All Michael Finch says he wants is a Measure O debate based on science, not propaganda.
The problem, he acknowledges, is that the science is buried in over 1,500 pages of jargon-laden environmental, cost benefit and health reports. Campaign slogans are easier to communicate to voters.
Hermosa Beach will vote March 3 on whether or not to lift the city’s ban on oil drilling.
Finch is E & B Natural Resources’ vice president of Health Safety and Environment (HSE) and Governmental Affairs. He joined E & B in 2012, the year the oil company acquired the right to drill for oil in Hermosa, provided the drilling ban is lifted. Previously, Finch worked for the U.S. Bureau of Land Management and DCOR, a California offshore oil drilling company.
Since joining E & B, Finch has met with city officials, Rotary, neighborhood watch groups, coffee klatches, Mira Costa High School students and just about anyone else willing to listen to him.
Opponents to Measure O, Finch contends, distort the EIR findings with banners and mailers that state the drilling project will have nine “significant unavoidable impacts.”
“They cite ‘oil spills’ as one of the nine without explaining that the EIR threshold for an oil spill is a single drop of oil,” he said. “Gas stations don’t meet that threshold. None of the opponents cars’ meet that threshold.”
“Opponents cite ‘noise impact during construction,’ but don’t explain that our project’s noise threshold is three decibels above the site’s ambient 46 decibels. A whisper is 30 decibels. Waves at night are 40 decibels. Conversation is 60 decibels.”
“The ‘significant unavoidable impact’ threshold for odor is two parts per billion. And that’s one time over the 35 years of the lease. No business can meet that threshold. CEQA (California Environmental Quality Act) is very protective,” Finch said.
Unlike sound, there is no meter to measure odor. The EIR defines offensive odor as “when rotten egg smell is first noticeable to some.”
“Our oil pumps will be underground, but people still ask me if there will be offshore drilling platforms because Surfrider Foundation shows an offshore oil platform dripping with oil on its web site.”
“They cite health concerns, but the Health Impact Report concludes, ‘…we do not believe the project will have a substantial effect on the community health in Hermosa Beach.’”
“Opponents dismiss the Cost Benefit Analysis because the CBA assumed oil is $95 a barrel and prices have fallen. But they ignore the federal EIA (Energy Information Administration) forecasts of oil prices ranging from $70 to $270 per barrel,” Finch said.
Drilling uphill
During an interview at E & B’s downtown Hermosa Beach office, Finch acknowledged it’s been an uphill battle from the start to convince residents to lift the oil drilling ban. E & B hopes to drill 30 oil wells and four water injection wells from the city maintenance yard at Sixth Street and Valley Drive into Hermosa’s uplands and tidelands, up to one mile offshore. But he thinks he’s made progress despite the propensity of No on Oil signs visible throughout town.
“People in favor of the project are afraid of coming out publicly because they’ve seen the way our supporters are harassed,” Finch said. Residents whose names and photographs have appeared in pro oil drilling advertisements have been labeled rats and singled out in anti-oil mailers, he said.
“If we can get to the place where we can lower the temperature, I think voters will get a different idea of the project,” he said.
“This is not your grandfather’s oil field. In the past it would take 30 acres to drill 30 oil wells because we could only drill straight down. Directional drilling has been a great environmental advancement. It allows wells and safety systems to be placed at central, easier to manage drill sites. And it makes accessible previously inaccessible oil, like in the tidelands.”
E & B has 26 drill sites in the Los Angeles basin, including sites in Torrance, Carson and Huntington Beach. One site is on the Hillcrest Country Club golf course in Los Angeles, “100 feet from the club’s swimming pool,” Finch said.
Take the word oil out of the ballot measure and the project would appear benign in comparison to, for example the 118-room hotel proposed for downtown, at Pier Avenue and The Strand, Finch argued.
The proposed Pier and Strand hotel is 45 feet high, blocks a view corridor and will generate an estimated $1 million a year in bed taxes. The 99-room Beach House hotel at 14th and The Strand generates 1,400 additional downtown car trips a day, according to its EIR.
E & B’s project will be 35 feet high and its pumps underground, according to the EIR. The tall wall is to dampen sound.
Truck traffic will be limited to 18 round trips a day, from 9 a.m. to 3 p.m., Monday through Friday during construction. Truck traffic after construction will be fewer than half a dozen round trips a week, according to the EIR. The oil and natural gas will be piped out.
The site will have an 87-foot tall derrick during the first two years of drilling. Once extraction begins, the derrick will be allowed on site a maximum of 30 days a year for redrilling, according to the EIR.
“The derrick will only be seven feet wide. It won’t block the view the way a hotel would and it will blend into the background,” Finch said.
And E & B’s oil wells will generate four to eight times more money for the city than a downtown hotel, Finch said.
The moral high ground
Finch’s greatest frustration with oil drilling opponents is their claim to the moral high ground.
If oil drilling opponents were truly concerned about the environment, they would support his project, he argued.
“California consumes 1.8 million barrels of oil a day. California produce 600,000 barrels a day. So, every day we import 1.2 million barrels.
“We should produce the oil we consume because California has safety standards in place that Africa, Venezuela and the Middle East don’t have. Add to that the risks and pollution from transporting that oil across thousands of miles of ocean.
“We’ll produce a maximum of 8,000 barrels a day. The Chevron Marine Terminal in El Segundo offloads 250,000 barrels a day. That’s an Exxon Valdez’ worth of oil, 360 days a year. Yet no one seems worried about the threat that poses to the marine environment,” Finch said.
E & B’s project will generate from $650 million to $1.2 billion in revenue over the project’s 35 year lease, according to the Cost Benefit Analysis’ “expected” estimate. Of this, the city is to receive 18.66 percent, or an estimated $118 million to $270 million over the 35 years, for an average of $3.5 million to $8 million annually (minus 3.3 percent from unrestricted uplands royalties that the city must pay Macpherson Oil.)
The city’s 2014-15 budget is $35 million.
“It’s a generous royalty. Hermosa is to receive $18.66 per barrel [at $100/barrel], Beverly Hills gets 36 cents a barrel,” Finch said. He explained that Hermosa’s high royalty is attributable in part to the fact that Hermosa owns the tidelands’ mineral rights and will receive uplands royalties because it is providing the drill site.
If Measure O fails, the city will owe E & B $17.5 million under the terms of the 2012 court settlement. The city has set aside $6 million, leaving an $11.5 million balance, which will cost roughly $850,000 annually for 20 years to finance, according to the Cost Benefit Analysis.
If the measure passes and E & B receives a drilling permit, it will forgive the $17.5 million debt.
Hermosa Beach’s 2014-2015 capital improvement budget lists 18 projects totaling $158 million through 2019, of which $83 million is currently unfunded, Finch pointed out. An $845,000 natural gas fueling station for city vehicles is among the unfunded projects.
“The city’s goal of becoming carbon neutral won’t be cheap,” Finch said.
Hermosa schools will also substantially benefit if the drilling project proceeds, Finch added.
Last November, voters rejected a $54 million school bond measure that would have funded classroom construction for the 500 Hermosa elementary school students presently in temporary classrooms.
In the development agreement, which is part of Measure O on the March 3 ballot, E & B agreed to contribute a royalty of one percent to the schools over the 35 year lease, with an estimated $7 million going to the school district and $30 million to the Hermosa Beach Education Foundation.
Black knight, white knight
“We thought if we can contribute $500 million [E & B’s estimate of the city’s oil royalties, which is nearly double than the CBA “expected” estimate] we can help put the city on the road to recovery,” Finch said.
The EIR states, “Macpherson was seeking in excess of $750 million in damages against the City for breach of its lease.” The city signed a drilling agreement with Macpherson Oil in 1986, one year after a 60 percent to 40 percent vote lifted the city’s drilling ban. Then in 1995, voters reinstated the ban with a 56 to 44 split, leading to nearly two decades of litigation with Macpherson. The 2012 settlement gave Macpherson Oil $30 million, plus 3.3 percent of the potential oil royalties, to be paid out of the city’s 18.66 percent. E & B assumed Macpherson’s lease with the city, with the understanding it would be allowed to ask voters to again lift the drilling ban.
“The city was to pay $17.5 million of the settlement to Macpherson and E & B was to pay $12.5 million. But the city didn’t have $17.5 million, so we said, okay, we’ll loan you the $14 million. Then the city said it didn’t have $3.5 million. So we said we’ll loan you that, too. And if voters allow us to drill, we’ll forgive the $17.5 million
“The city was talking bankruptcy. The median award from the mock jury trials was $250 million.
“For all this, we didn’t even get the right to drill. All we got was the right to ask voters for the right to drill.
“We thought we’d be welcomed as the white knight. We pulled the city back from the edge. But you don’t hear that story. All you hear is E & B are the bad guys here to hurt the city,” Finch said.
Drowning in money
Drilling opponents contend that even if the project produces the estimated revenue, the city will be unable to spend the majority of the royalties because of state spending restrictions on tidelands revenues. The Cost Benefit Analysis estimate that $25 million to $77 million of the city’s oil royalties (21 percent to 29 percent of the total) will come from uplands oil. That revenue goes to Hermosa’s general fund, which the city can spend as it wishes. The balance, $95 million to $193 million, would go into the city’s Tidelands Fund, which is held in trust for all the people of California.
Because tidelands oil will account for roughly 80 percent of the city’s oil royalties, how it can be spent is central to the debate on Measure O.
The California State Lands Commission Public Trust Doctrine states tidelands fund spending is “generally limited to those that are water related…., and include commerce fisheries and navigation, environment preservation and recreation.” Also, the spending must benefit all California residents, not just Hermosa residents.
The language is sufficiently vague for both sides to argue it favors their position.
“It becomes a philosophical argument,” Finch said. “We’ll argue that sewer and road improvements and police beach patrols are allowable because they benefit all beach visitors, not just residents.”
“Coastal towns with tidelands grants, including Redondo Beach, Long Beach, Seal Beach and Newport have been very creative in their use of tidelands funds,” he said.
Finch also noted that if Hermosa’s 1919 tidelands grant doesn’t give the city sufficient leeway that the city can ask the state legislature to modify the grant.
Cities typically requests approval from the State Lands Commission before spending tidelands revenue, CBA author Larry Kosmont, of Kosmont Companies, said, following a presentation of his report at a community meeting on Saturday. He said the commission’s decisions vary from case to case.
At the end of E & B’s 35 year project, Finch said, drilling rights will revert to the city.
“The oil fields should still be producing 250 to 1,000 barrels a day, and the city will get all of it,” Finch said. ER
