Chevron Will Start Pumping Oil at Point Arguello : Energy: The decision to ship by pipeline comes as a surprise. Analysts say higher oil prices now make it economically feasible.

In a surprise move, Chevron Corp. said Tuesday that it would begin limited production and pipeline shipments of oil from its long-idle Point Arguello offshore project while it appeals a decision by Santa Barbara County to bar oil tankers from the project.

Chevron, which leads a consortium of 18 oil companies, said it would produce up to 20,000 barrels a day of heavy crude--about a fifth of the project’s permitted capacity--and ship it by pipelines to refineries outside Southern California.

Such production could begin in four to six months while the consortium hires and trains employees, said Richard Hughes, a Chevron district land supervisor in Houston.

The start-up announcement surprised county officials, but local and federal authorities welcomed it. Critics continued to maintain that Chevron could do more to avoid shipping oil by tanker from the project.

This would be the first time that oil has flowed from the $2.5-billion project, which has sat idle atop one of the nation’s largest reserves since completion nearly three years ago.

Since oil was discovered there a decade ago, local officials, environmentalists and project sponsors have battled over safety questions, and the project has become a symbol in the oil industry of bureaucratic hang-ups.

The long-delayed project “has stood out as kind of a sore thumb,” said one industry analyst.

“The U.S. government has been going around to various countries begging them to boost output by 50,000 barrels a day . . . and it’s been inexplicable to people outside, who don’t understand the American political process.”

Hughes said the decision to proceed with production was spurred in part by high oil prices resulting from the Persian Gulf crisis. The prices, he said, have made it feasible to ship by pipeline to refineries outside the area.

On Nov. 12, the Santa Barbara County Board of Supervisors, wary of an Exxon Valdez-type oil spill, rejected a request by Chevron to move oil temporarily from the project by double-hulled tanker to refineries in Southern California. The Santa Barbara Channel was the site of a massive oil spill from an offshore platform in 1969.

On Tuesday, Chevron formally appealed the vote to the California Coastal Commission. A decision is due in 60 to 90 days.

“Having been turned down again by the County of Santa Barbara, we have decided we would go ahead and start the field up,” Kenneth T. Derr, chairman of San Francisco-based Chevron, said in an interview.

“Hopefully the Coastal Commission will be ready to approve (our appeal), and when they do . . . we won’t have to wait,” he added. “If not, we’ll move the roughly 20,000 barrels (a day) north, and we figure that’s better than nothing.”

Officials at the Department of Energy, which has acted as an unofficial mediator in the dispute, applauded Chevron’s decision.

“We’re very pleased,” said Stephen A. Wakefield, the department’s general counsel in Washington. “Our primary objective over the last three months . . . has been to get this project into production.”

Word of the start-up caught Santa Barbara County officials by surprise, especially since Chevron had argued strongly against pipeline shipments because of the cost. “It’s kind of a shock to us,” said Tom Rogers, chairman of the County Board of Supervisors.

Both county officials and local environmentalists welcomed Chevron’s decision to ship some of Point Arguello’s oil by pipeline, though they argued that Chevron should be shipping all of it that way.

“We’re always happy if they move stuff by pipeline, so that’s OK,” said Henry Feniger, president of Get Oil Out, a citizens group opposed to tankering. But, he said, “the larger question of how to move the larger production capability remains unresolved, and that’s really too bad.”

Hughes, however, said pipeline shipping to Southern California refineries--as suggested by the county--remained too costly because of technical requirements.

Starting production is designed in part to bolster Chevron’s appeal of Santa Barbara County’s Nov. 12 vote to the Coastal Commission.

In effect, Chevron is going ahead with its part of a compromise put forward on Nov. 9 by the Department of Energy, under which some oil would be shipped by pipeline and the rest by tanker--a compromise rejected by Santa Barbara County supervisors.

“Clearly, it’s not our first choice,” Hughes said. But, he said, Chevron was willing to do it “to get some cash flow and to make it easier for the politicians to accept tankering” of the rest of Point Arguello’s oil.

In the wake of the Iraqi invasion of Kuwait, the Energy Department has been a vocal advocate of starting production at Point Arguello, which has a reserve estimated at 300 million barrels.

Derr notified Energy Secretary James D. Watkins of Chevron’s plans by letter Tuesday, and thanked him for his department’s mediation.

The project already has permits to produce up to 100,000 barrels of oil a day, or about half the amount imported from Kuwait before the invasion. Realistically, maximum sustainable production would be about 75,000 barrels a day.

For the start-up, employment must be boosted from about 100 now to 300. It will settle at 200 once production is under way, Hughes said.

In addition, equipment must be tested and some minor construction completed.

The project’s sponsors are considering a number of possible pipeline routes, Hughes said. Both would use Goodyear’s All American Pipeline. One would send oil to Unocal Corp.’s refinery near Santa Maria, but that would require completion of a pipeline link.

Another would send oil to Texaco Inc.’s refinery in Bakersfield or to refineries in the Bay Area.

NEXT STEP It will take several months to gear up oil production at Point Arguello and begin pipeline shipments. Meanwhile, Chevron will appeal to the California Coastal Commission Santa Barbara County’s vote barring oil tankers from the project. A decision is expected to take 60 to 90 days. If Chevron loses, it has suggested that it may take the matter to court.