Cost leads to drilling for oil in the backyard

updated 3:47 p.m. ET March 20, 2008

SIGNAL HILL, Calif. - The oil rig rumbles to life, breaking the early morning quiet in this neighborhood of urban townhouses and big box stores with a deafening screech and roar.

As sleepy commuters idle at a nearby stop light, a grease-caked drilling crew scrambles to repair and expand one of the dozens of aging oil wells that dot the landscape of this small, hillside city about 30 miles south of Los Angeles.

With oil prices at $110 a barrel, producers nationwide are suddenly taking a second look at decades-old wells that were considered tapped out and unprofitable when oil sold for one-fifth the price or less. Independent producers and major conglomerates alike are reinvesting millions in these mature wells, using expensive new technology and drilling techniques to eke every last drop out of fields long past their prime — and often in the middle of suburbia.

In this instance, Terra Exploration & Production Co. believes that up to 2 billion barrels of oil remain hidden beneath Signal Hill, once nicknamed "Porcupine Hill" for its crown of oil derricks before developers planted gated communities and strip malls.

"A lot of these wells have been sitting idle for many years," said Mick Conner, who hopes to increase daily production on his half-dozen wells. "If we can take a 10-barrel well and make it a 20-barrel well, it becomes very profitable for us."

In California, some of the least profitable and old wells — so-called "stripper" wells — are clustered in a dense urban environment, tucked between malls, gas stations and homes. They are the legacy of a turn-of-the-century oil boom that quickly faded with the discovery of oil in Texas and the depletion of the easiest reserves.

But the move to boost production on these aging oil fields has also inspired bitter protests from some homeowners, some of whom live just a few dozen feet from active wells. Many do not own the mineral rights under their land or moved in long after the original well was built.

Reed Saxon / AP Guest rooms at this Huntington Beach, Calif., hotel have an ocean — and live oil well — view.

John Young, who lives near 40-year-old wells in Whittier Hills, was furious when he learned a small oil company was in talks to drill new wells near his neighborhood. An explosion at an existing well several years ago killed a man, sent flames 150 feet into the air, and ignited a brush fire, he said.

"I'm personally astounded they're even considering this," said Young, who does not own the oil rights under his house. "It is loud, it is noisy and it stinks."

In recent years, the state's oil production has declined by about 5 percent annually as the easy oil dried up, said Hal Bopp, California's oil and gas supervisor. But with producers revisiting these sites, he said, the state's production increased by 2 1/2 million barrels last year for the first time in years. Between 50 and 100 abandoned "orphan wells" have also been brought back online.

The story is the same across the nation. In Texas, one of the largest oil-producing states, producers filed more than 5,000 applications to unplug or upgrade old wells or drill new ones last year — an increase of nearly 2,000 from five years before.

One of those producers is Rick Mullins, who hopes to get several hundred thousand more barrels out of a well known as Miss Elly before he's done by using new techniques to plumb pockets that previously were bypassed when the economics weren't right.

"Almost every play that we're doing right now, we probably would not be doing in the late 1990s when it was a few dollars a barrel," said Mullins, who says he spends between $700,000 and $3 million per site to re-enter old wells.

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