BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
SB 788 (McGuire) - California Coastal Protection Act of 2015.
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|Version: May 4, 2015 |Policy Vote: N.R. & W. 7 - 1 |
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|Urgency: No |Mandate: No |
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|Hearing Date: May 28, 2015 |Consultant: Marie Liu |
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SUSPENSE FILE. AS AMENDED.
Bill
Summary: SB 788 would delete the exception to the California
Coastal Sanctuary Act that allows for a new oil and gas lease if
such a lease is in the state's interest and the oil and gas
deposits are being drained from adjacent federal lands.
Fiscal Impact (as approved on May 28, 2015): Unknown costs,
estimated between $48 million and $173 million per year based on
a per barrel oil price of $50, to the General Fund for forgone
offshore oil lease revenue that could have been received if the
State Lands Commission (SLC) entered into a lease off the
Vandenberg Air Force Base into the Tranquillon Ridge. The
variability in the estimated cost depends on the royalty rate,
life of the project, and the price of oil.
Background: The California Coastal Sanctuary Act of 1994 (PRC §6240 et
seq.) removed the authority of the SLC to issue new oil and gas
leases for unleased tide and submerged lands underlying the
Pacific Ocean with limited exceptions by placing those lands
into permanent sanctuary. One of the exceptions allowed the SLC
SB 788 (McGuire) Page 1 of
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to consider a new lease if the state oil and gas resources were
being drained by production on adjacent federal lands and the
lease is in the state's interest.
To the west of Vandenberg Air Force Base and Points Pedernales
and Arguello in Santa Barbara County, there is an oil and gas
field called Tranquillon Ridge that is under both state and
federal waters. Studies have shown that production from federal
Platform Irene is draining the hydrocarbon resources in the
state's portion of this field. Reservoir pressure on the state
side is also being reduced, which may ultimately decrease the
recoverable hydrocarbon reserves from the field. The amount of
economically recoverable oil in the state's portion of the
Tranquillon Ridge field is uncertain, and a recent estimate
places it in the range of 40 to 120 million barrels.
Proposed Law:
This bill would delete the ability for the State Lands
Commission (SLC) to enter into a lease for the extraction of oil
and gas from state-owned tide and submerged lands in the
California Coastal Sanctuary if the SLC determines that the oil
or gas deposits are being drained by producing wells on adjacent
federal lands and the lease in the best interest of the state.
Related
Legislation: SB 1096 (Jackson, 2014) was functionally identical
to this bill. SB 1096 failed passage on the Assembly Floor.
Staff
Comments: Drilling into state waters would require a lease from
the State Lands Commission (among numerous other permits). By
deleting the ability for the SLC to approve a new lease for an
oil or gas well, the bill prevents the collection of potential
future lease revenue. The only definitive situation that could
be affected by this bill is Tranquillon Ridge. The SLC estimates
that should Tranquillon Ridge be developed today, the state
would receive between $48 million and $173 million per year to
the General Fund for the next 30-35 years based on the per
barrel oil price of $50. This projection is highly volatile
along with the price of oil and may also vary based on the life
SB 788 (McGuire) Page 2 of
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of the project and the royalty rate. A few years ago, the SLC
identified two possible fields that do or may cross the
federal-state boundary and could be reached by existing federal
infrastructure.
The potential loss lease revenues are partially offset by two
types of royalties that the state receives. First, for oil and
gas production in an area that extends within three miles from
the state's seaward boundary, the state receives a royalty based
on the portion of the oil field that occurs within the state's
boundaries. In the case of Platform Irene, the state's share is
3.35% of production (27% of the federal royalty of 12.5%). These
revenues are meant to compensate the state for bearing the risk
of offshore oil and gas development.
Second, the federal government can share additional royalties
with the state for leases on the state-federal boundary to
compensate the state for drainage of its resources in a
side-agreement. There may only be one well with such a
side-agreement, well A-28 on Platform Irene. For well A-28, the
state receives 50% of the federal royalties (i.e. 6.25% of the
total production value) from that well to compensate the state
for drainage. Staff notes that the production from well A-28 has
been low and so there has been minimal revenues from this
agreement.
Committee amendments (as adopted on May 28, 2015): Amend to make
a technical change to the findings and declarations. Add Senator
Jackson as a joint author.
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