- The Washington Times - Monday, September 15, 2008

The Bush administration and oil companies say they want to open up the nation’s coastal areas to new drilling, but in two cases - involving some of California‘s most promising oil fields - they are doing little to make that happen.

The U.S. Air Force is standing in the way of a project to tap into fields containing as much as 300 million barrels of crude - the biggest new oil find in California in 40 years - despite strenuous attempts to accommodate the military’s concerns by oil companies seeking access to the offshore fields using a 25-acre parcel of land on Vandenberg Air Force Base.

Meanwhile, the major oil companies - including Exxon Mobil and Shell - have abandoned hopes of tapping into an even larger treasure trove of oil fields off the central California coast that could yield 200,000 barrels a day. Unmoved by this year’s major shift in public opinion in favor of drilling, even in environmentally conscious California, they are demanding reimbursement of the more than $1 billion that they paid the federal government to lease the fields decades ago.

“We want our money back, clear and simple,” said Edward Bruce, a Covington & Burling lawyer representing the oil companies in a long-running case against the Interior Department over the leases. “You need a tremendous change in the law” to consider drilling there again. A federal appeals court upheld the oil companies’ claim late last month.

Second look

Revived public interest in drilling prompted President Bush in July to lift a moratorium on leases for offshore oil exploration that his father, former President George H.W. Bush, put into place two decades ago, declaring that now is the time to reconsider the drilling ban as Americans buckle under the burden of oil prices that went as high as $147 a barrel this summer, sending gasoline prices well over $4 a gallon and as high as $5 at many West Coast stations.

Sentiment has changed even in Santa Barbara County, where a major spill of 88,000 barrels of crude off the coast in 1969 became a seminal event that not only led to today’s restrictions on drilling, but also helped to start the modern environmental movement in the United States.

Late last month, the county council voted 3 to 2 to ask the state to open up drilling again, citing the lack of major oil spills in the past 40 years made possible by new and safer drilling technologies, as well as the need for potentially billions of dollars that could be raised in oil revenues for the financially strapped state and county.

But while the political obstacles to drilling are falling rapidly, getting to the point where oil starts flowing again from the continental shelf promises to be a long slog requiring proponents to overcome monumental legal, institutional and bureaucratic obstacles.

“It’s just mind-boggling. We have tried everything under the sun” to get the Air Force to approve the Vandenberg drilling project, said Bob Nunn, president of Sunset Exploration, a small California oil company that teamed up with Exxon Mobil to propose the innovative drilling plan. “We are stopped at every turn.”

Military roadblock

Mr. Nunn owns the legal rights to the minerals beneath an 8,000-acre tract on the Air Force base, but he needs the military’s permission to use a small piece of the tract to establish onshore facilities that would tap into the offshore oil through horizontal drilling techniques perfected in recent years.

Some experts think this approach of tapping offshore oil through onshore facilities, which avoids the risk of oil spills that can devastate ocean ecosystems, may be the best way to develop California’s substantial offshore oil resources without major environmental harm and the public opposition it generates. The drilling site selected by Mr. Nunn would seem to have little environmental value, project proponents say, as it was used for target practice after World War II and still contains unexploded ordnance that would have to be cleared away before it could even be used for drilling.

The Air Force, which uses the site to launch three or four military satellites a year, has raised various objections to the drilling project since 2002, saying it could interfere with the launches, although Mr. Nunn has pledged to clear the property of all oil equipment before each launch and not hold the Air Force responsible for any damage done to oil facilities if a launch goes awry.

The most recent review of the matter, by Air Force Deputy Assistant Secretary Kevin W. Billings, appeared to abandon objections on the grounds of interfering with launches and instead concluded that the Air Force must conduct competitive bidding on any plan to drill from its base. Mr. Nunn contends that he holds exclusive legal rights to the oil found under the base property, which would prevent other oil companies from establishing drilling projects there.

“It’s pretty bizarre. After five years, they still don’t understand; these are our leases. No one else can bid,” he said.

Mr. Nunn’s plan could wind up losing out to a competing proposal from an oil consortium that would tap into the oil fields using an existing offshore drilling rig known as “platform Irene.” But because the group was responsible for a small oil spill in the past, it had to drum up environmental support for its project by agreeing to stop drilling after 2022 after withdrawing only half the recoverable oil.

Money talks

Despite lingering concerns about oil spills, Mr. Nunn thinks the state and the county may now be more open to drilling, if only to help solve its monumental budget problems.

“We’re talking about California basically going broke with $18 billion in debt,” he said. He estimates his project would provide California with $4 billion in much-needed revenues from royalties.

In an attempt to clear the roadblocks laid down by the Air Force, Mr. Nunn said he has appealed to top Air Force brass as well as to Vice President Dick Cheney’s staff. While expressing some sympathy, the high-level administration officials offered no assistance in the end, he said.

One top administration official, who asked to remain anonymous, said the blame for the delay lies with California, not the White House.

“The whole problem is the state won’t let them go after the reserves,” the official said. “If the state were to act, they wouldn’t have to deal with Vandenberg.”

The official contended that the Bush administration was doing everything it can to promote drilling.

“This may be the first story that accuses the administration of not moving on drilling projects. Usually, we’re accused of trying to poke holes in national parks.”

Douglas K. Anthony, an official who has been handling the drilling matter for Santa Barbara County, said the Air Force is blocking the project on the Vandenberg base, dubbed the Vahevala project.

“Vandenberg sent [the oil companies] a letter saying they don’t have a site on base that’s acceptable at this time,” he said, adding that the county has turned its attention to the competing application for offshore drilling.

Mr. Anthony said that the changed political and economic environment could eventually lead the state to reconsider prohibitions that have stopped oil companies from tapping into major offshore oil fields for decades.

“Higher oil prices make it more attractive to drill offshore. We can see that play out in the halls of Congress,” he said. “To me, the first step is what happens with Congress. We’ve seen different scenarios proposed from no leasing to leasing only if the state consents.”

Going elsewhere

Gen. P.X. Kelley, former commandant of the Marine Corps and advocate for more domestic production of oil and gas, said it will be difficult to start up drilling in California again after its being taboo for so many years. He said Secure America’s Future Energy, a group advocating more domestic drilling for national and economic security reasons, recently pushed to establish liquefied natural gas port facilities in California, but had to abandon the effort in the face of stiff environmental opposition and regulatory obstacles.

“California is not a welcome environment” for drilling, Mr. Kelley said. “They have regulatory prohibitions, and those low-level bureaucrats are quite successful in Sacramento,” the state capital.

Persistent obstacles have led the energy-advocacy group to push for more modest drilling legislation in Congress that would start by authorizing drilling off the coast of Southern states like Virginia, North Carolina and South Carolina, where conservative voters are more open to oil production and want to share in the revenues, he said.

“It’s rather peculiar. The Chinese can drill in the Gulf of Mexico for the Cubans,” but U.S. companies cannot tap the same resources from the American side, he said. “I think we should be rethinking the whole issue. We have a major crisis in this country. We use 25 percent of the world’s oil and only provide 3 percent of the resources.”

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