as much or more risk in purchasing largelydepleted reserves than drilling for new ones-especially if thetarget upside is very large.”

It cites as an “outstanding case” Oxy’s $3.65 billion Elk Hillspurchase at what it calls ” the peak of oil prices in late 1997.”Since taking ownership in February, 1998, Oxy has drilled “about140 new wells, yet oil production has been increased by only 4,000barrels/d, or about 10 percent, and they are now experiencingdryholes at conventional depths.

“In an effort to stimulate cash flow, they are selling gasformerly reinjected to maintain pressure to produce oil-a viciouscircle.” As an aside, however, Tri-Valley’s leaders think that ElkHills has the same potential for deep drilling (15,000 feet andbelow) for vast natural gas supplies as its nearby Project Ekho,which has been delayed a “month or two” in starting its firstexploratory well.

Late in september, Tri-valley announced it had completed fundingfrom 10 medium-size Canadian producers to support an initial testwell at a depth of 19,000 feet. the estimated cost: $9.5 million.The structure targeted, Tri-valley said, has a potential for fourbillion barrels of oil and 10 Tcf of natural gas. The first Ekhowell is now targeted to begin operations during the fourth quarter.

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