BILL ANALYSIS �
SB 1096
Page 1
SENATE THIRD READING
SB 1096 (Jackson)
As Amended July 3, 2014
Majority vote
SENATE VOTE :Vote not relevant
NATURAL RESOURCES 6-2 APPROPRIATIONS 10-6
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|Ayes:|Chesbro, Garcia, |Ayes:|Gatto, Bocanegra, |
| |Muratsuchi, Skinner, | |Bradford, Campos, Eggman, |
| |Stone, Williams | |Gomez, Holden, Pan, |
| | | |Quirk, Weber |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Dahle, Patterson |Nays:|Bigelow, Donnelly, Jones, |
| | | |Linder, Ridley-Thomas, |
| | | |Wagner |
| | | | |
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SUMMARY : Eliminates the exception in the California Coastal
Sanctuary Act of 1994 (CCSA) that allows the State Lands
Commission (Commission) to issue an offshore oil lease if state
oil or gas deposits are being drained by wells on federal lands
and the lease is in the best interests of the state.
EXISTING LAW :
1)Pursuant to the CCSA:
a) Makes findings and declarations that offshore oil and
gas production in certain areas of state waters poses an
unacceptably high risk of damage and disruption to the
marine environment of the state. (State waters generally
extend out three nautical miles from the shore.)
b) Establishes the California Coastal Sanctuary
(Sanctuary), which includes all state waters subject to
tidal influence west of the Carquinez Bridge, except as to
oil or gas leases in effect on January 1, 1995, unless the
lease is deeded or otherwise reverts to the state after
that date.
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c) Prohibits, generally, a state agency or state officer
from entering into a new lease for the extraction of oil or
gas from the Sanctuary.
d) Authorizes the Commission to enter into any lease for
the extraction of oil or gas from state-owned tide and
submerged lands in the Sanctuary if the Commission
determines that those oil or gas deposits are being drained
by means of producing wells upon adjacent federal lands and
the lease is in the best interests of the state.
2)Pursuant to the federal Outer Continental Shelf (OCS) Lands
Act:
a) Defines the OCS as all submerged lands lying between the
seaward extent of the states' jurisdiction and the seaward
extent of federal jurisdiction.
b) Declares, among other things, that it is the United
States (U.S.) Policy that the OCS is a vital national
resource reserve held by the federal government for the
public, which should be made available for expeditious and
orderly development, subject to environmental safeguards,
in a manner which is consistent with the maintenance of
competition and other national needs.
c) Requires the Department of the Interior (Interior) to
prepare and periodically revise, and maintain an oil and
gas leasing program that consists of a schedule of proposed
lease sales indicating, as precisely as possible, the size,
timing, and location of leasing activity that the Interior
determines will best meet national energy needs for the
five-year period following its approval or reapproval.
Gives priority leasing consideration to areas where the
combination of previous experience; local, state, and
national laws and policies; and expressions of industry
interest indicate that potential leasing and development
activities could be expected to proceed in an orderly
manner.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, potential forgone offshore oil revenues (General
Fund) estimated to range between $95 million and $345 million
per year for 30 to 35 years if the Commission otherwise entered
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into a lease off of the Vandenberg Air Force Base into the
Tranquillion Ridge. The variability in the estimated cost
depends on the royalty rate, life of the project, and the per
barrel rate.
Given past and current Commission policies, it is uncertain how
many, if any leases would be offered.
COMMENTS :
Strengthening the CCSA. This bill would repeal the exception to
the CCSA that allows for the Commission to issue a new offshore
drilling lease based on the CCSA's drainage provision. By doing
this, the state would be bringing in a large portion of the
Pacific Ocean off the coast of Santa Barbara County into the
full protection of the CCSA.
The Legislature and Offshore Oil. The Legislature has a long
history of excluding areas from leasing for offshore oil and gas
development. Beginning in 1921, and many times since, the
Legislature has enacted laws that set aside offshore areas where
oil and gas leasing was generally prohibited. The 1921 Leasing
Act prohibited the issuance of any prospecting permits or leases
within one mile of any municipality. The 1921 Act was amended
in 1929 to prohibit the issuance of any new lease in offshore
state waters. Between 1938 and 1955, leases could only be
issued by the Commission if drainage of the state's oil and gas
could be shown. In 1955, the Legislature authorized new oil and
gas leases in state offshore waters, but has steadily increased
the area that is closed to these leases. Finally, in 1994, the
CCSA removed all state lands underlying the Pacific Ocean from
the Commission's oil and gas general leasing authority. The
CCSA contains two limited exceptions that allow the Commission
to approve new offshore oil and gas production in state waters.
One exception is if the Commission determines that state oil or
gas deposits are being drained by means of producing wells upon
adjacent federal lands and a new oil and gas lease is in the
best interests of the state (Public Resources Code (PRC) Section
6244). The other exception allows the Commission to adjust the
boundaries of an existing offshore oil and gas lease to
encompass all of an oil and gas field partially contained in the
lease (PRC Section 6872.5).
The Commission and Offshore Oil. Since 1938, the Commission
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generally has had exclusive jurisdiction over the leasing of oil
and gas from offshore state lands. Between 1938 and 1968, over
fifty offshore oil and gas leases were issued by the Commission.
In a manner common to most oil and gas leases, the leases that
the Commission issued were either devoid of a fixed end date or
were subsequently amended to remove an end date. The lease
terms typically provide that the leases last as long as oil and
gas was being produced in paying or commercial quantities. Once
production ceases, the leases are to be quitclaimed back to the
Commission.
Two August 1968 leases, one to Continental Oil Company and the
other Standard Oil Company, were the last new offshore oil and
gas leases that the Commission entered into prior to the January
1969 Santa Barbara oil spill. The spill was the result of a
well drilling blow-out at an offshore platform located in the
federal OCS off the coast of Santa Barbara County. The cause
was inadequate protective wellpipe casing. The event lasted 11
days and spilled between 80,000 and 100,000 barrels of crude
oil. Two hundred square miles of ocean and 35 miles of
California coastline were oiled and thousands of animals were
killed.
At its February 1969 meeting, the Commission deferred the
acceptance of outstanding bids for new leases and subsequently
deferred deadlines for additional drilling from existing leases.
Since then, the Commission has not entered into any new
offshore oil and gas leases. The Commission formally imposed a
moratorium in 1988 and 1989. Since 2001, the Commission adopted
several resolutions opposing the resumption or expansion of
federal offshore oil and gas lease sales in the OCS. The
foundation for each resolution was the same: that the danger of
an oil spill like the 1969 Santa Barbara oil spill was too high
and that oil development and potential spills would adversely
affect fishing, tourism, and environmental, recreational,
economic, scenic, and other values. The resolutions are also
based on and expressive of the state's policy and practice of
not issuing new offshore leases. Further, the Commission staff
has been pro-active in obtaining quitclaims of existing offshore
oil and gas leases from oil companies back to the state.
2009 Offshore Lease Proposal. On January 29, 2009, the
Commission considered a proposal to approve an offshore oil and
gas lease that would have involved the Tranquillon Ridge oil and
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gas field located within the state's jurisdiction off the Santa
Barbara County coast. The project proposal called for up to 17
wells from Platform Irene (approximately four and a half miles
off the coast in federal waters) into two new state leases, with
all the drilling and production to cease on or before December
31, 2022. According to the Commission staff report, total
production from this project would have been in the range of 40
to 90 million barrels of oil. The produced oil and gas would
have been piped onshore through an existing pipeline to be
processed and shipped to a refinery. (It is worth noting that
this pipeline experienced a rupture on September 28, 1997,
spilling crude oil into the ocean about two and a half miles
from the shore. The oil spread approximately four miles, oiling
wildlife and killing hundreds of seabirds. Studies concluded
that the leak was caused by a faulty weld.)
The Commission was authorized to consider this proposal under
the CCSA because an independent study showed that an existing
well (Well A-28) drilled from Platform Irene into the OCS drains
a relatively low amount of natural gas from the state side of
the Tranquillon Ridge field. (The state is compensated for
production from Well A-28 even though it occurs on federal
property. Pursuant to a 1997 agreement between the state and
federal government, the state receives a royalty share of 50% of
all hydrocarbons produced from Well A-28 originating within 500
feet of the state/federal boundary. In addition, pursuant to
the OCS Land Act, because Well A-28 is located within three
nautical miles of the state/federal boundary, the state receives
payment of 27% from the federal royalty production of the well.)
The Commission ultimately rejected the lease proposal concluding
that it was not in the best interest of the state. The
Commission's decision was based, in part, on a determination
that "environmental, tourism, recreational, economic, fishing,
scenic, and other values are threatened by offshore oil
development and that these values were more important [than the
benefits of the lease]." Additionally, the Commission was
concerned about the message the lease would send to Washington,
D.C. As indicated above, the Commission and the Legislature had
opposed new offshore oil drilling for decades. The state relied
on this history when calling on the President and Congress to
continue its moratorium on new offshore federal leases off the
California coast. In 2008, President George W. Bush had lifted
the presidential moratorium on federal offshore leases and
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Congress had refused to re-enact its own moratorium. On January
16, 2009, the Interior announced plans to conduct lease sales in
different parts of the country, including three off of the
California coast. The Commission was concerned of "the impact a
new lease would have on the potential for new federal leasing
off of California?"
After the Commission rejected the Platform Irene-Tranquillon
Ridge lease proposal, there were several failed legislative
attempts to bypass the Commission's offshore oil and gas leasing
authority: AB 1536 (Blakeslee) of 2009, AB 23 X4 (DeVore) of
2009, AB 2719 (DeVore) of 2010, and Governor Schwarzenegger's
2010-11 Proposed Budget. Governor Schwarzenegger's proposal
came as a surprise to many since, in 2006, he entered into the
"West Coast Governors' Agreement on Ocean Health, "in which he
agreed to '[s]end a joint message to the President and Congress
reinforcing [California, Oregon, and Washington's] opposition to
oil and gas leasing, exploration, and development off our
coasts.'"
Proposal to Drill Tranquillon Ridge from the Coast. Around the
same time the Commission was processing the Platform
Irene-Tranquillon Ridge lease application, a different party
submitted an offshore lease application that proposed to drill
into Tranquillon Ridge from the Vandenberg Air Force Base. The
Commission did not consider this proposal viable due to the lack
of the surface owner's (U.S. Air Force) approval for a surface
location for the project. However, according to recent local
news reports, the U.S. Air Force is more seriously considering
allowing the base to be used for the drilling project. U.S. law
authorizes military services to lease non-excess land for
nonfederal development if the use does not conflict with mission
requirements and is beneficial to the military service leasing
the property. As such, the Commission again could be faced with
deciding whether to approve its first offshore oil lease since
1968.
2017-2022 OCS Oil and Gas Leasing Program. As mentioned above,
in 2009, the Interior announced plans to conduct OCS lease sales
off the California coast. Ultimately, the Interior withdrew
these plans from its 2012-2017 Five-Year OCS Oil and Gas Leasing
Program (Five Year Program), providing the following rationale:
Areas off the Pacific coast are not included in this
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Proposed Program, which, consistent with [the OCS Land
Act], gives priority leasing consideration to areas
where the combination of previous experience; local,
state, and national laws and policies; and expressions
of industry interest indicate that potential leasing
and development activities could be expected to
proceed in an orderly manner. The Proposed Program
specifically seeks to accommodate the recommendations
of governors of coastal states and of state and local
agencies. The exclusion of the Pacific Coast is
consistent with state interests, as framed in an
agreement that the governors of California,
Washington, and Oregon signed in 2006, which expressed
their opposition to oil and gas development off their
coasts. Western states have continued to voice these
concerns, including in formal comments on the [2009
Draft Proposed Program].
On June 16, 2014, the Interior took the initial steps to develop
the 2017-2022 Five Year Program by publishing the "Request for
Information and Comments on the Preparation of the 2017-2022
[Five Year Program]" in the Federal Register. It is too early
to determine whether any lease sales off the coast of California
will be included in the 2017-2022 Five Year Program, but this
bill, like the 2006 West Coast Governors' Agreement on Ocean
Health, could send a significant message that California
continues to oppose new offshore drilling.
Analysis Prepared by : Mario DeBernardo / NAT. RES. / (916)
319-2092
FN: 0004725