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Hermosa Beach backs bill for state loan to pay oil drilling settlement

Laws and LegislationUpstream Oil and Gas ActivitiesEnergy ResourcesNatural Resource Industry
Hermosa Beach will owe oil company E&B Natural Resources $17.5 million if voters reject drilling
E&B Natural Resources wants to drill for oil at a 1.3-acre city maintenance yard
A bill introduced last month would allow Hermosa Beach to borrow

The city of Hermosa Beach has thrown its support behind a proposed law designed to relieve financial pressure that leaders are facing in an ongoing debate over oil drilling.

City Council members voted unanimously Monday night to support a bill in the Legislature that would lend state funds to Hermosa Beach to help it with a payment it would owe to an oil company if voters reject a proposed oil drilling project at the polls this fall.

Hermosa Beach residents will face a high-stakes ballot question over whether to allow oil company E&B Natural Resources to reverse a more than 80-year ban on all new oil drilling.

The company wants to drill about three dozen wells at a 1.3-acre city maintenance yard next to homes and blocks from the beach.

If residents approve the new drilling, the city estimates it stands to gain $118 million to $270 million over the 35-year life of the project, with an additional $1 million to $2 million going to Hermosa Beach schools.

If drilling is rejected, however, the city will be on the hook to pay $17.5 million to E&B Natural Resources, the terms of a legal settlement struck with the oil company in 2012.

The bill, introduced last month by Assemblyman Al Muratsuchi (D-Torrance), would allow Hermosa Beach to borrow the sum from state tidelands funds at no interest. Payments made by the city would go back into a fund for coastal and climate change programs.

The city says it has $6 million in the bank but that financing the rest could mean payments of $825,000 a year for 30 years, or $1.1 million a year over 20 years, according to the city-issued report. Under the legislation, those annual payments could be reduced to $500,000, according to the assemblyman.

Hermosa Beach will now send an official letter to the state Assembly appropriations committee, where it will be heard Wednesday, and Mayor Michael DiVirgilio may testify in support of the bill in the future.

While city leaders have pledged to remain neutral on the oil issue until a measure is placed on the ballot, DiVirgilio insisted that supporting the bill made good financial sense for the city, as it could potentially save Hermosa Beach as much as $350,000 a year in interest payments compared with a commercial loan.

He added, however, that the city has always been, and will continue to be, capable of shouldering the cost.

"In no scenario is there a doomsday," DiVirgilio said. "This is a better deal for us, so that's why we support it."

christine.maiduc@latimes.com

Copyright © 2014, Los Angeles Times
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