An additional 200 MMcf/d of gas could enter the Californiamarket now that the former Naval oil reserve at Elk Hills in thesouthern central agricultural valley of California is totallyprivatized, according to most of the oil/gas people in thisenergy-dominated part of the state. The new supplies would be addedto a state already experiencing a large overcapacity of interstatesupplies.

The big question, however, remains what the new owner of morethan 70% of Elk Hills, Los Angeles-based Occidental Petroleum,eventually is able to do with the gas production, which at ElkHills is the largest in the state. Its winning bid for one of thenation’s largest oil fields was finalized Feb. 5, following ajudge’s ruling setting aside some last-minute attempts to block thesale.

“There will certainly be an impact, but there hasn’t been asyet,” said Hal Bopp, an official with the California Oil and GasDepartment’s operations in Bakersfield. He indicated thatproduction at Elk Hills in recent years has been averaging about350 MMcf/d, but all but 140 MMcf/d (on average) was re-injected tosupport oil field operations.

“California is such a huge natural gas importer that there won’tbe a relatively a big amount (of gas) added to the market. Myunderstanding is that this is gas that could go to SoCalGas orPGandE, marketers or even to Mojave (Pipeline).”

With the federal government giving up Elk Hills, Occidental’soperations revert totally to state oversight, which includesproduction efficiency rate requirements and review by an industry”conservation committee.” Assuming that Occidental does, in fact,market more natural gas, Bopp said both his department and theconservation review committee will want to assess what such a movewould do to the state’s oil operating criteria, called “MaximumEfficient Rate of Recovery (MERR).”

“I’m sure it [the sale to Occidental] will impact natural gasoperations, but we don’t know what OXY’s plans are yet,” said BobBlack, an executive with Bakersfield Energy Resources, a localoil/gas operation that historically has occasionally bought someElk Hills gas from third-parties. “Anytime you get new ownership,you get different philosophies, so we may get some new pipelineproposals, for example.”

Among the utilities, Southern California Gas has pipelinesdirectly connected with Elk Hills gas supplies and has bid on themin the past. Pacific Gas and Electric does not have a directconnection, but it doesn’t rule out interest in buying suppliesthat Occidental may make available.

“We buy gas from a long list of suppliers, and we’re alwaysinterested in suppliers who want to sell us gas at competitivemarket prices, ” said a PGandE spokesperson. “We’d be open to talkto the Elk Hills people if, and when, they decide to market theirgas.”

One consideration in assessing future availability of gas fromElk Hills is the amounts of the light crude oil that are in demandto blend with heavier oil production in the area. The re-injectionof gas supplies is often related to how much of the light crude isin demand at any given time.

Observers at the California Independent Petroleum Associationand among the oil patch operators in and around Bakersfield saidthey are not sure what Occidental has planned.

“They have their hands full because that is a pretty good pieceof land they’ve taken over,” said one oil industry participant.When asked, a spokesperson at Occidental would not divulge at thispoint what his company’s plans are for the Elk Hills property.

Richard Nemec, Los Angeles

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