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Newport looks to boost its oil revenues

The city's 16 wells are aging and need work, official says. Years ago, they were pumping about twice as much.

July 27, 2011|By Mike Reicher, mike.reicher@latimes.com

NEWPORT BEACH — As the city faces rising sea levels, aging sea walls and shallow waters that need dredging, Newport Beach officials want to squeeze money out of an unlikely source: its oil-rich land.

The city owns 16 aging wells — some are 60 years old — in West Newport that pumped about 30,000 barrels of Texas crude and netted about $1 million last fiscal year.

On Tuesday Mayor Mike Henn said he would like to find a way to boost their production.

Municipalities, however, don't typically take the same risks as oil exploration companies when it comes to drilling new wells and re-drilling existing ones. So Newport is considering partnering with a private operator that could invest in the operation and share profits with the city.

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Officials are first searching for an expert team who could study the options.

"We'd like to find a way … to reestablish a better production capability out of our oil fields," Henn said at Tuesday's meeting. He added that the city's tidelands — which the oil revenue is earmarked for — have "huge needs."

Geologists will survey the reserves contained in the West Newport Offshore Oil Field. The city wells are drilled thousands of feet below the ocean floor. This technique, called slant drilling, is common along the California coast.

Unlike Long Beach and other coastal cities, which partner with an extraction company and charge a royalty, Newport Beach receives all of the oil revenue. Its contractor, Gardena-based Sampson Oil, maintains and operates the wells under the city's direction.

But the equipment needs work, said Newport's Utilities Director George Murdoch.

Over time, their metal casings have rusted and sand has seeped in, clogging the flow. It's a natural process that could eventually break the system. Two decades ago, the wells were pumping about twice as much oil.

"Eventually the wells will stop producing," Murdoch said.

Each well could cost as much as $200,000 to re-drill, he said, so the city decided to step back and analyze its options. At the same time, rising oil prices have spurred city leaders into action.

The council hopes to sign a study contract at its Sept. 13 meeting.

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