COVER STORY : Over a Barrel : Oil-Drilling Days May Be Numbered on Artificial Islands Off Long Beach

Palms and banana trees rustling in the ocean breeze. Hibiscus and impatiens in bloom. White water tumbling into the sea. It’s a perfect little tropical island--in the middle of Long Beach Harbor.

But step off the boat and you see that it’s all a facade, propped up with struts and cable, like the television set of “Gilligan’s Island.”

This granite atoll--one of four in the harbor--isn’t graced with grass shacks, it’s gridlocked with pipelines and storage vats. Inside the fringe of palm trees, men and women in hard hats scoot around on forklifts or lug heavy pipes.

Someone flips a switch and the waterfall dribbles to a stop.

The real reason for all of the hardware on Grissom, as this island is called, can be observed off to the edge, where a technician in a trailer studies a video monitor. The picture, supplied by a tiny television camera 5,200 feet beneath the surface, shows shiny black globules, clustering like grapes, skittering along the rim of a pipe toward the surface in an odd, bouncy motion.

Crude oil.

Oil has been a part of Long Beach for more than 70 years--a get-rich-quick medium, then a source of urban blight as messy oil derricks proliferated and a large swatch of Long Beach real estate began to sink alarmingly.

Now, almost 800 million barrels later, it’s a mostly clean, smooth-running operation on four “tropical” islands and a mainland platform, using a motivated crew of 200 (“Where else can you work on an island in the Pacific and go home at night?” said one engineer) and all the smart drilling technology.

But its days appear to be numbered. The so-called Long Beach unit, stretching from downtown Long Beach out into the harbor, was producing about 150,000 barrels of oil a day in the 1960s. Now it turns out a lean 47,000 barrels with a host of new mining techniques to scour each nook and cranny for undiscovered oil.

There’s still a lot of the black stuff down there, experts say, but some oil companies are thinking about the day they pack it in. Some already have.

Two months ago, three companies looked at the balance sheet in Long Beach and decided they weren’t going to pay any more royalties to the city’s 13,000 “townlotters,” the individuals who own the mineral rights to the real estate properties sitting on top of a small portion of the oil field.

“It was inevitable that there would come a time when the working interest owners (the oil companies) would start losing money,” said Arco official Steve Freeman. “We’re at that point now.”

As lessors of the mineral rights, the oil companies, which have been paying as much as 49% of the profits to the townlotters, always had the prerogative to pull out when profits got skimpy. It was written into their leases, oil company officials say.

Arco, owner of THUMS Long Beach Co., which manages the oil field, will continue to be involved in the production part of the business. But Phillips Petroleum will stay only as a minor investor, and Chevron is pulling out completely.

The announcement sent the townlotters, most of them heirs and small investors who had been reaping an average of $350 a year, scrambling to their calculators. Starting this month, if the townlotters--about 13,000 of them--want to hold onto their claims, they’ll have to ante up a proportionate share of the oil field’s operating costs, just like any other investor hoping for profits. The townlotters’ share of the operating costs would average about $92 a year, according to oil company officials.

The so-called townlot, the portion of the oil field that lies under the city, represents about 8% of the Long Beach unit.

If townlotters stick around until the operation closes down, they’ll have to bear a share of the multimillion-dollar shutdown costs, according to the terms of the lease agreements with the oil companies.

“The longer you stay in, the more exposed you are to having to help pay for the abandonment of the field,” said Mel Wright, whose wife, Jonine, shares the mineral rights to a small piece of property in the Belmont Shore area. “Every day that goes by, it gets a little closer.” The alternative is to sell to other investors or just abandon their claims.

The dilemma of the townlotters highlights a $64,000 question being asked by everybody with a stake in the unique urban oil field, which is still studied by visiting oil technicians from around the world: How long can it continue to produce oil profitably?

Xenophon C. Colazas, the city’s director of oil properties, thinks there are more than 10 good years left. “That’s my opinion, of course,” says Colazas, a petroleum engineer who has worked in the Long Beach unit for 34 years. “It all depends on economics.”

One part of economics is the price of oil, which has been holding at a modest $13.50 a barrel for several months, but which dipped to a measly $8.50 last December. In 1990, as Iraq invaded Kuwait, Long Beach oil brought $24 a barrel.

“If it goes the way it did in December,” says Wright, a former oil company executive who works as a petroleum consultant, “they’ll have to abandon the field. This is a business. People are in it to make money.”

Nevertheless, THUMS (an acronym for Texaco, Humble, Union, Mobil and Shell, the five companies that combined in 1964 to bid on leasing the field) continues to put money into the oil islands in an effort to sop up every sticky drop of crude down there.

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In recent years, for example, the company has begun using sophisticated drilling bits that can cut sideways into once-inaccessible pockets of oil. Technicians are using new solvents that dissolve crusty asphalts to free the flow of crude and are employing computer programs that monitor flows and pressure buildups in the wells.

All of these, along with an aggressive drilling program, increased productivity last year by 2,500 barrels a day, from about 44,500, THUMS officials say.

Area supervisor Chris Hartman stands over a computer monitor in a little office and scans a graphic showing water pressure and production rates for the more than 300 wells on Grissom. (The islands are named for four astronauts who died in accidents in 1967, three in the notorious launch-pad fire of that year, including Virgil I. (Gus) Grissom.)

“We used to have to go with a pressure gauge from well to well and write the data down by hand,” Hartman says. “This frees you up to do something more productive.”

But all the new techniques and equipment can’t get around the increasingly watery mix that the wells are producing from the aging field.

When drill bits first cut into the Long Beach unit in 1965, THUMS wells brought up a rich, sludgy brew that was only 20% water. Lately, wells on the oil islands have been bringing up a thin gruel that is more than 92% water.

“The water cut increases as the field gets older,” Colazas says.

More water means more processing--and higher power bills for a company that already spends more than $22 million a year for electricity.

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The oil business has been very good to Long Beach, which technically owns the Long Beach unit, and to the state of California. City officials estimate that Long Beach has pulled in $433 million in revenue from the field in the past 55 years.

Much of the city’s profit, however, came before 1964, when the state Legislature, asserting that the city is only the state’s trustee rather than sole beneficiary of the field, enacted legislation giving the state the lion’s share of oil revenues. An earlier bill, using the same rationale, had allowed the state to seize $122 million in accumulated oil revenues from Long Beach.

Since 1964, the state has drawn an estimated $4.3 billion from the Long Beach unit; the city has earned a relatively modest $246 million.

This year, the city expects to get $1 million in tidelands oil revenues, plus about $3 million in interest from a fund set up to pay to prevent land above the field from sinking, an occurrence known as subsidence. The state stands to earn $41 million.

There are still remnants of the early oil business around town, but long gone are the black gushers, drilling towers and brawling roughnecks of the 1920s and 1930s. Nowadays, the city’s oil business apart from the Long Beach unit consists of a few fields around the city, such as those near Signal Hill, with seesawing oil pumps called rocking horses.

In June, 1921, an 80-foot-high black geyser, which took four days to cap, marked the first productive oil well in the city. By 1924, Signal Hill (which incorporated as a separate city that year) sported a Sherwood Forest of derricks, with enormous Erector Set towers bristling across the hill.

But the first oil from the lucrative Wilmington field, which stretches from Wilmington to Seal Beach, wasn’t drawn until 1939, when a wildcatter touched off a gusher on the west side of town, near the present Pacific Coast Highway. It was soon clear that this was a monumental field--the third largest in the United States--and that its richest part was under Long Beach Harbor.

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As rig operators rushed to exploit the field, however, the spongy layers of shale and sandstone on which Long Beach was built began to sink. By the late 1950s, a bowl-like cavity, 29 feet deep at its lowest point, had appeared around Terminal Island in the Port of Long Beach.

Buildings cracked, subterranean pipelines snapped and railroad tracks twisted like paper clips. Removal of the oil was undermining the city.

Geologists proposed injecting water into the subterranean cavities. An intensive program of injection quickly solved the problem, stabilizing the ground and, in some cases, raising it a few inches. Independent operators who had resisted the program, thinking it would dilute their returns, found that injection often loosened hard-to-retrieve seams of oil.

Like other cities, Long Beach had resisted offshore drilling for aesthetic reasons. But in 1962, voters approved a highly restrictive drilling referendum to exploit the rich deposits under the harbor. The referendum permitted offshore drilling as long as it was done from a series of small islands, landscaped to “blend with the shoreline and add to the natural beauty of the offshore area.”

The result was a Southern California solution to a messy problem. THUMS built an “ersatz archipelago,” as one writer described the islands, complete with Tahitian-looking panels to muffle machine noise and pastel-paneled “condos” to disguise drilling equipment.

“It’s amazing the number of people who ask how they can stay in those hotels out there,” says William Guerard, oil and gas supervisor for the state Department of Conservation and a former field inspector in Long Beach.

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Their unusual appearance aside, the islands were monumental engineering achievements. More than 640,000 tons of rock was barged in from Catalina Island to form outer rims, and 3.6 million cubic yards of sand was dredged up to fill the centers.

Since 1965, 1,305 offshore wells have been drilled, about a quarter of them injection wells to prevent subsidence. Oil, water and gas are separated in huge vats, then the petroleum products are funneled into a network of 140,000 feet of steel pipeline that carries them to mainland refineries.

The water is filtered to remove minerals and bacteria that might gunk up the drilling equipment, and reinjected.

THUMS’ engineers, geologists, riggers and roustabouts are ferried from a dock near the Queen Mary to their stations on the islands.

Behind one of those condo facades one recent day, workers guided 90-foot lengths of steel pipe, dangling from a winch, through a rotating platform. Thousands of feet below, a bit was drilling into the shale beneath the harbor, edging toward an untapped pocket of oil.

“It’s deceptively quiet,” said Stephen J. Marsh, THUMS’ community relations director. “Everything’s two miles into the ground.”

Other workers studied control panels, repaired equipment or tended to the island’s tropical foliage. Working on an island becomes just part of the routine after a while, THUMS workers say.

“There’s just one difference,” said Terry Barber, production engineer on Grissom. “That old saying, ‘If you miss the boat, you’re in trouble,’ is literally true here.”

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The company’s 60-foot crew boat runs once an hour, except in bad weather, during which it has been known to shut down altogether. Veteran THUMS employees still reminisce about the storm of March, 1983, when waves rolled over the southernmost island and a handful of workers remained stranded overnight.

THUMS officials claim they run a squeaky-clean operation, with no oil or chemical spills. But some environmentalists think it may be too clean.

There is “circumstantial evidence” that detergents used to clean up minor oil leaks on the islands have been washing into the ocean and killing fish and other forms of life in the surrounding water, says Rimmon C. Fay, a marine biologist and longtime authority on marine life in Southern California.

“A few miles away, in Alamitos Bay, there’s an extraordinary diversity of marine life,” Fay says. “Look around the oil islands, and it’s just not there.”

Oil investors worry about the costs of environmental requirements. When drilling operations stop, state conservation official Guerard says, the operators will be required to insert a series of cement plugs, to fill pipe casings with a kind of heavy mud used to lubricate drills and, finally, to weld steel caps over the mouth of the wells.

After equipment is dismantled, the asphalt covering will have to be peeled away and, if there’s any oil in the island cores, the sand will have to be dug out and transported to landfills.

The estimated cost for all this: $145 million.

And long after drilling is shut down, Colazas adds, the city will have to monitor ground levels to ensure that subsidence does not begin again.

And then? Presumably the islands become city parks, says Ralph S. Cryder, parks and recreation director.

But there is no task force planning for conversion of the islands, Cryder adds. “When we find out when they’re going to cap all those things, we’ll get busy and talk about it.”

The $64,000 question being asked by everybody with a stake in the unique urban oil field--studied by visiting oil technicians from around the world--is: How long can it continue to produce oil profitably?