Occidental Petroleum Corp., the oil explorer that pumps enough crude to fill a supertanker every four days, is leading a rush to find crude on land as BP Plc’s Gulf of Mexico disaster spurs tougher offshore-drilling rules.
Occidental today doubled its estimate for a discovery near Bakersfield, California, to the equivalent of as much as 500 million barrels of oil, which would have a value of more than $34 billion at current prices. The Los Angeles-based company bucked the oil-industry migration to deep-sea drilling during the past decade and focused on onshore fields from California to Texas to Abu Dhabi.
Rival energy producers may have little choice but to follow Occidental’s example after the U.S. Interior Department halted new offshore drilling permits in the wake of the fatal April 20 explosion at a BP prospect off the Louisiana coast, said Brian Youngberg, an analyst at Edward Jones & Co. in St. Louis.
“There is a lot of new interest in onshore-production potential in the U.S. and Occidental is at the forefront of that,” said Youngberg, who has a buy rating on the shares.
Occidental disclosed the higher estimate for the California discovery in materials prepared for a presentation to investors and analysts today in New York.
The oil explorer has kept the precise location of its discovery in Kern County a secret to prevent competitors from trying to horn in on the prospect by purchasing adjacent tracts of land. Last year, the company estimated the field holds the equivalent of as much as 250 million barrels of crude.
Howard Weil Inc., a New Orleans investment bank, said in September the discovery may be four times as large as the company’s estimate, or 1 billion barrels, which would be enough to supply every refinery on the U.S. West Coast for 13 months.
Efforts to determine how wide and deep the Kern County field extends have been frustrated by a lack of equipment to process natural gas that flows from wells along with the crude, Chief Financial Officer Stephen I. Chazen said in a March 22 interview in New Orleans.
“It’s not a stretch to say that our Kern County discovery could be a half-billion-barrel field,” Anita Powers, executive vice president of worldwide exploration, said today at the New York meeting.
The company is building a gas-processing plant in Kern County to accelerate development of the field, Chazen said in the interview. Occidental plans to complete the facility, which will augment two mobile processing units scheduled to go into operation by the middle of this year, in early 2011.
Processing for Shipment
Gas pumped from wells must be passed through processing plants to strip out impurities such as sulfur and saltwater to make the fuel suitable for pipeline shipment to industrial and residential customers.
New oil wells needed to figure out where the boundaries of the field lie can’t be brought into operation until Occidental has enough processing capacity to handle the gas component, Chazen said.
Kern County has been a petroleum-producing region since the 1860s, when tar was mined to make kerosene and asphalt, according to the San Joaquin Geological Society.
Occidental Chief Executive Officer Ray R. Irani plans to raise production by 5 percent to 8 percent this year and in 2011. Last year, Occidental added twice as much resources for future production, or reserves, as it pumped from the ground.
Chevron Corp., the largest U.S. energy company after Exxon Mobil Corp., owns a 20 percent stake in Occidental’s California discovery. The prospect lies beneath privately owned lands covered by mineral leases Occidental began amassing half a decade ago.
Doug Leggate, the analyst at Howard Weil who made the 1- billion-barrel estimate last year, didn’t return a phone message seeking comment. Leggate, a former Chevron engineer, left Howard Weil in late 2009 and now works for Bank of America Corp.’s Merrill Lynch unit.
The federal government’s moratorium on new offshore permits will crimp deep-water exploration in the Gulf of Mexico, said Fred Aminzadeh, a University of Southern California researcher and former Unocal Corp. geophysicist.
The moratorium is scheduled to last at least through the end of this month.
Two deep-water projects began in the week that ended May 17 under the terms of permits issued before the moratorium was imposed, according to a report from the U.S. Minerals Management Service, the Interior Department agency that oversees oil and gas exploration and production in federally controlled seas.
The new projects involve Newfield Exploration Co. and ATP Oil & Gas Corp., the report showed. Those wells brought the number of current deep-water drilling operations in the U.S. section of the Gulf to 39.
Occidental has outperformed rivals with offshore operations. Since the April 20 disaster that killed 11 rig workers and triggered three subsea oil leaks, Occidental has fallen 8.1 percent, even as crude prices declined 14 percent.
During the same period, London-based BP, majority-owner of the damaged well, fell 20 percent. BP’s partners Anadarko Petroleum Corp. and Mitsui & Co. have dropped 23 percent and 14 percent, respectively.
Occidental fell $1.38, or 1.7 percent, to $79.54 as of 4:15 p.m. in composite trading on the New York Stock Exchange as crude traded on the New York Mercantile Exchange dropped to a seven-month low earlier today.