California crisis strikes Berry Petroleum cogen units; cuts oil output

By Ann de Rouffignac
OGJ Online

HOUSTON, Mar. 30, 2001-Heavy oil producer Berry Petroleum Co. says it cut oil production at its California facilities because it’s not getting paid for power produced by its cogeneration units.

Berry reduced operations at the cogen plants after Southern California Edison Co. and Pacific Gas & Electric Co. stopped payments for electricity which the company sold them. By reducing electricity output at the cogen plants, steam used in producing heavy oil also declined.

The small exploration and production company owns and operates a QF, or qualifying facility under contract to sell electricity to the local utilities. Berry’s 100 Mw plant produces electricity and steam used in its heavy oil fields in Kern, Los Angeles, and Ventura counties. But after Southern California Edison Co. and Pacific Gas & Electric Co. stopped paying, the company reduced its electricity output to 20 Mw.

“When it became clear that we were not going to get paid by the utilities we shut down all but one turbine,” said Jerry Hoffman, Berry CEO. “Four turbines have been shut down since Feb. 1.”

The California Public Utilities Commission ordered the utilities to pay the QFs going forward. That will do nothing to help get the natural gas-fired cogeneration facilities back on line, he said. Hoffman said the PUC action will actually make it more difficult to start producing electricity again.

Berry has to buy natural gas to fuel the turbines and complained about not receiving adequate compensation for gas. The new formula used to calculate what the gas-fired QFs are paid lowers the heat rate and the compensation for gas by changing the gas price index used to the Malin delivery point on the California-Oregon border from Topock in southern California. Thursday, gas cost $14/Mcf at Topock compared to $6/Mcf at Malin, he said.

“It’s just unrealistic what they did,” said Hoffman. “What about us? It is ludicrous.”

Hoffman said his oil production is falling because he can’t afford to run his cogen facilities that make steam to keep oil production at customary levels.

“We have much less steam production now and our production is already off by 10%,” Hoffman said. “It will drop more if something isn’t done. We are getting steamrolled.”

Berry’s stock is off 30%-40% from its 52-week high of $19.90 and closed at $13/share Friday. Hoffman maintained other oil companies in the area are in the same predicament.

“The entire heavy oil business is in jeopardy out here,” he said.

Berry Petroleum and other heavy oil producers met with state legislators Thursday to see what can be done. “We are hoping the legislature will overturn what the PUC did or come up with something else to get the QFs back in production,” he said.

For almost 2 months about 3,000 Mw of QF facilities have been off line contributing to electricity emergencies in California.

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