(August 29, 2008) -- An August 15 memo from City Manager Pat West to members of the City Council's State Legislation Committee (chair O'Donnell, vice chair B. Lowenthal, member Reyes Uranga indicates that city staff worked with Oxy [parent company of Tidelands Oil Production Co.] "and members of our state delegation to craft legislation" that would create financial incentives to explore and develop parts of the Wilmington Oil Field with resulting revenue for the City and the State.

The legislation, introduced less than two weeks ago, is now speeding through Sacramento as a "gut and amend" measure (language in one bill deleted, new language substituted, bypassing normally required Committee hearings) and could see final passage in the next few days...with the legislature's deadline for passing bills coming in the next few days.

To read City Manager West's Aug. 15 memo, click here.

In an email to LBReport.com, City Hall's Government Affairs Manager Tom Modica indicates management believes AB 2165 could enable revenue in the following ranges (cumulative over ten years):

• State = $200 million
• Port = $150 million
• City = $130 million

"The [figures] vary based on a complex model that takes into account different assumptions such as the price of oil, number of wells, timing of exploration, etc...It's important to note that these revenues will not be realized immediately - it could take several years for significant revenues to be identified, but this is an important long term investment in the Wilmington field," Mr. Modica said.

On Aug. 18, Assemblywoman Betty Karnette (D., LB) launched the "gut and amend" measure.

On Aug 19 Government Affairs Manager Modica conveyed news of AB 2165 publicly to the City Council's State Legislation Committee.

On Aug. 20, Mayor Foster wrote to Assemblywoman Karnette, expressing support for the bill "on behalf of the City of Long Beach." Mayor Foster cc'd his letter to State Senators Alan Lowenthal, Jenny Oropeza and Ed Vincent, and Assemblymembers Warren Furutani and Mervyn Dymally.

To read Mayor Foster's letter, click here.

On Aug. 22, the measure sailed through the Senate's Natural Resources & Water Committee (7-0)...and is awaiting action in the full Senate, after which it would go to the Assembly for "gut and amend" style immediate action (likely final passage).

City management offers these points in support of the measure:

Background

The City is the sponsor of AB 2165 (Karnette) in conjunction with Occidental Petroleum Corporation (Oxy)

This bill allows the State of California to enter into an agreement with Oxy and the City to allow additional investment at Oxy's own financial risk in the West Wilmington oil field.

Wilmington oil field has been in continuous operations since the 1930's and encompasses much of area under the Port of Long Beach.

Issue to be Addressed

Significant investment in the oil field is needed to maintain and possibly increase oil production.

Under the existing contractors' agreement the State would bear more than 95% of the additional costs out of the revenues otherwise payable to the State.

The State is unwilling to bear this additional economic risk because

There is a significant risk that the additional production will be insufficient to compensate for the additional costs and

Important State water, education and general programs that depend upon oil revenue should not bear the risk of any reduction in revenues resulting from the costs of increased investment into the oil field.

Financial Benefits to Long Beach and the State

Under this bill, the State would receive approximately $200 million over the next ten years

The Port of Long Beach would receive approximately $150; however, State legislation is not needed for the Port to enter into an agreement with Oxy.

The City would receive approximately $130 million over 10 years, which would flow to both the Tidelands Fund and the General Fund.

The City's revenues would be in the form of the following:

• Percent of the State's net profit, which stays in the Tidelands fund
• Uplands working interest, which the City can transfer to the General Fund
• Oil Production Tax and Prop H production tax (per barrel produced)
• Overhead, permit and administration fees
• Utility User Taxes
• Share of property and sales taxes

These revenues would not be realized for several years, as it will take time to determine the amount of oil that can be realized.

Environmental Protections

AB 2165 would not allow for offshore drilling nor would it increase the environmental footprint of the Wilmington Field.

All drilling would occur in industrialized areas of the Port, where drilling currently exists.

How the Agreement Works

Oxy will commit to a minimum development spending level of $30 million directed towards the State's equity share -- at Oxy's sole financial risk

Oxy will preserve the State and City's current profit related to existing production.

Oxy, the State and the City will share profit related to incremental production.

Oxy will insulate the State from all economic risk related to development activities. All negative incremental net profit will be absorbed by Oxy.

AB 2165 allows for the State Lands Commission to enter into negotiations and does not specify revenue amounts for each party.

Past Success

This is proposed agreement is similar to the 1992 agreement between then Arco, State, and the City concerning the Long Beach Unit.

Actual benefit to the State from 1992 agreement: over $500 Million.

Actual benefit to the City from 1992 agreement: over $100 million

In fact, $29.5 million of the $30.5 million the City received in Tidelands Oil Profit in FY 08 came from the 1992 ARCO Agreement -- without this agreement the City's Tidelands Oil Profits this year would be only $1 million.

The speed and substance of the measure is now drawing fire from two local environmentalists, Gabrielle Weeks and Jesse Marquez of Coalition for a Safe Environment. In an emailed statement late Thursday (Aug. 27), Ms. Weeks and Mr. Marquez write:

AB 2165 would allow the City of Long Beach and the State Lands Commission to enter into an agreement for new oil, gas and other hydrocarbons exploration and oil well drilling in coastal tidelands and submerged lands in the City of Long Beach and the City of Los Angeles' Wilmington Oil Field. Unfortunately, Richard Cameron of the POLB had no information to disclose regarding how near these sites would be to the community or to sea life.

Worse yet, there are no safety or environmental protections in the Bill, only the ability for the State Lands Commission to review the plans for "responsiveness to environmental and safety concerns."

"It is not appropriate for my State or my City to try to drill their way out of debt" said Gabrielle Weeks, coordinator of the Long Beach Greens and Boardmember of the Coalition For A Safe Environment. "This project is not economically or environmentally sustainable."

AB 2165 could allow oil drilling companies to bypass current California Environmental Quality Act (CEQA) EIR requirements by allowing them to extend old grandfathered contracts for exploration and drilling. These old contracts do not require the mitigation of air, water, land, biological habitat impacts or public health impacts.

The City of Long Beach held no public meetings or public hearings to announce this bill and their intent to enter into new oil, gas, and other hydrocarbons exploration and oil well drilling in coastal tidelands and submerged lands and provided no public comment period. In addition, this Bill was amended during the last week of the Legislative session, in the midst of the Democratic National Convention, when many elected officials are out of town and the public's attention is elsewhere.

The City of Long Beach has entered into past contract terms and conditions that have allowed protected California coastal tidelands to be contaminated with toxic and hazardous oil, gas, hydrocarbons and chemicals that, as of today, have never been cleaned up and remediated.

The City of Long Beach currently has hundreds of abandoned oil wells that have never been capped off and hundreds of storage tanks, pumps, valves, pipelines, and electrical equipment that have never been removed. They are a major public health problem, public safety hazard, toxic chemical emissions source and contribute to blight in the city.

The City of Long Beach has conducted no public health survey or established a public health baseline of the impacts from its current oil drilling operations or from the hundreds of abandoned oil well sites which emit unknown quantities of toxic gases into the community. The community is concerned about the public health impacts of these existing toxic emissions.

The profits they are claiming they will make for the city and state is not even enough to clean up the existing contaminated lands and public health problems. Now they will create new additional toxic sites.

"The most impacted victims will continue to be the Environmental Justice neighborhoods, low income and poverty stricken communities in West Long Beach and the bordering community of Wilmington in the City of Los Angeles" says Jesse N. Marquez of the Coalition For A Safe Environment "They will see no benefits from the revenue raised, but bear all the burden of the project."

Specifically, the bill authorizes the State Lands Commission "to negotiate and execute on behalf of the State of California a contract with the City of Long Beach and its tidelands oil operating contractor, that provides financial incentives for the contractor to explore for and develop additional oil reserves beneath the tidelands and submerged lands, whether unitized or nonunitized, covered by the Long Beach Harbor Tidelands Parcel and Parcel "A" Oil Contract and beneath the uplands parcels in the Fault Block II Unit, the Fault Block III Unit, the Fault Block IV Unit, and the Fault Block V Ranger Zone Unit in the Wilmington oil field."

It says the contract "shall provide for the preservation of the current method for sharing among the contractor, the State of California, and the City of Long Beach of revenues from the sale of production under the Long Beach Harbor Tidelands Parcel and Parcel "A" Oil Contract with regard to all current oil reserves."

The bill continues:

The contract shall provide a means responsive to the market price of crude oil for determining the additional oil reserves and a method for sharing the revenues from the development of these additional oil reserves among the State of California, the City of Long Beach, and the contractor that will provide both an economic incentive to the contractor to pursue the development of these additional oil reserves and a fair and equitable return to the State of California and the City of Long Beach. The contract shall require the contractor to spend an amount to be negotiated for geologic and engineering evaluation and development in any oil and gas zones beneath the tide and submerged lands covered by the Long Beach Harbor Tidelands Parcel and Parcel "A" Oil Contract...

The measure provides, "Any revenue payable to the City of Long Beach solely from the sale of production of additional oil reserves under the contract...shall be paid to the City of Long Beach before the distribution of "remaining oil revenue" [under prior legislation]. This additional revenue, when received by the City of Long Beach, shall be used for the purposes and in the manner set forth in [in prior legislation]."

The bill carries an "urgency clause," so the measure can take effect on passage. It states in pertinent part:

This act is an urgency statute necessary for the immediate preservation of the public peace, health, or safety within the meaning of Article IV of the Constitution and shall go into immediate effect. The facts constituting the necessity are: In order to implement as soon as possible the exploration for and development of additional oil reserves that should produce more oil, prevent waste of oil and gas resources, and bring additional money to the State Treasury, it is necessary that this act take effect immediately.

To read the text of AB 2165 as most recently amended on August 26, click here.

Assemblywoman Karnette is term-limited and now in her final weeks in the state legislature. LB Councilwoman Bonnie Lowenthal (Dem) and former Palos Verdes Peninsula Unified School Boardmember Gabriella Holt (Repub) are vying to succeed her in November. Karnette, a Wrigley area resident, has indicated that she intends to run for State Superintendent of Public Instruction in 2010.

Developing.