Urban Oil Boom in Tinseltown?

High prices cause drillers to tap into one of the largest reserves in the U.S.

LOS ANGELES, May 27, 2008— -- You find oil wells in the unlikeliest places around Los Angeles -- next to the McDonald's drive-through, across the street from a gas station, right in view of brand new homes.

Most of these fields have been pumping a few barrels a day for years, amounting to about 27 million barrels a year in Los Angeles County. But beneath this crowded city are some of the largest reserves in the United States, and with the price of oil continuing to skyrocket, there's an urban oil boom underway as drillers renew these aging oil fields.

"I can pretty well say across the board, for the industry, that the higher price has rejuvenated these older fields," said Thomas Dahlgren, who works for one of the small oil companies in the Los Angeles area.

"This field has been producing since the 1920s, and probably it's produced about 20 percent of the oil in place," he said. "So there's a lot of oil left in these reservoirs, it just takes new technology, which we have now, and it takes a higher price to be able to recover the oil."

Dahlgren's company, Warren E&P, has embarked on an elaborate plan to disable old low-producing wells scattered through the Wilmington fields near Long Beach, and replace them with a web of new wells under the neighborhood drilled from a central facility. The wells will be more accurately located in productive pools of oil.

It costs about $1 million to drill just one well, but the current price of oil makes it profitable.

"The oil industry has got every rig available drilling right now," Dahlgren said. "Everything we can do to bring these fields back on is being done."

Nearly 100 years ago this part of Southern California was the Saudi Arabia of its time. The city has grown among the wells, but plenty of oil is still down below. The challenge is getting to it.

"Oh, it's not easy," said Kevin Laney, the operations manager for Signal Petroleum, a company that drills in the Los Angeles area. "No, no. The easy barrels, they were taken out a long time ago."

Laney acknowledges that his company is making more money, but adds, "we're putting a lot of money back into the business. That's where a lot of the money goes."

But with new methods and technology, they're doing it. There has been a slow decline of California oil production in recent years, but that is flattening out, with an increase in the number of working wells and permit applications to drill more. Overall, Los Angeles produces roughly $3 billion worth of oil a year.

So, right in the heart of the city, inside a nearly unnoticeable building, there's a busy drilling operation.

"We've got well heads right under our feet," said Gregg Brown of Breitburn Energy, another company that pursues oil in the Los Angeles area. "And the wells go out underneath the city of Los Angeles."

While crude oil actually bubbles through the sidewalk in some places, most of the oil under Los Angeles is hard to get.

"These fields all fall into the mature category, all the fields that we operate," Brown said. "Mature means that you are past the initial prime production. Initially, when you drill into a reservoir, there's usually a big buildup of pressure. And then, over time, that dissipates and production goes down. And mature fields are where you're further down on that curve and you're getting, you know, less production.

"You're squeezing oil from a rock," he added. "For most oil fields, you only recover about 30 to 40 percent of what's there. So, 60 to 70 percent of the oil is still in the ground."

That means more drilling, and in some neighborhoods, more noise, more trucks and dust, and more unhappy neighbors.

"It is a constant battle of noise, gas releases, vibrations," said Gary Gless of Windsor Hills, Los Angeles. "It has been for a lot of people, even property damage where the houses have been shaking, cracking, when the drilling has been going on."

Gless says the oil being drilled in Los Angeles won't solve the nation's supply problem.

"Basically, it would be a drop in the bucket for what we really need," he said. "And what they want to do is basically drill 24/7 for the next 20 years."

It is questionable whether urban oil can do anything to alleviate the problem of supply and price in the coming years. The entire U.S. produces just short of 1.9 billion barrels.

"If you look at the total number of small wells in the United States, they produce 20 percent of our domestic crude supply," said John Felmy, chief economist at the American Petroleum Institute. "These are very small wells, producing a couple of barrels a day, so you would have to have a very large number of them for a significant increase in production."

But in Wilmington, they have already increased production from 369 barrels a day to 3,200, and as they continue to drill, they hope to get up to 5,000 or 6,000 barrels of oil a day out of these partially-depleted fields.

"We're still going to rely tremendously on imported oil," Dahlgren said. "Every bit helps. It's one less ship off the coast bringing oil from someplace else."