The City owns and operates 16 oil wells that were drilled between 1953 and 1958. Fourteen are in operations today, with one used for water injection to increase productivity from other wells, and one completely out of service. The well heads are located on two sites in unincorporated County territory along West Coast Highway. The wells are slant drilled under property within the City, into the area under the ocean which is called the Newport Offshore Oil Field.
Oil Production has declined since the 1980s (when the City acquired the wells) from approximately 60,000 barrels per year to 30,000 barrels per year in 2009. Oil revenue generated is influenced by the price volatility of the oil commodity market. Oil prices have ranged from a low of $9.05 in 1999 to a high of $85.92 in 2008. In recent years, the City has been averaging approximately $1.5 to $1.8 million in oil and gas revenue a year with operation and maintenance expenditures of approximately $800 to $900 thousand a year.
Oil and gas revenue is deposited into the Tidelands Fund because the source of the oil is in the tidelands area which the City holds in trust for the people of California. The Tidelands Fund may be used only for eligible expenditures that support and maintain the tidelands, such as improvements to tidelands property including dredging Lower Newport Bay, lifeguards, beach cleaning, etc.
The productivity of the oil wells continues to decline due to the age of the wells. New oil extraction techniques are required if the City continues to use the wells. The new techniques may include: reconditioning of existing oil wells, converting existing oil wells to water injection wells, drilling new water injection wells or drilling new oil wells. The City Charter restricted the redrilling of wells until January of 2011.
In 2012, the City commissioned a study to evaluate our current oil field operations, conduct an oil reserve valuation and analysis, provide recommendations for productivity modification techniques and provide recommendations on how to best operate the field in the future.
The study was conducted by Netherland, Sewell & Associates, Inc. (NSAI) and can be viewed by clicking here.