We are an independent energy company primarily engaged in the acquisition, exploration, exploitation and development of oil and natural gas properties. Since our founding in 1992, our core areas of focus have been offshore and onshore California. Our principal properties are located both onshore and offshore Southern California, onshore in California's Sacramento Basin and onshore along the Gulf Coast of Texas, and are characterized by long reserve lives, predictable production profiles and substantial opportunities for further exploitation and development.
We are one of the largest independent oil and natural gas companies in California based on production volumes. According to a reserve report prepared by DeGolyer & MacNaughton, we had proved reserves of approximately 98.3 MMBOE as of December 31, 2009, based on assumed prices of $61.04 per Bbl for oil and $3.87 per MMBtu for natural gas. As of that date, 53% of our proved reserves were oil and 51% were proved developed, and the PV-10 of those reserves was approximately $801.1 million. Our average net production in the fourth quarter of 2009 was 20,079 BOE/d.
Description of Properties
South Ellwood Field. The South Ellwood field is located in state waters approximately two miles offshore California in the Santa Barbara channel. We conduct our operations in the field from platform Holly and own related onshore processing facilities. We acquired our interest in the field from Mobil Oil Corporation in 1997. Since that time, we have made numerous operational enhancements to the field, including redrills, sidetracks and reworks of existing wells and upgrades at the platform and the onshore treatment facility. We operate the field and have a 100% working interest.
The South Ellwood field is approximately seven miles long and is part of a regional east-west trend of similar geologic structures running along the northern flank of the Santa Barbara channel and extending to the Ventura basin. This trend encompasses several fields that, over their respective lifetimes, are each expected to produce over 100 million barrels of oil, according to the California Division of Oil, Gas, and Geothermal Resources. The Monterey shale formation is the primary oil reservoir in the field, producing sour oil with a gravity of approximately 22 degrees. As of December 31, 2009, there were 15 producing wells and two injection wells in the field.
Our processing and transportation facilities at South Ellwood include a common carrier pipeline, an onshore facility, a pier and a marine terminal. We conduct two-phase separation on the drilling platform and the oil/water emulsion is transported by pipeline to the onshore facility for further separation. The oil is then transported to the marine terminal via the common carrier pipeline. From the marine terminal, the oil is transported by a barge that is owned and operated by a third party. Title to the oil is transferred when the barge completes delivery. Beginning in March 2010, we will sell oil production from the field to a major oil company pursuant to a contract that will be terminable by either party with 60 days notice after August 2010. Natural gas produced at the field is transported by common carrier pipeline.
Our subsidiary, Ellwood Pipeline, Inc. is pursuing the permits necessary to build a common carrier pipeline that would allow us to transport our oil to refiners without the use of a barge or the marine terminal. We anticipate that approval hearings for the project will not be held before the second half of 2010. While we believe the pipeline should be approved, the outcome of these hearings cannot be predicted. Pending regulatory approvals and completion of the pipeline, we expect to use our current barge and a second, double-hulled barge (the "new barge") to transport oil production from the field. We have obtained permits that will allow us to use the new barge through May 2010, on a limited basis and subject to its other delivery commitments, if the current barge is out of service. We are pursuing the permits necessary to use the new barge on a full-time basis, and expect to receive them no later than May 2010. Subject to the receipt of those permits and approvals, we expect to transition to use of the new barge in connection with the termination of the contract for the current barge, which will occur contemporaneously with the availability of the new barge. The new sales contract for oil production from the field will allow us to use the current barge until the new barge is available. We are also pursuing the permits necessary for a lease extension in the field that would effectively double the size of the existing lease area. Development of the lease extension area can be accomplished from the field's existing platform.
It will be important for us that Ellwood Pipeline, Inc. complete the proposed common carrier pipeline by 2016 at the latest, as our lease for the site where our oil storage tanks are located, which is held by the University of California, Santa Barbara, will expire at that time, and the current barging operation will likely not be feasible if that lease is not extended or renewed. Moreover, it is possible that pursuit of the lease extension project will complicate the efforts of Ellwood Pipeline, Inc. to obtain the necessary permits for the pipeline project. Accordingly, we may withdraw the application for the lease extension project if we determine that continuing the permitting process for that project is likely to significantly impede the permitting of the pipeline.
Santa Clara Federal Unit. The Santa Clara Federal Unit is located approximately ten miles offshore in the Santa Barbara channel near Oxnard, California. Our operations in the unit are conducted from two platforms, platform Gail in the Sockeye field and platform Grace in the Santa Clara field. We acquired our interest in the unit and the associated facilities from Chevron in February 1999. Production is transported via pipeline to Los Angeles, California. We operate the unit and have a 100% working interest.
The Sockeye field structure is a northwest/southeast trending anticline bounded to the north and south by fault systems. The field produces from multiple stacked reservoirs ranging from the Monterey shale, at about 4,000 feet, to the Middle Sespe at approximately 7,000 feet. Other formations include the Upper Topanga, Lower Topanga and Sespe. As of December 31, 2009, there were 19 producing wells and 12 injection wells in the field. The oil produced from the Monterey shale and Upper Topanga is sour with gravities ranging from 12 to 18 degrees. The Lower Topanga and Sespe horizons produce sweet crude with gravities of 26 to 30 degrees. Chevron shut in production at platform Grace in the Santa Clara field in 1997, and we currently use the platform as a launching and receiving facility for pipeline cleaning devices and as an interconnecting pipeline to transport oil and natural gas produced from platform Gail to our onshore plant.
West Montalvo. We acquired the West Montalvo field in Ventura County, California in May 2007. We operate the field and have a 100% working interest. The field, which includes an offshore portion that is reachable from onshore locations, produces from the Sespe formation. As of December 31, 2009, there were 31 producing wells in the field. Since acquiring the field, our activities have focused on returning idle wells to production, working over and recompleting existing wells, and upgrading well lift systems and processing facilities.
Dos Cuadras Field. The Dos Cuadras field is located in federal waters approximately five miles offshore California in the Santa Barbara channel. We acquired our 25% non-operated working interest in the western two-thirds of the field from Chevron in February 1999. We have working interests ranging from approximately 17.5% to 25% in the associated onshore facility and pipelines. The field is operated by an unaffiliated third party. Production is transported via pipeline to Los Angeles, California. As of December 31, 2009, there were 88 producing wells and 21 injection wells in the field.
Onshore Southern California. Our onshore properties in the Southern California region include the Beverly Hills West field, the Santa Clara Avenue field and the Cat Canyon field. The Beverly Hills West field is located in Beverly Hills, California. All drilling and production operations at the field are conducted from a 0.6 acre surface location adjacent to the campus of Beverly Hills high school. We acquired our interest in the field in 1995. We operate the field and have a 100% working interest. The Santa Clara Avenue field is located in Ventura County, California. We acquired our interest in this field in 1994 and 1996. We operate the field and have working interests ranging from 43% to 100%. The Cat Canyon field, which we acquired in December 2007, is located in Santa Barbara County, California. We operate the field and have a 100% working interest. As of December 31, 2009, there were a total of 47 producing wells in these onshore Southern California fields.
In terms of historical production, the Sacramento Basin is one of California's most prolific onshore natural gas producing areas not associated with oil production. It is approximately 210 miles long and 60 miles wide and contains a variety of different geologic plays. We own 3D seismic data covering over 1,100 square miles in the basin, and 2D seismic data covering approximately 20,000 line miles. We continue to analyze this data to identify additional exploration, exploitation and development opportunities on our properties. We believe this data will also help us assess acquisition opportunities in the basin.
Willows and Greater Grimes Fields. The Willows and Greater Grimes fields are located in Colusa, Glenn and Sutter Counties north of Sacramento, California. Our combined lease position in these fields was approximately 185,000 net acres as of December 31, 2009. We operate substantially all of the fields and have a volume-weighted average working interest of 86% (based on production during the fourth quarter of 2009). On June 30, 2009, we closed on the acquisition of certain natural gas producing properties in the Sacramento Basin, which we purchased from Aspen Exploration Corporation and certain other parties. The majority of the producing wells purchased are located in the Willows and Greater Grimes area.
Natural gas production in the Greater Grimes field is from the Forbes, Kione and Guinda formations and production in the Willows field is from the Forbes and Kione formations. Depths range from 2,800 feet in the Willows field to 8,900 feet in the Greater Grimes field. There were 507 producing wells in the fields as of December 31, 2009.
Other Sacramento Basin. We own interests in a number of other fields in Solano, Contra Costa, San Joaquin and Colusa Counties. We operate substantially all of these fields and have a volume-weighted average working interest of 81% (based on production during the fourth quarter of 2009). As of December 31, 2009, there were a total of 42 producing wells in these fields. We believe that the fields will provide us with exploration, exploitation and development opportunities that are similar to those found in the Willows and Greater Grimes fields.
We are currently engaged in actively marketing all of our oil and natural gas interests in the Texas properties discussed below. Net production from our Texas properties for the fourth quarter of 2009 averaged 1,505 BOE/d. The Texas properties comprised 7.9% of our proved reserves at December 31, 2009 or 7.8 MMBOE. We expect to use the proceeds from the sale of the Texas assets to fund capital expenditures, reduce debt and fund operations.
Hastings Complex. The Hastings complex encompasses approximately 4,550 net or 4,800 gross acres located 30 miles south of Houston in Brazoria County. The complex is comprised of the West Hastings Unit, the East Hastings field and the Hastings field. The complex produces light, sweet crude oil with a gravity of approximately 30 degrees and is characterized by long-life, stable production. The fields in the complex produce from multiple Miocene and Frio reservoirs at depths ranging from 2,000 to 6,100 feet.
In February 2009, we sold our interest in properties producing from the Frio formation in the Hastings complex to Denbury for approximately $197.7 million, after certain post-closing adjustments, pursuant to an option agreement we entered into with Denbury in November 2006. The purchase price was in addition to the $50.0 million option payment Denbury previously made to us under the agreement. We retained certain interests in the complex not related to the Frio formation. Substantially all of the current production from the complex is from the Frio formation.
Pursuant to the agreement, Denbury has committed to a plan to pursue a CO2 enhanced recovery project at properties it acquired. The plan calls for Denbury to make capital expenditures of at least $178.7 million by the end of 2014. As part of the plan, Denbury is responsible for providing the necessary CO2. We have retained an overriding royalty interest of 2.0% in production from the properties. We will also have the right to back in to a working interest of approximately 22.3% in the CO2 project after Denbury recoups (i) its operating costs relating to the project and a portion of the purchase price and (ii) 130% of its capital expenditures made on the project. If CO2 recovery operations do not meet certain development milestones by January 2013, Denbury will be required to either resell the properties to us at a discount or make additional payments to us. The agreement also establishes an area of mutual interest with respect to us and Denbury in specified areas adjacent to the properties. The success of the planned CO2 enhanced recovery project will be subject to numerous risks and uncertainties, including those relating to the geologic suitability of the properties for such a project and the availability of an economic and reliable supply of CO2.
Manvel. We acquired the Manvel field in Brazoria County, Texas, and certain related properties, in April 2007. We operate the field and have a 100% working interest. The field produces from the Frio formation. As of December 31, 2009, there were 45 producing wells in the field. We believe that the field provides us with exploitation and development opportunities, including potential CO2 enhanced recovery opportunities, that are similar to those in the Hastings complex, which is nearby and geologically similar.
Constitution Field. The Constitution field is located in Jefferson County, Texas. We operate part of the field and have working interests ranging from 25% to 100%. The field produces oil with a gravity of approximately 50 degrees and natural gas from the Yegua reservoir at depths ranging from 13,500 feet to 15,300 feet. As of December 31, 2009, there were two producing wells in the field.
South Liberty Field. The South Liberty field is located in Liberty County, Texas. The field produces from the Miocene, Frio, and Yegua formations. Currently all of our production in the field is from the Yegua formation at depths ranging from 7,400 feet to 10,000 feet. We operate the field and have a 100% working interest. As of December 31, 2009, there were 18 producing wells in the field.
Other. Our other Texas properties encompass approximately 9,900 net acres in the southern Gulf Coast region. We operate substantially all of our production in these fields and have a volume-weighted average working interest of 85% (based on production during the fourth quarter of 2009). As of December 31, 2009, there were a total of 57 producing wells in these fields.
We intend to allocate a portion, typically 10 to 20 percent, of our annual capital expenditure budget to exploration activities. Our exploration portfolio includes numerous prospects across our core operating regions, and occasionally we pursue ventures in other areas that we believe align with our corporate strengths and strategy.
Onshore Monterey Shale Formation. We have developed an extensive knowledge of the Monterey shale formation and believe the formation holds significant exploration opportunities onshore. A significant portion of our exploration projects target that formation. In 2006 we began actively leasing onshore acreage in Southern California targeting the Monterey shale formation. Our leasing strategy has focused on areas where we believe the Monterey shale will produce light, sweet oil and where the quality and depth of the Monterey shale is expected to be advantageous. To date, our onshore Monterey shale acreage position is approximately 90,000 net acres, and we intend to aggressively add to this position in 2010.
Sacramento Basin. We drill a significant number of wells on non-proved locations in the Sacramento Basin. These wells are considered "exploratory wells" as defined in SEC Regulation S-X. See "—Drilling Activity." The majority of the wells in the basin that are "exploratory wells" under SEC Regulation S-X are wells drilled on the border of existing fields in an attempt to test and expand the limits of a producing area. We generally do not distinguish between those wells and development wells from an operating perspective and generally do not include them in our exploration budget.
Oil and Natural Gas Reserves
The following table sets forth our net proved reserves as of the dates indicated. Our reserves as of December 31, 2009 are set forth in a reserve report prepared by DeGolyer & MacNaughton. DeGolyer & MacNaughton reviews production histories and other geological, economic, ownership and engineering data related to our properties in arriving at their reserve estimates. Proved reserves as of each date indicated reflect all acquisitions and dispositions completed as of that date. The reserve estimates at December 31, 2008 are based on unescalated year-end posted prices. The reserve estimates at December 31, 2009 are based on the unescalated twelve month arithmetic average of the first day of the month prices.