Economic Feasibility of
Oil Wells Owned and
Operated by the City
Scott M. Haberle, Fire Chief
Thomas Walker, Evans and Walker
Study Session - March 21, 2023
Civic Center Wells
• The City owns three oil wells, the Civic
Center 1, 2 & 3
• The wells are located in the Civic Center
parking lot
• The wells were acquired as a part of the
City acquisition of the Civic Center
property in 1971
Civic Center 3 Civic Center 2 Civic Center 1
Process
Civic Center Oil Wells
Miley Keck Tank Farm
Pipeline
Connecting wells to tank farm
Appx. ½ mile, 6” steel pipe
Angus Petroleum
Springfield Unit
Nearest water injection wells
Production – Springfield Unit
Operator ceased water
injection (pressure support)
in July 2017
Oil production dropped
significantly - shortly after
the loss of pressure support
Production and Gross Revenue -
Civic Center
Year Avg Price
(Paid), Barrel
Oil Sales,
Barrels
Gross Sales, $
2015 $41.29 5,463 $225,560
2016 $29,41 4,680 $137,643
2017 $42.33 5,460 $231,138
2018 $61.71 2,133 $131,626
2019 $58.87 2,130 $119,009
2020 $27.00 1,470 $39,687
2021 $61.26 1,223 $74,923
Loss of injection support
from Springfield Unit
Mid-2017
Average Monthly Revenue
Expense and Net Profitp
(20,000.00)
(15,000.00)
(10,000.00)
(5,000.00)
-
5,000.00
10,000.00
15,000.00
20,000.00
25,000.00
30,000.00
2015 2016 2017 2018 2019 2020 2021 2022
Average Monthly Revenue, Expense and Net Profit Data
Gross Revenue, $ Expenses (including CalGEM Assessment and Royalty Payment), $ Net Profit, $ Decision to Halt Production
2021-22
Factors
• Loss of Springfield Unit injection
• Collapse in oil prices
• 3rd party economic analysis
• Aging infrastructure
• Potential Redevelopment
• Tank farm lease expiration 2024
Decision
• Halt production
• Investigate cost of abandonment
• Minimize expenditures where
possible
Known Repair Costs
Well Component Cost Estimate Estimate From
Civic Center 1 $46,300 Oil Well Services
Civic Center 3
- Remove fish 2-7/8"
liner and junk
- Casing repair
$544,950
$89,000
Oil Well Services
Oil Well Services
Pumping Unit Electrical $65,200 Innovative Electrics
Fencing $2,750 Nowlin Fencing Inc
Total: $748,200
* Does not include required maintenance and repair from conditions assessment
Breakeven Oil Price
Assumptions:
• 5.5 Barrels of oil per day
• $793,130 in reactivation costs
• $18,700 monthly expenses
Result:
• $214 per barrel
-
25.00 50.00
75.00 100.00
125.00
150.00
175.00
200.00
225.00
Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 Jan-23 Jan-24 Jan-25 Jan-26 Jan-27Jan-28 Oil Price and Differential, $/BBL
Historical and Forecast Oil Prices
Brent Spot Price, $/BBL City of HB Oil Price, $/BBL
Differential (Brent minus HB), $/BBL Avereage Differential, $/BBL NYMEX Brent Futures Prices (Avg of Weds in Dec 2022) Forecast of HB Oil Price, $/BBL Break Even Oil Price, $/BBL
Summary
Full Production Sell / Lease Idle Abandon
Costs
- One Time
- Annual
- Repair
- Est. Total
-$793,130
-$224,000
-TBD from assessment
-$1,017,530 plus TBD costs
-TBD
-N/A
-TBD One Time Costs
-$544,950 minimum
-TBD
-$544,950 min plus TBD costs
-$1,500,000 estimated
-N/A
-$1,500,000 estimated
Revenue
- Annual $133,333 N/A N/A N/A
Pros • Maintaining oil production • Allows potential future City oil production
• Possible re-activation at later time • Removes liability • Potential to re-develop over wells
• Can phase the abandonment into
multi-year
Cons • Continued liability until well
abandonment
• Continued costs
that outweigh revenues
• Aging infrastructure
• Unlikely interest
• Unknown cost to prepare oil unit
for sale/lease
• Still need to address tank farm lease
• Will impact development of Civic
Center
• Still requires casing repair on well #3
• Requires ongoing compliance and ma
intenance costs
• City retains closure liability
• Must retain tank farm lease
• Expensive one-time investment
• Permanent closure -
no option for future oil production
• End of life issues with tank farm
lease
Questions?
Table of Contents
• Background
• Civic Center & Huntington Beach Oil Field
• Analyzing Civic Center Oil Operations
• Conditions Assessment
• Cost to Reactivate Oil Production & Plan to
Resume Operations
• Options
Background
Huntington Beach Oil Field
Discovered
1920
Oil - 3,480 barrels
Water - 147,670 barrels
223 active wells
86% produced water – re-injected
46 injection wells
Civic Center – never injected but
benefited from nearby water injection
42 Gallons = 1 Barrel
(BBL)
Five Areas of Interest in Analyzing Oil
Operations
Process Oil, Gas
and Water
Production
Product
Pricing
Operating
Expenses
Assess
Condition
1 2 3 4 5
Anatomy of Production
Process
Gas
Flared
Production Fluid + Gas
(11% oil/89% water)
Gathered from 3 wells
Production Fluid
Pipeline to Tank Farm Oil Sold
(via Truck)
Water
Discharge to
Sanitary Sewer
Pay 1/6 Royalty
To Mineral Rights Lease
Water
Pretreated – Gravity Separation
Options
Production – Civic Center
Civic Center lease averaged
16.4 barrels of oil per day from
January 2010 through June
2017 (prior to loss of pressure
support)
Civic Center lease averaged 5.5
barrels of oil per day from July
2017 through November 2021
(after loss of pressure support).
This is a decrease of 10.9
barrels of oil per day.
Product Price
Historical and Forecast Oil Prices
Product Price
H
-
25.00 50.00
75.00 100.00
125.00
150.00
Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 Jan-23 Jan -24 Jan-25 Jan-26 Jan-27 Jan-28 Oil Price and Differential, $/BBL
Brent Spot Price, $/BBL City of HB Oil Price, $/BBL
Differential (Brent minus HB), $/BBL Avereage Differential, $/BBL NYMEX Brent Futures Prices (Avg of Weds in Dec 2022) Forecast of HB Oil Price, $/BBL Average Monthly Revenue
-
5,000.00
10,000.00
15,000.00
20,000.00
25,000.00
2015 2016 2017 2018 2019 2020 2021
Gross Revenue, $
Loss of injection support
from Springfield Unit
Collapse in oil prices
due to Covid-19
Monthly Operating Expenses
Expense Monthly Cost
Tank battery lease $7,150
Pumper charge $3,800
Maintenance $5,550
Compliance $2,200
Total $18,700
Remaining Reserves (Capacity)
• Reserves (SPEE)
“Those quantities of petroleum anticipated to be commercially recoverable by application of development projects to know accumulations from a given date forward under defined conditions.” Not
Economic
No
Reserves
• Civic Center is not economic and therefore reserves are zero • Civic Center will produce 5.5 BBLs/day with full production
Conditions
Assessment
Condition - Wells
Well Component Condition
Cost for Known
Condition Assessment
or Maintenance Vendor
Downhole
Civic Center 1, 2, 3 POOR/INOPERABLE
Discussed in
Well Reactivation slides Oil Well
Services
Pumping Units FAIR/GOOD $3,700 AC Pumping
Unit Repair
Electric Motors
Starter not up to code POOR/INOPERABLE
Discussed in
Well Reactivation slides Innovative
Electric
Condition – Piping and Tanks
Well Component Condition
Cost for Known
Condition Assessment or
Maintenance Vendor
Piping and Tanks FAIR/GOOD $26,255 Applus
Tank Farm Secondary
Containment FAIR/GOOD $14,975 RM Baker
International
TOTAL: $41,230
Cost to Re-activate
Oil Production
Plan to Resume Operations
Restart Wells Contract
Pumper
Other
Contracts &
Permits
Negotiate
Tank Farm
Lease
Negotiate Oil
and Gas
Mineral Lease
Physical outlay of
funds needed to re-
start well and tank
battery
Establish contract
with pumper to
operate the wells
Set up oil well
chemicals, water
testing, gas testing,
etc. for compliance
and operations
Negotiate new
agreement with Tank
Farm LLC at
significantly lower
cost
Negotiate oil and gas
lease with Elysium to
lower royalty rate
1 2 3 4 5
Full Production
Costs (One Time and Annual)
Assessments (wells, tanks/piping) $44,930
Known Repairs $748,200
Unknown Repairs – from Assessments TBD
Total One Time Costs $793,130 plus TBD costs
Total Annual Costs (Operation and Maintenance Costs) $224,400 Total One Time Costs plus Total Annual Costs $1,017,530 Revenue (Annual)
Oil revenue (2,000 barrel/yr @$80.00/barrel)
- Minus Royalty Payment
$160,000
$16,667
Total Annual Revenue $133,333
Pros Cons
Maintaining oil production Continued liability until well abandonment Continued costs that outweigh revenues
Aging infrastructure
Sell Wells/Lease
Costs Revenue
Unknown TBD None N/A
Pros Cons
Allows potential future City oil production Unlikely interest Unknown cost to prepare oil unit for
sale/lease
Still need to address tank farm lease
Will impact development of Civic Center
Idle Wells
Costs Revenue
One time - unknown
(minimum repair to well 3) Minimum - $544,950 None N/A
Annual costs TBD
Pros Cons
Possible re-activation at later time Still requires casing repair on well #3 Requires ongoing compliance and
maintenance costs
City retains closure liability
Retain tank farm lease
Abandonment
Costs (One time) Revenue
Abandon Wells – to be
studied if requested by
Council
Est. $1,500,000 None N/A
Pros Cons
Removes liability Expensive one-time investment
Potential to re-develop over wells Permanent closure – no optionfor future oil production
Can phase the abandonment into multi-
year
End of life issues with tank farm lease