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Video: Black gold rush in Los Angeles

By Jane Wells Correspondent
CNBC
updated 7/18/2008 3:53:17 PM ET 2008-07-18T19:53:17

Remember how Jed Clampett and his family struck "black gold" and moved to Beverly Hills? Today the black gold is IN Beverly Hills.

Beverly Hills is one of the most fertile oil fields in Los Angeles, producing nearly a million barrels a year. Many wells are camouflaged or hidden inside buildings. One on the property of Beverly Hills High School is covered in quilt-like floral blankets.

Not far from here, in Wilmington, they churn out far more oil — in fact, the Department of Energy calls Wilmington the third largest oil field in the 48 contiguous states. Who knew?

Most of California's oil comes from the central part of the state (think Daniel Day Lewis in "There Will Be Blood"), but with oil prices so high, all over Los Angeles people are digging, or restarting, wells — even ones that only turn out 10 barrels a day. The state turns out 660,000 barrels a day, but that's down nearly half from the peak in 1985.

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Still, conservative estimates are that California is sitting on three billion barrels of accessible oil. Talk about a gold rush.

In Los Angeles, there are three challenges: The fields are old, there's too much urban sprawl to drill easily, and there's a lack of rigs and crews. Also, the oil here is much heavier than the stuff they pull out of west Texas, meaning it's less profitable.

One local oil man, Thomas Dahlgren at Warren E&P, says they can still get $100 a barrel for the local crude, and his company is expanding capacity, spending $2 million per new well. Permits for new drilling are up 23 percent in the state — though it may not be enough to do more than flatten the decline in California production.

Perhaps most pleasantly surprised all by this are the thousands of individuals who own the mineral rights to the land where drilling is happening, moms and pops whose families have owned those rights for years.

Thomas Dahlgren says for their few wells in Wilmington they pay monthly checks to about 6,000 rights owners. Those checks used to be around $30. Now he says they're up to $700.

Maybe those folks can use the extra oil money to buy gas.

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