What is offshore drilling? How do oil wells work?

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The oil spill that’s fouling Southern California beaches has many Californians wondering why the state still has offshore oil wells more than 50 years after the state declared an end to new drilling, and more than 35 years after the federal government stopped issuing new leases.

The reason is that once a lease is issued and permits are granted, they remain in use until they are revoked or a well is no longer generating profits. And the decades-old wells continue to produce, contributing thousands of barrels of crude oil each day to the U.S. output.

Here are the answers to some basic questions about offshore wells and the role they play in the larger energy picture.

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Why drill in the ocean?

The simple answer is that there’s oil. Although sizable reserves remain on land, Alexei Milkov, a professor of geology and geological engineering at the Colorado School of Mines, said people have been searching onshore for oil fields for 150 years, “so any large accumulations onshore have been found and exploited.” Offshore, there’s still the chance to find big new fields. Hence the interest in offshore development.

Nevertheless, offshore oil drilling accounted for only about 16% of the 12.2 million barrels of oil produced each day in the U.S. in 2019, according to federal records. The vast majority of that came from the Gulf of Mexico; the offshore wells in the Pacific, which produced an average of 12,200 barrels a day, contributed one-tenth of 1%.

There’s nothing special about undersea oil, Milkov said. It can be heavy or light, more or less biodegraded, depending on the same factors that affect oil in land-based deposits.

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Isn’t it too costly to extract oil offshore?

No, it can be less expensive than some kinds of onshore development, such as extracting oil from shale deposits. Which is not to say that it’s easy and cheap to drill in the ocean; according to the American Geosciences Institute, it can take 10 years and cost several billion dollars to develop a well in deep water — in other words, deeper than 300 meters (about 1,000 feet).

The profitability of an offshore well depends on several factors, including how much it can produce, the quality of the oil and the cost of pumping it out. But a key determinant is the price the operator can collect for each barrel of crude oil it produces. According to the research firm Rystad Energy, a deep-water well can break even if oil is selling for $43 a barrel. Crude oil is currently selling for about $79 a barrel.

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How do offshore wells work?

The rigs off the California coast are planted into the ocean floor on a tower, rather than floating as some newer deep-water rigs do. The interconnected Ellen and Elly platforms off the coast of Huntington Beach stand in 265 feet of water; the nearby Eureka platform is in 700 feet of water.

The Ellen and Eureka platforms each operate dozens of wells, producing both oil and gas. Pipes extend from the underside of each platform at various angles to reach multiple points on the floor hundreds of feet below; each one stretches considerably deeper into the ground, reaching into a hidden chamber where oil had collected after rising from petroleum-forming rocks even farther below.

The oil enters through perforations in the pipe, then is typically forced up to the surface by a submersible pump. At the surface, the oil may be piped to another platform for processing — that’s the case off the coast of Huntington Beach, where equipment on the Elly platform tests, separates, measures and treats the oil and gas brought to the surface, while also generating the power for the undersea pump.

Elly also pumps the collected oil and gas to shore at the Port of Long Beach through a pipeline that runs along the seabed.

Investigators believe that a tear in that pipeline caused the massive leak over the weekend, and they’re looking at whether the culprit was an anchor from one of the many ships waiting to enter the backlogged Long Beach port. The system is supposed to prevent this kind of accident, however. The pipelines in the area are marked on nautical maps, and ships aren’t allowed to set anchor randomly; instead, they are assigned spots by the Marine Exchange of Southern California.

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Whose permission is required to drill?

U.S. territorial waters stretch 12 nautical miles out from the coastal low-tide line. California, however, has jurisdiction over the first 3 nautical miles, meaning that it controls the leases and the permits within that zone.

As noted above, no new leases have been awarded in either state or federal waters for decades, which means no rigs have been added to the mix. Congress has imposed a number of temporary bans on offshore drilling in much of the U.S., although some Republican presidents have sought to allow new rigs off the coast of California and other states. The Biden administration recently restarted offshore lease sales under pressure from a federal judge, but only in the Gulf of Mexico.

Before new leases could be awarded in state waters, the state Legislature would have to pass a bill lifting the current ban, and the governor would have to sign it into law.

It’s worth noting, however, that both the state and the federal governments have continued to issue permits that extend the life of offshore rigs by allowing operators to repair, modify or upgrade their wells. According to Consumer Watchdog and the Pittsburgh-based research firm Fractracker Alliance, the state has issued 145 permits for reworking offshore rigs since Jan. 1, 2019, about half them for wells that were idle. Five additional permits in that period allow the drilling of new wells.

“A lot of the wells that are still producing were drilled in the 1960s,” said Kyle Ferrar, western program coordinator for Fractracker, adding that the safety requirements and the technologies used have changed drastically since then. “Just the fact that they’ve existed for so long means that you run into a lot of operational issues.”

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How are oil rigs monitored?

In state waters, the Geological Energy Management Division, part of the California Department of Conservation, regulates all oil and gas operations.

In federal waters off the coast of California, the responsibility falls on the Bureau of Safety and Environmental Enforcement, part of the Interior Department. Its work has been hindered by a staffing shortage and outdated regulations.

Although the companies that own and operate their oil and gas facilities are in charge of the safety of their employees and pollution prevention, the bureau monitors compliance.

According to the bureau, its inspectors are on site at least once a week, overseeing drilling and production operations on unannounced routine inspections. There is also an extensive annual inspection of each facility that can last two to three weeks, depending on the complexity of the facility.

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Where are offshore rigs in California now?

There are four offshore oil platforms in state waters off the coast of California: Holly in Santa Barbara County, Eva and Emmy in Huntington Beach and Esther off Seal Beach.

There are also four large artificial islands in Long Beach Harbor, known as the THUMS Islands or Astronaut islands, and one small artificial island, Rincon Island, off Rincon Beach in Ventura County.

In federal waters, or the Pacific Outer Continental Shelf Region, there are 23 platforms. Of the 23 facilities, 22 produce oil and gas, while the remaining one is a processing facility.

These include the following:

Beta Operating Co. platforms Ellen, Elly and Eureka south of Long Beach.
Venoco platforms Gail and Grace off Carpinteria.
Exxon Mobil Corp. platforms Harmony, Heritage and Hondo within the Santa Barbara Channel.
Pacific Operators Offshore platforms Hogan and Houchin, located southeast of Santa Barbara.
Freeport-McMoRan Oil & Gas platforms Harvest, Hermosa, Hidalgo and Irene in the Santa Maria Basin.
DCOR platforms A, B, C, Edith, Gilda, Gina, Habitat, Henry and Hillhouse six miles southeast of Santa Barbara.

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Could the government shut down offshore platforms?

The state and federal government both have the power to force wells within their jurisdictions to cease operating under certain circumstances if needed to protect the public. Doing so to a well that was still producing oil, however, could cost the taxpayers a bundle.

Federal law authorizes the secretary of the Interior to suspend and, eventually, cancel an offshore lease or permit in the case of a serious threat to human or aquatic life, property, the environment or national security. But the law also entitles the lease holder to be compensated for lost profits, which could be enormous for a productive well.

“Trying to shut down an existing facility that has its leases and drilling permits is exceedingly difficult,” said Deborah A. Sivas, a professor of environmental law at Stanford Law School. “No facility’s going to take that lying down. There’s a pretty robust takings claim here.”

State agencies hold similar authority over platforms and pipelines in state waters; in fact, their authority over pipelines and the coastal zone in general could conceivably be used to regulate aging platforms in federal waters, said Richard Charter of the Ocean Foundation. Still, the state would face a fight over future earnings if it forced an operator to close a productive platform, Sivas said.

Even when the operator shutters an old platform voluntarily, the cost can be significant. According to a consultant’s report about the platforms in federal waters off the California coast, decommissioning costs ranged from $19 million to $189 million per platform. The cost for the two drilling platforms near Huntington Beach was estimated at $182 million.

The same report indicated that seven of the 23 platforms in federal waters are no longer pumping oil and their operators are in the process of plugging wells pending decommissioning, and an eighth is in a state of “preservation.”

When it’s time to decommission a platform, the company holding the lease is required to cap the wells there and return the environment to its previous condition. And there are provisions in both federal and state rules for lease holders to offer financial assurances that they can pay the costs, typically by posting bonds.

Whether those bonds will actually cover the cost of shutting down a platform is an open question. For example, court records from last year indicate that $150 million has been set aside for the decommissioning costs of the three platforms near Huntington Beach, well short of the consultants’ estimated of those costs.

Michael Salman, professor emeritus of history at UCLA, noted a number of factors that could leave taxpayers on the hook for decommissioning costs, including performance bonds being disputed or insufficient. Bankruptcies are an issue too, he said, noting that many offshore platforms developed by major, deep-pocketed oil companies have been sold to much smaller operators as they aged.

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Are there criminal penalties for oil spills?

Yes, both in state and federal law. In fact, the state’s penalties are much stiffer than the federal government’s.

Under federal law, it’s a crime punishable by fines and imprisonment to negligently or knowingly discharge oil into federal waters or to fail to report such a discharge immediately to federal officials.

Under California law, it’s a felony to knowingly cause oil to discharge into state waters or fail to begin cleanup of a spill. It’s also a felony to fail to notify the state Office of Emergency Services about a spill or to not follow “material provisions” of a spill contingency plan.

The state Legislature upped the law’s penalties last year. Under AB 3214 by then-Assemblymember (now Sen.) Monique Limón (D-Goleta), the penalty for such offenses doubled to a maximum of $500,000 to $1 million per day, plus a fine of up to $1,000 per gallon after the first 1,000 gallons.

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What’s California’s history with offshore oil?

Oil has long played a role in California’s identity and economy. And the Golden State made history in 1896 when oil extraction from the ocean began from piers near Santa Barbara. It would be decades longer before drilling from platforms began, according to the 1998 book “Listening to the Sea,” by Robert Jay Wilder.

Spills have also been part of the state’s history.

1969: A major spill off Santa Barbara led to significant changes in policy. A Union Oil Co. well had a blowout and dumped almost 80,000 gallons of oil into the Santa Barbara Channel. It was the worst oil spill in American waters (until the Exxon Valdez spill off Alaska in 1989).

In response, California lawmakers prohibited new offshore leases. The spill also partly inspired U.S. Sen. Gaylord Nelson to establish Earth Day.

1971: Just two years later, another oil spill occurred after two tankers collided, causing 800,000 gallons of oil to spill into the San Francisco Bay.

1984: As president, Ronald Reagan sought to expand offshore oil drilling, but his efforts were blocked by California lawmakers in 1984 when they expanded the 1969 ban to include federal waters.

1990: The Orange County coast was hit by an oil spill in 1990 when the tanker American Trader ran its anchor over a pipeline, causing nearly 417,000 gallons of oil to seep out and foul the coastline and kill wildlife.

1994: The state Legislature passed the California Coastal Sanctuary Act in 1994, which reinforced the ban on new offshore oil drilling in state waters originally passed in 1969.

2007: The San Francisco Bay was hit with another spill in 2007 when a cargo ship struck the San Francisco-Oakland Bay Bridge, causing 58,000 gallons of fuel to leak into the waters.

2015: A pipeline ruptured, causing 143,000 gallons of crude oil to taint the waters off the coast of Santa Barbara yet again.

2018: During Donald Trump’s presidency, attempts to reestablish offshore drilling leases off California failed.

2021: Sen. Dianne Feinstein (D-Calif.), who this year introduced the West Coast Ocean Protection Act, said in a statement Monday that the recent spill “highlights why we must also take action to prevent future spills, including passing the West Coast Ocean Protection Act. Our bill would permanently ban oil and gas drilling in federal waters off the coast of California, Oregon and Washington.”

Why do we still have offshore oil wells? How do they work?