Complications May Impact Approval Process for Area LNG Plans

• Resumption of Oil Drilling Is a Factor for One; Naval Concerns Surface on the Other

BY HANS LAETZ

In an ironic twist, a proposal for a liquefied natural gas terminal 10 miles off Oxnard may be in trouble because a local oil company has resumed drilling for crude oil from its offshore rig. Venoco, a Carpinteria-based oil company that owns several offshore oil rigs in the Santa Barbara channel, has resumed drilling for crude oil at Platform Grace.

Drilling at the offshore oil rig, 35 miles up the coast from Malibu, stopped in 1997 because much of the underlying raw crude and gas had been pumped out. But federal officials said Monday that another 2 million barrels of oil, and as much as 2 million cubic feet of natural gas, can still be recovered from beneath Platform Grace.

The recently renewed Venoco drilling may complicate NorthernStar Energy’s efforts, because of federal law that requires offshore rigs to be used only for oil extraction so long as there is commercially viable petroleum under them, a federal official said Monday.

That oil and gas would be locked up forever if the platform is converted to an LNG import terminal, a federal official said. “There will not be any consideration of simultaneous use of the platform for both oil and LNG uses,” said John Romero, a spokesperson for the U.S. Interior Department’s Minerals Management Service—the nation’s regulatory agency for offshore oil rigs.

Venoco sold an option to NorthernStar, an Orange County start-up company, four years ago to convert the nearly unused oil platform into an LNG terminal that NorthernStar calls “Clearwater Port.”

Under terms of that deal, Venoco will have to seal off its new oil wells, decommission crude oil facilities and hand the offshore oil platform over to NorthernStar when and if it gets permission for an LNG terminal from government officials. NorthernStar has applied to convert the rig to unload natural gas shipped across the ocean to add to the California energy portfolio.

NorthernStar vice president Billy Owens said Monday the resumption of drilling by Venoco might delay the project as it makes its way through various agencies, “but we don’t see this as a material delay.

“The possibility of Venoco drilling for oil while we are waiting for our permits has been contemplated since day one,” he said. “They have every right to drill until we exercise our option (to buy the platform lease), and they have the obligation to cease drilling and have the site restored the day that happens.”

Transferring Platform Grace from oil drilling duties to use as a seaborne LNG terminal has been a longstanding legal concern at the MMS division of the U.S. Interior Department, documents uncovered by the Malibu Surfside News this week indicate. And another federal official who could not be quoted said discussions between the Interior Department and the Homeland Security Department’s Coast Guard, which regulates offshore ports, have not resolved the issue yet.

NorthernStar last year asked for federal oversight of Platform Grace to be taken away from Interior’s MMS and assigned to the Deepwater Ports section under Homeland Security. Coastal advocates have criticized the Deepwater Ports office as being overly friendly to LNG interests.

Venoco’s decision to resume oil extraction was the subject of an MMS official’s letter in September 2006 to NorthernStar: “The oil and gas production will be considered the primary function of the platform, and the possibility of continuing economic recovery of the resources using these wells could delay conversion of the platform to an LNG facility,” wrote Nabil Masri.

In its most recent letter to NorthernStar, sent last month, the MMS official in charge of the agency’s West Coast office said that, despite agreements to transfer jurisdiction from MMS to the Deepwater Ports Office, the LNG terminal could still be delayed unless “Venoco proposes an alternative means to recovery of these [remaining oil and gas] resources.”

Venoco owns several nearby offshore rigs, but it is not known if they can economically extract the oil and gas that lies beneath Grace. Venoco officials would not comment last week or Monday.

Owens said NorthernStar officials learned of the renewed Venoco drilling “when we were out there a few months ago and we saw a new crane operating out there, we asked them what they were doing, and they said, ‘We are putting in a new drill.’”

The LNG project is opposed by many coastal residents, who say the 28-year-old tower in 320 feet of salt water cannot safely be converted to LNG regasification purposes. The company says the platform is rock-solid and will be vigorously inspected as the top of it is cut off and rebuilt to handle LNG, but important engineering studies are being withheld from the public as proprietary information.

Chevron built Platform Grace in 1979, and sold it to Venoco after taking 8.8 million barrels of crude oil and 22.4 million cubic feet of natural gas from the site, MMS says. Since then, the platform has been used only as a junction point for undersea oil pipelines, but has been picked by NorthernStar as the best place to reheat LNG that would be unloaded and regasified there from tankers from Asia or Russia.

WOODSIDE LNG PROJECT

The NorthernStar project off Oxnard is one of two LNG terminals near Malibu currently undergoing regulatory review. The other project, from Woodside Natural Gas, would be centered at a new buoy site 21.8 miles southwest of Point Dume.

That project, called “Ocean- Way,” came under opposition from U.S. Navy and Navy boosters last week, because it would rely heavily on a section of ocean where Navy ships frequently conduct military exercises.

Woodside proposes to use three areas of nearby ocean to transfer LNG cargoes at sea from transpacific ships to a pair of regasification vessels that would then dock at the buoys south of Malibu to regasify the LNG.

One of the three transfer points would “substantially interfere with Navy operations,” including missile tests, aviation and sea maneuvers, an official Navy statement said.

Retired Rear Admiral George Strohsahl, former commander of Naval Base Ventura County, Point Mugu, told The News that Woodside “has proposed a transfer position that is in the Point Mugu Sea Test Range, a vital defense interest of the United States Navy.” He said he did not have an opinion on other aspects of the Woodside LNG project.

In Los Angeles, Woodside spokesperson Michael Hinrichs said discussions continue between Woodside and the Navy on the transfer point. “It’s preferable for the transfer to use the calm waters there,” he said of their preferred transfer point about 26 miles off the coast near Santa Barbara Island.

Woodside engineers have said the transfer of super-cold, hose-cracking LNG cannot occur on rough seas, which are more common at the other two points. Hinrichs noted, however, that the Navy has signed off on the proposed location for the LNG terminal itself, as well as the two stormier offshore LNG transfer points, and that negotiations on the issue continue.

Meanwhile, the Coast Guard announced last week that the Woodside LNG proposal has just incurred its first delay, as a computer snafu with a federal filing system has interfered with the tightly-scheduled public comment period.

As a result, officials will accept comments from the public on environmental criteria for the Woodside request until Oct. 31.

These officials have not changed their mind, however, about not holding a hearing in Malibu, as requested by city representatives.