Robb Fulcher

Drilling down into the Hermosa Beach oil deal

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Hermosa Beach Councilmen Kit Bobko, Michael DiVirgilio

Councilmen Kit Bobko and Michael DiVirgilio, who negotiated the Macpherson lawsuit settlement for Hermosa, at City Hall. Photo by Robb Fulcher

City officials took the town by surprise with the Friday announcement that they had settled an epic $750 million lawsuit by a spurned oil company, ending a threat of municipal bankruptcy that had cast its cold shadow over the little town for 14 years.

But the settlement promises to revive an issue that once over-arched all others in the 19,000-person city, calling for Hermosans to vote yea or nay on an oil drilling project just like one they rejected 17 years ago in an often bitter civic battle.

Déjà vu, Hermosa style.

The settlement, hammered out on the city’s part by Councilmen Michael DiVirgilio and Kit Bobko, does away with a breach-of-contract claim by Macpherson Oil Company of Santa Monica, which had planned to slant-drill oil from under the Pacific Ocean, using a rig on city-owned land several blocks inland.

Under terms of the settlement, city officials will put forth a ballot measure to repeal at least part of a citywide ban on oil drilling, which was imposed by a previous ballot measure that was hotly contested in 1995.

If the ban is lifted, a separate oil company would be allowed to conduct the drilling project, having bought out Macpherson’s project rights for $30 million.

If the ban is not lifted, the city will pay $17.5 million to the new player in the game, Bakersfield-based E&B Natural Resources Management Corp. (Hermosa’s annual city budget is about $26 million.)

If the ban is lifted, the city would receive roughly 15 percent of the oil revenue under a complex royalty formula, unless it turns out there is little or no oil to drill, in which case the city would pay E&B as much as $3.5 million. The city school district would receive some level of royalties as well, on top of 20 cents per barrel of oil, under terms of the old Macpherson contract.

Money matter

City officials said the amount of money that could be earned depends upon how much oil would be recovered, and E&B was busy reviewing estimates of the oil reserve, to provide Hermosans with an estimated range of royalty earnings.

The question of how royalty money could be used remained to be answered as well.

Under state law, public revenue from undersea drilling may only be used for projects that benefit the tidelands, west of the mean high-tide line. But city officials said they did not yet know how the complicated tidelands restriction would apply to oil royalties.

Hermosa has used tidelands revenue from a large offshore communications cable to help rebuild its beach bathrooms.

E&B President Steve Layton said some of the oil drilled would be under the land, perhaps far enough inland to avoid the tideland restriction. He also said the city and schools would receive some money, such as property taxes based on oil production, from the use of city land not under the restriction.

E&B was looking at “third-party estimates” of the amount of oil that could be recovered, and will use that to estimate royalties, and then place the information before Hermosans, he said.

“We have that work product and we are comfortable with it, but before we make any public comments we want to thoroughly review it,”Layton said.

A Hermosa Beach city maintenance yard at Sixth Street and Valley Drive would serve as a drilling island to draw up oil from beneath the Pacific Ocean if voters allow it. Photo by Robb Fulcher

To the voters

By returning the whole oily issue to the voters, the settlement brings full circle 17 years of sweat, environmental studies, jam-packed City Council meetings, courtroom arguments, campaign battles and intense civic debate.

Dency Nelson, one of the most prominent environmentalists in a city that takes pains to brand itself green, expects the drilling issue to become the over-arching one all over again.

“My hope is that it will be the overriding issue in Hermosa Beach, and I think it will be,” said Nelson, a 29-year Hermosan.

He said it is “way too early” to take a position on the proposed oil project, which will undergo an environmental review by the city, and must pass muster with the California Coastal Commission. But, he added, “I have never, ever voted for oil drilling anywhere, anytime, anyplace.”

Nelson praised the settlement, however, and said it was hailed with relief at an informational meeting with Councilman Jeff Duclos and a number of other active Hermosa environmentalists.

“It’s a great relief for the city. The lawsuit was an albatross hanging around our neck. It was impeding any forward progress for the city. This albatross, this crippling burden, has been lifted,” he said.

“It’s not in the hands of the courts, it’s in the hands of the citizens ofHermosa Beach,” Nelson said.

He said the voters “have a fixed dollar figure” capping the city’s liability.

Despite “overwhelming support for the settlement” at the informal meeting, “a great deal of concern” was expressed over the possibility of oil drilling in Hermosa, Nelson said.

“My concern is that a company can say anything and promise much, but if something should happen, they can afford better lawyers than we can,” he said.

“And all this branding and forward progress we’ve tried to make, in a city that calls itself a ‘green idea city,’ it might be difficult for oil drilling to cohabit with that idea,” he said. “But I want to be pragmatic. Maybe there is the potential for lemonade to be made out of lemons, so I’m going to keep an open mind on this,” Nelson said.

Hermosa was the first municipality in the area to sign an international pledge to strive for carbon neutrality. It has imposed one of the region’s strictest outdoor smoking bans, and has won environmental awards for innovative storm drain projects to keep pollution from the ocean.

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