The Rude Awakening
Los Angles, California
Thursday, April 12, 2007 ------------------------- - Digging for crude (oil) in Venice Beach,
- The ghost of oil's past…and future,
- Bulldozing mansions, surviving tsunamis and a pretty picture…
------------------------- Eric Fry, while roaming amidst the former oil fields of Los Angeles, reports… There's still a lot of oil trapped beneath the million-dollar homes of the L.A. Basin. But that oil is sure to remain trapped…unless and until the price of crude soars well above $100 a barrel…or maybe $200 a barrel. Drilling for oil in the pricey coastal neighborhoods of L.A. seems utterly unthinkable today, but not as unthinkable as it seemed last December, before Congress ended a 25-year ban on drilling in the waters 125 miles south of Florida's Panhandle. House Republicans had attempted to open nearly all U.S. Atlantic and Pacific coastal waters more than 100 miles offshore. But they could not muster the votes. It's true that 100 miles offshore is not the same thing as right next door, but the winds of change are stirring…and they might reach gale force, as global supplies of easy-to-access crude oil become increasingly scarce. So let's take a brief look at a part of the oil industry's past that could, one day, become part of its future as well, as Byron King explains below… --- Housing Report - Are You Prepared? --- WARNING! Brace Yourself and Your Wealth for a Whole New "Second Wave" of Housing Hurt About to CRASH DOWN on Wall Street, the U.S. Economy, and the American Homeowner… The "Second Wave" HOUSING TSUNAMI of 2007-2011 Just when you were hoping we were "done" with plunging property prices… think again… and then BATTEN DOWN THE HATCHES for what history will remember as the worst property-led recession of the last 76 years! Wall Street…Main Street…nobody's money is safe. However, I can give you three very simple, solid ways to "hedge" your retirement and property savings against this coming mega-bust… All included in the new Emergency Financial Survival Toolkit I'd like to send you FREE, with your permission. ------------------------------------------ Oil of L.A.
By Byron King Los Angeles is one of the world's great oil provinces, with historical oil extraction over the past 110 years of something near 9 billion barrels, and still counting. This volume easily places the oil production from the Los Angeles Basin in the ranks of Prudhoe Bay, Alaska (near 10 billion barrels), and about 50% greater than the East Texas field (about 6 billion barrels). But most people have no idea about the vast oil wealth that remains beneath the streets of metropolitan Los Angeles -- even most Angelinos who live literally next door to an oil pump. The famous and geologically fascinating La Brea Tar Pits of Los Angeles have been bogging down, trapping, and preserving unwary animals since Pleistocene times. On one wall of the museum at La Brea, there is a display holding the skulls of 1,600 dire wolves, the remains of predators from long ago who thought that they spotted an easy meal trapped in the tar. But the predators quickly found themselves stuck in the goop and fast departing the gene pool as well. Nature had laid an oily trap for the complacent alphas at the top of the food chain, a message that probably has some contemporary meaning. And within the archaeological past, the record is that for something over 10,000 years previous to our modern era, the ancestral Native Americans of SoCal collected oil from seeps. These proto-Californians did this in much the same way as did the Seneca tribes of what later became Pennsylvania. The Indians used the tarry oil to waterproof baskets and preserve rope and fishing lines. The first "modern" oil well in the Golden State was drilled in Northern California in 1861, a mere two years after Col. Drake pounded down his hole at Titusville, Pa. Things slowed down during the Civil War, but by 1866, oil was being produced in commercial quantities in Humboldt County, north of San Francisco.
In the fall of 1892, a down-on-his-luck prospector named Edward Doheny drifted into Los Angeles from his previous failed adventures elsewhere. Doheny noticed that LA residents were gathering the "brea" (Spanish for "tar") from tar pits to use as fuel in place of scarce coal or lumber. Doheny applied his miner's knowledge and began to dig pits and follow the oil traces. Before long, LA of the 1890s was in the throes of an oil boom to rival that of Titusville in the 1860s, if not the Gold Rush of 1849. Speculators bought leases, tore down houses, erected derricks, and began to produce the oil from shallow rock formations. Parts of Los Angeles began to resemble a forest of derricks that rivaled any oil boomtown from back East. The coastline, along what would become the Pacific Coast Highway, was in many areas a line of oil derricks. California was on the oil prospector's map. Oil exploration in the early days of the 20th century pretty much consisted of prospectors following the shows and seeps and drilling the obvious structural features, particularly the folded rock sections called "anticlines." Fortunately for the early prospectors, the Los Angeles sedimentary basin is among the richest oil provinces on the planet, and is filled with shows, seeps, and anticlines. These shows, seeps, and anticlines are the surface representations of more than two miles worth of layered Miocene and Pliocene sediments filled with a rich, organic, and petroliferous heritage. Adding to the mix, the relatively recent geologic, tectonic, and structural history of the region has provided an almost perfect thermal history to bring the organic matter into what is called the "oil window." That is, the source rocks have been buried within the depths of the Earth and heated to a point at which oil and gas formed. Then the oil and gas migrated into literally thousands of "traps" that are layered like pancakes from near the surface, down more than two miles to the crystalline basement rock that underlies LA. We cannot neglect to mention the extensive faulting of the region. This has been the source not only of the famous earthquakes, but also has contributed to bringing much of the oil and gas into existence, by aiding in its entrapment. Aside from the hard work involved in finding and lifting out the oil and gas, there are hundreds of lifetimes worth of geologic and other scientific study just in the Los Angeles Basin alone. And there is a small army of geologists, engineers, and other researchers who do exactly that to earn their daily bread. So Los Angeles is not all just movie stars and fancy divorce lawyers. It is a scientific treasure house. With many people following in the oily footsteps of Doheny, by the 1920s and 1930s, there were numerous oil and gas discoveries in Los Angeles that were, by any standards, simply immense. 
The Signal Hill oil field, for example, east of Long Beach, was discovered in 1921. The original reserve volumes are estimated at more than 1 billion barrels, and the number will never really be known, due to poor record keeping over many decades up until the 1950s. Early in its development, the locals called it "Pin Cushion Hill," due to the literally thousands of wells that went down to produce oil. The place had more wood on it than many mountains of the Sierra Nevada; the trees of the Sierra Nevada were cut down and used to erect derricks and pumping facilities. Today, the oil operations are still being carried out by a company called, appropriately enough, Signal Hill Petroleum Inc. Oil wells are located side by side with $1 million homes, and peoples' backyards have easements crossing them for gathering pipelines and water injection lines. Unlike in the past, however, the modern operations are pumping large volumes of water to obtain the relatively smaller volumes of oil. Still, this pays for itself, and overall produces quite a bit of petroleum. The Wilmington Oil Field, for another example, discovered in 1936, is utterly gigantic. It stretches from Torrance in the northwest to offshore Long Beach and farther to the southeast. It is 16 miles long and 4 miles wide, with original reserves of over 1.4 billion barrels onshore and 1.2 billion barrels offshore, for a total of 2.6 billion barrels. Oil-producing beds have been located at depths between 2,000-10,000 feet, and there are probably additional oil-producing zones that have not been accessed. The field may extend to the southwest, under Pacific Palisades, but we cannot say for certain, because there has been little drilling in that pricey locale over the years. The homeowners in the area have kept the drillers out. Again, much of the original oil has been removed, but there is still a lot left to recover. There are other oil fields in places that are well known to many people familiar with Los Angeles, but the locales are not exactly known for their oil production in the public perception. There are oil fields beneath such high-end locales as Huntington Beach, Newport Beach, El Segundo, Los Angeles downtown, Century City, Cheviot Hills, and even Beverly Hills. Beverly Hills High School has oil wells right next to the football field. One drill site with more than 60 wells, drilled directionally to as far as a mile from the surface entry and casing, is located in what looks like a 10-story office building, all of two blocks from the Beverly Hills city line. All in all, there are 55 known oil fields in the Los Angeles area, with something over 30,000 producing wells and an equal number of older, plugged, and abandoned wells. (There may be far more than 30,000 wells, but the number is not known, due to poor record keeping in the good old days.) Something like 9 billion barrels of oil has been extracted from the rocks over the past century or so. Much of the contemporary oil production involves pumping "oil-stained water," but as I noted above, it adds up to quite a bit of extraction per day. There are probably more oil fields that could be found beneath the streets of LA, because almost all of the past exploration in the urban part of the basin was performed before the mid-1960s. By the late 1960s, the public perception of the oil industry had turned negative, and even the likes of the well-connected Armand Hammer and his Los Angeles-based company Occidental Petroleum could not get drilling permits in most parts of the Los Angeles region. So the past 40 years have been a time of oil companies extracting product from existing wells, maintaining what wells they have, and very occasionally extending or redrilling an aging well. There is virtually no "modern" seismic work going on, and very little drilling. Even redrilling old wells takes a lengthy permitting process, and there is quite a bit of political opposition from people who don't think twice about turning the keys and starting the engines of their nice cars. The potential for new oil discovery is there, though. There is really no way that the early oil exploration found "all" of it. The hydrocarbon traps are far too subtle and stacked, deeply buried, and truncated by extensive faulting and permeability pinch-outs. So the older forms of exploration found only the obvious deposits, not the more clandestine deposits. In the modern oil industry, advances in the field of sequence stratigraphy, structural modeling, and seismic methodology, coupled with directional drilling and what is called "extended reach drilling," have made it possible to find and extract such deposits. And it would be quite possible, from a technical standpoint, to drill the oil deposits even in a built-up urban area such as Los Angeles. But these oil deposits will probably never be drilled, due to modern city development, coupled with NIMBY attitudes and political opposition…at least not until the price of crude oil soars to levels that very few investors can imagine. Stay tuned! Joel's Note: A version of this essay first appeared in the pages of Whiskey & Gunpowder, one of Rude's sister publications. The gang over at "Whiskey" are always ruffling feathers in all things geopolitical, macroeconomic and whiskey related. Check out their unique brand of financial analysis, complete with unashamed libertarian bent and dauntless editorial team, right here: Whiskey & Gunpowder - Wholly Relevant, Entirely Irreverent --- Gold Will Hit $2,000 --- From Hulbert's #1 Ranked Advisory Letter of the Last 5 Years, Our Most Shocking Forecast Yet… "Gold Will Hit $2,000" "I'm so sure gold will soar higher, I'll even make you a guarantee…plus I'll give you 5 entirely new ways to play the trend…" "Including one way to own gold that comes with ' zero-downside' risk…" (But you have to jump on this before April 17, 2007…or the doors on this could slam shut to you forever…) Learn How Right Here |
