Hermosa Beach Puts an End To a 30+ Year Drilling Rights Dispute

FACT SHEET

CITY OF HERMOSA BEACH SETTLEMENT WITH E&B NATURAL RESOURCES MANAGEMENT CORP

The City of Hermosa Beach and E&B Natural Resources Management Corp. has resolved several ongoing disputes between them, putting to rest the issue of oil drilling that began with a 1984 vote to allow oil drilling in the city. Following are the specific terms of the settlement announced on March 7, 2017:

• E&B relinquishes all drilling rights in any oil project in Hermosa Beach, including the lease issued by the city in 1992 that gave Macpherson Oil Company (and later E&B, by assignment under the 2012 settlement between Macpherson, E&B, and the City) the right to drill in the city.
• E&B relinquishes all mineral and other rights in any oil project in or under Hermosa Beach, including the private leases and School District lease that E&B acquired from Macpherson.
• E&B relinquishes all other permits and approvals for oil drilling in or under Hermosa Beach, including all road agreements, state approvals and other permits and approvals E&B acquired from Macpherson.
• E&B relinquishes all future claims against the city over the oil project, including claims for interest or any other monetary compensation resulting from the 2012 settlement and the 2015 special election regarding its oil-drilling proposal, the Measure O election.
• In exchange for giving up its oil drilling rights and all current and future claims, E&B will receive $1.5 million from the city’s existing funds.

• Both sides agree not to disparage one another in their comments about the settlement. This is a common provision in settlement agreements.

BACKGROUND

Since 1984, when voters lifted a longstanding ban on oil drilling in Hermosa Beach, the city has lived with the threat of oil drilling. In 2015, Hermosa Beach voters rejected Measure O, a proposal by E&B to drill for oil at the city’s maintenance yard. The vote triggered a requirement that the city pay E&B $17.5 million-plus interest. After the vote, E&B claimed the city owed E&B interest and had violated the 2012 settlement during the Measure O election.

E&B also claimed that if the city ever overturned its ban on oil drilling, E&B would forever have the right to drill for oil in Hermosa Beach under various leases, permits and approvals E&B continued to hold. It based this claim on its assertion that the voters’ rejection of Measure O in 2015 triggered a force majeure clause in the original lease.

Such clauses refer to occurrences, such as an act of government, that are beyond the control of the parties. A force majeure clause can be used to suspend the contract for the period of time during which those occurrences prevent the parties fulfilling their obligations under the contract.

This settlement resolves these issues by providing that E&B relinquishes every lease, permit and approval it holds in Hermosa Beach. The settlement restores the city to the position it was in before Hermosa Beach ever encountered Macpherson or E&B. It also eliminates all future litigation with E&B over its oil-drilling proposal.  

Can Hermosa Beach Permanently Terminate the 35 Year Oil Drilling Lease After A No Vote?

Is The Oil Lease From 1992 Even Valid? 

Why Are 2 Measures Going to Be on the Ballot?  

1)  Yes or No On Drilling & 2) Where The Oil Money Goes? 

E&B Can Put Oil Drilling On The Ballot Several Times Over The Next 35 Years 

Who Owns Present & Future Oil & Gas Mineral Rights?

Howard Longacre Letter to City Council May 20, 2013

1)  Request for clarification regard the present and future ownership of the oil and gas mineral rights that were own by the City prior to the original agreement(s) with Macpherson.    

1-a)  Who owns / controls the City's original oil and gas mineral rights at the present time? 

1-b)  Who will  own/control the subject mineral rights if oil drilling IS NOT APPROVED by the voters, and for how long?  

1-c)  Who will own/control the subject mineral rights if oil drilling is approved by the voters and for how long? 

2)  Request for clarification regard the Oil Lease expiration data. 

2-a)  How many years remain on that oil lease? 

2-b)  Is the clock presently ticketing on that oil lease or has it been suspended due to the prior oil litigation, and if so is it still suspended and to when? 

2-c)  If oil drilling is NOT APPROVED by the voters what happens to the oil lease, ie. does it expire immediately, will it ever expire, will the clock continue to tick? 

2-d)  If oil drilling is approved by the voters what happens to the oil lease, ie. when does it expire, will it ever expire and if so when? 

15 Ways The HB City Council Is NOT Being Impartial To Oil Drilling

Hermosa Beach City Council is Warned You Are Not Acting Impartial

In case you missed the meeting last night here is a summary of Stacey Armato, Barbara Ellman & Chris Prenter warning the Hermosa Beach City Council & City Attorney Michael Jenkins about the lack of impartiality with oil drilling.  Here are 15 excellent points they bring up that the City has not address and has simply ignored.  Are they acting impartial by not including our due diligence?  

1)  "Oil Drilling" is the proper term not "Oil Production" which makes it sound like you siding with oil.  Lets not "sugar coat" it because it makes it sound like you are siding with oil.

2)  Hermosa Beach web site discussing oil landing page is not properly updated.  It says you are waiting on the project application but also says you are reviewing it?   The project application is not properly displayed on the page.  No current information is posted and no way to notify what has changed.

3)  The illegal settlement agreement is buried in the site.  How about a quick click?  Its important component that needs more attention to detail and FAQs.

4)  City is encouraging the timeliness of the EIR encouraging a quick and efficient process and the project timeline is of critical importance.  Lets encourage the accuracy of the report not the timeliness.  Lets not speed up the process unnecessarily 

5)  As the City Attorney, Michael Jenkins should be going through the settlement agreement that is not properly reflected in the FAQs.

6) Web and FAQs do not say anything about giving the City Yard up which could be valued at $8-10M dollars.

7)  Web and FAQs do not not talk about a 35 year lease of the City Yard.

8)  If the ballot measure passes and there is no significant oil royalties we are obligated to pay $3.5M within 90 days.  How will the City pay for $17.5M if it does not pass?  City says on their web site "they will undoubtedly need to issue municipal debt to pay E&B."  How do we pay for it and you are scaring the residents by not explaining your plan.  What you are implying is that we will need to issue municipal debt and that scares the residents.  This is an overstatement because we have $30M in the bank and a $100M in real estate assets.

9)  Web site talks about gross percentage sales goes to the City and schools without discussing the Tidelands trust?  This is not true and illegal.

10)  We would like to see a much more impartial analysis of on the web site because you sit there and have no opinion on the oil project.

11)  E&B's propaganda machine has been advertising in the paper before a public hearing has been done is ridiculous?

12)  The community of Hermosa Beach does not own the oil.  Its out in the ocean and the resources of the City are not oil.  Our resources are the beach, ocean, parks, people and health and safety.

13)  Steve Layton has a poor environmental track record and no where does the City web site disclose his horrible track record.

14)  Oil drilling is banned in Hermosa Beach and does not say this on the web site.

15)  The planning application is hundreds of pages and hard to read.  Its not easy to read and has not been discussed in public.  You have to hire an attorney to understand it.

Here is the public information sharing slide in the video.

This is Tom Bakaly's slide on the public input process.  Michael Divirgilio is looking into a tracking document to inform folks about the changes they are making to the web site.  There is no way for anyone to know that they are adding any items.  Track document changes, adds and edits.  The web site is the minimum require to stay up to speed.

More Questions That Need Answers

Continued from Questions That Need Answers:

Below is an ongoing list of questions I am compiling from Hb residents on this issue.  Email me if you would like to add something.

8)  Many former City officials including former councilmen Sam Edgerton questioned in 2008 whether the city’s lawyers have ignored a line of attack that he believes could turn the legal tide back in Hermosa’s favor. Why was this never done and why are many of these officials furious of the current settlement? Why are current City Officials telling residents they will not take a position for or against oil drilling in the current settlement? Are they working for HB residents or their own interest? Read Easy Reader Article from 2008

9)  Do the deal leads Jenkins, Bobko & Divirgilo have any ‘skin in the game’? Do they have property value to protect or do they just simply rent temporarily in Hermopsa?  They have demonstrated that they are interested in higher levels of public service (above the City). Do they anticipate receiving future financial support from the Oil Companies to assist them in achieving their political ambitions? Kit Bobko, ran for Congress in 2011 to fill Jane Harman’s seat in a special election and finished in 7th place with 3.6% of the vote.  Michael Divirgilio was a Congressional Staffer for Rep. Jane Harman.  

10)  Why is Hermosa Beach spending money on a PR Firm,  Fiona Hutton & Associates  and how much is the city spending on this new endeavor? Don't we have elected officials on the City Council who do PR as a profession? Why aren't all Council members speaking for themselves, rather than just "going with the flow"? Why did the CIty hire a PR agency? What is their exact role? What is the cost of the PR agency? 

11) Why did you settle at $17.5 million & $3 million? What was the magic number and why?

12) Did you have a plan in place to pay the $17.5 million or 3 million? At what price did you have a plan in place to pay the settlement?

13) With the 6th street Yard being used for oil drilling it would be lost to the city for use.  What would the city do without this lot for city use?

14)  What is the City Yard lot worth? Could we sell it to help cover the 17.5 million?

15) What is it going to cost for extra emergency services personnel, equipment, and training? - Who is paying for it? Do we have to raise salaries for specific certifications of emergency services?

16) The tower is going to be over 135 feet tall. It is going to be in the line offsite of many residents. This devalues homes. Can the city be sued for the devaluation of their home?
The oil wells will cause issues with:

• The beautiful views from homes
• Air Quality (So much for the No Smoking signs along the strand) 
• Noise pollution 

17) The 2008 Chatsworth train crash happened when the conductor was texting while managing the train. 25 people were killed, 135 were injured with 46 being critical! My friends mother was in this accident. She was seriously injured. There is a cap on the amount of payout for the lawsuit at $200 million. She cannot even get her medical bills paid. With that said you are saying we would have had to pay $750 million no matter what while a train wreck that killed 25 people and injured 135 others cannot get more than 200 million!

18) What happens if there is an oil leak in the bay?  Is the City of Hermosa Beach on the hook for anything? How would this devalue not only Hermosa Beach homes but all of the homes in the bay?  Could there be a civil suit?

19) There is talk of "revenue share" from the oil wells.  Can we not pay the money and have the money go towards the $3 million first then take the revenue sharing?  What are the projections of the revenue sharing?  This should have been done long before any settlement happened! The biggest question is what can the money legally be able to be used for! There have been many statements that the money cannot actually go towards the school systems. This is something your lawyers should have advised you of before any settlement happened. The lawsuit has been going on long enough someone should have known and or have an answer.

20) Who is auditing the revenue coming in from the oil?  Do we now have to pay people to manage this and at what cost?

21) What happens if there is a disaster and or someone is killed?  Is the contract null and void immediately?

22) How safe is this type of oil drilling in case of an earthquake or tsunami? At what size of earthquake or tsunami do we run into an additional disaster?

23) The homes they drill under do they get revenue from the drilling and who has mineral rights? What happens if their foundation and or other issues appear in years to come from the earth under them moving?

24) Is the oil company using funds to get the votes to drill in Hermosa? If so did you know they would put money into the City of Hermosa to promote oil drilling?  What businesses in the city stand to benefit from oil drilling?

25) Kit Bobko and Michael Divirgilio are not home owners in Hermosa Beach. You do not directly pay taxes for the homes in Hermosa Beach. If you owned a home nest to 6th street before the settlement how would you feel? Would you sell your home? Why haven't you bought a home in Hermosa Beach?

26) If we vote no to the oil drilling your letter states: "$17.5 million equates to a liability of $2,500 per parcel." Are you going to bill the citizens this amount if the drilling is not approved? What if I moved into the area after the lawsuit and was not notified about the lawsuit? Do I still have to pay? The bigger question is as renters are YOU personally going to pay $2500 towards the liability you have committed to the citizens of Hermosa Beach?

27) What are the solutions to pay $17.5 million? How much money do we have in the bank? What assets does Hermosa Beach own? Can we get a bond from the state of California? What research have you done to figure out how to pay back any amount let alone the $17.5 million?

28) Now that you have settled the lawsuit what side are you on? I feel that you have drawn a line in the sand and now you should state whether you are for drilling or against drilling. This is only fair to the citizens of the city. What are the pro's and con's from each of your perspectives?

29) How late can drilling take place? Is it 24/7/365? How noisy is it? I can hear the Redondo Power Plant at 4am release steam that practically shakes my windows. Will we have any noise at all and if so how loud and at what times?

Email me if you would like to add or change something to this list. 

Settlement Agreement Comments

Below is a draft of our settlement agreement comments we are compiling from residents.  We welcome your comments so please email us with your comment structured similar to below.  If you want to read the full 45 page agreement you can download it on the HermosaBCH.org or at Google Docs.

Recitals, Page 1, A
Macpherson also obtained all of the necessary Permits to Construct for the Oil Project from the South Coast Air Quality Management District In November 1995 the residents of the City passed City Measure E an initiative measure that banned oil drilling in the City. 
Comment- South Coast Air Quality Permit ran out or cancelled March 30, 2000. 

Recitals, Page 1, A
In early 1998 and notwithstanding the passage of Measure E the California Coastal Commission authorized issuance of Coastal Development Permit No 29E86 to Macpherson far the Oil Project subject to conditions
Comment - Coastal Developmental Permit No. 29E86 never issued. 

Recitals, Page 2, D
Substantial revenue stream to be generated for City and the Hermosa Beach School District as a result of the payment to City and School District of royalties in association with the production of oil and gas reserves by E&B
Comment - How can School benefit from tidelands trust?

Definitions, Page 3, 2.10
School Lease means the lease between Macpherson and the Hermosa Beach School District
Comment - No lease on School property found. Where is this?

The Closing, Page 4, 3.2
Confidentiality Agreement previously signed on behalf of each of the Parties on February 17 2012
Comment -  Where is a copy of this?

Macpherson's Obligations At Closing: Page 5, 4.1 

1031 exchange as provided in Article X hereof all of Macpherson the School Lease and any other leases releases set forth in paragraph VI
Comments - Like-kind exchange, what's Macpherson doing here?  What other leases are involved in this agreement?

E&B's Obligations At Closing: Page 5, 4.3a 
Said assignment reserves to Macpherson from E B and its successors and assigns an overriding royalty of 1.5% of one hundred 100% of gross hydrocarbon production but otherwise
Comment - Macpherson keeps part of this going here.

E&B's Obligations At Closing: Page 6, 4.3c 

constitutes the E&B Loan of $17,500,000

Comment - Note this loan and how it's to be repaid by the city.

E&B's Obligations At Closing: Page 6, 4.4b 
Upon issuance of the drilling permit or in the event the City cannot issue the drilling permit as the sole result of action or inaction undertaken by and under the control of E&B (including without limitation) the failure of the California Coast Commission to issue a coast development permit. immediately

thereafter forgive $14,000,000 of the E&B Loan

Comment - Failure to meet conditions and most of loan is forgiven?  Where does the fact we are giving E&B a $15M property factor into the cost?  Total costs is more like $18.5M and more cheaper to vote no. 

City's Obligations Following Closing: Page 7, 4.6a 

Place on the ballot at a special municipal election in a manner that comports with all applicable law within six 6 months of a request to do so by E&B
Comment - Within 6 months call election!!!! "....notwithstanding inconsistent change in City's Municipal Code." ????

City's Obligations Following Closing: Page 7, 4.6b 

Vacate and make the City maintenance yard available for the construction of the Project as when and in the manner and subject to the conditions provided for in the Lease and repay Three Million Five Hundred Thousand Dollars of the E&B Loan through a deduction of royalties equal to 1.5% of gross proceeds. 
Comment - Vacate and make the City maintenance yard available? And where in the world is the city going to put it. Steve Burrell could never find another location for it, here or in Redondo Beach. Let's get real. this is an important issue.  This property is worth $15M and we are paying them $3M on top?  Total deal looks like $18.5M to vote yes.  

City's Obligations Following Closing: Page 8, 4.6d 

Grant as reasonably required by E&B all necessary rights of way 
easements franchises and other rights as necessary for subsurface pipelines < and other facilities and appurtenances in order for E&B to drill for produce market transport and sell all oil and gas produced from the subject lease 
Comment - Whoa Ho! Check out this demand. Dig up the streets or the greenbelt? And where will it terminate in Redondo Beach or AES?

City's Obligations Following Closing: Page 9, 5.4 

The parties recognize that Macpherson is materially changing its legal position and rights and property holdings in reliance upon the final and binding effect of this Agreement and any rescission of this Agreement would be a wholly inadequate remedy for Macpherson because rescission cannot possibly return to Macpherson the legal position and rights it held prior to the consummation of this Agreement
Comment - We need an attorney to explain this paragraph. It's legalese is convoluted.

Mutual Releases: Page 9, 6.1 

Effective upon the successful completion of the Closing in accordance with the conditions described in paragraph 3
Comment - What are these conditions in 3.3 

Mutual Releases: Page 10, 6.1 

the City hereby fully and finally waives releases and  permanently discharges Macpherson and its respective partners officers employees agents representatives and attorneys the Releases from any claims arising under the Lease any continuation extension amendment restatement or replacement of the Lease
Comment - Whoa Ho! What's this? What about compensation due the city for the past  Environmental reports, attorneys fees due the city, etc?

Mutual Releases: Page 10, 6.4 

Except as may be provided in this Agreement each of the Parties waives any and all claims for the recovery of any costs expenses or fees including attorney fees associated with the matters and claims released in this Agreement
Comment - Attorneys fees from earlier court cases? Have they been paid?

Defense of Litigation:  Page 11, VII
In the event that one or more lawsuits are filed challenging this Agreement and/or the actions implementing or contemplated by this Agreement the Parties to the extent named as parties defendant in the lawsuit will cooperate in good faith in the defense of the litigation and shall initially bear their respective attorneys fees and costs With the exception of a lawsuit challenging the approval of this Agreement itself should the Ballot Measure described in paragraph 46a pass E&B shall indemnify the City for all attorneys fees and costs incurred by City in the defense of litigation encompassed by this paragraph and also for any attorney fees and costs awarded to a plaintiff against City if any in such litigation
Comment - Does this mean the city can collect attorney fees if sued for this agreement?

Representations & Warranties:  Page 11, 8.1c
They acknowledge that the Stinnett Well has been plugged and abandoned and agree that Csity inability to convey the Stinnett Well to E B shall not constitute a breach of this Agreement or the Lease. 
Comment - Dave Lucero, what was the result of your looking into this well on the City's Yard?

Representations &Warranties:  Page 12, 8.2c

The force majeure provisions in paragraph 30 of the Lease apply and have applied during the pendency of the Action and the CUP remains valid. 

Comment - CUP is for a "Conditional" Use Permit. The  Use Permit itself was never issued, or was it? Wasn't the Fire Code in doubt?  In the CUP it states, "All CUP required studies and reports must be submitted to the City and approved before permit issuance."

Representations &Warranties By All Parties  Page 12, 8.3a
The Parties have received all corporate and other approvals necessary to enter into this Agreement on their behalf and that the persons signing this Agreement on their behalf are fully authorized to commit and bind the Parties to each and all of the commitments terms and conditions hereof and to release the claims described herein and that all documents and instruments relating thereto are or upon execution and delivery will be valid and binding obligations enforceable
Comment - Not so! The California Coastal Commission issued "approval with a long list of conditions" but never issued a "Permit" for Macpherson to drill in Hermosa Beach. So how does this affect this Settlement Agreement? Is Macpherson claiming to have abided by all the requirements of 15 b. of Lease No. 2 (it has with the City), i.e. "The Lessee shall also apply for and obtain all necessary permits from the City of Hermosa Beach...The Lessee shall also be responsible, at its sole expense, for alI necessary permits and approvals to be obtained from the California Coastal Commission...."
Representations &Warranties By All Parties  Page 12, 8.3d
The Parties have prior to the execution of this Agreement obtained the advice of independent legal counsel of their own selection regarding the substance of this Agreement and the claims released herein
Comment - Was the advice "independent"?
Representations &Warranties By All Parties  Page 13, 9.2
This Agreement and the Confidentiality Agreement discussed in Paragraphs 32 and 3 are an integrated contract and sets forth the entire agreement between the Parties hereto with respect to the subject matter contained herein 

Comment - If the Confidentiality Agreement is part of this, please, let's have a look at it.

Representations &Warranties By All Parties  Page 13, 9.5
This Agreement shall be binding upon and inure to the benefit of each of the Parties and their respective representatives partners officers employees agents heirs devisees successors and assigns
Comment - How about to the benefit of the people of Hermosa Beach?

(stay tuned more to come)