Hermosa Beach backs bill for state loan to pay drilling penalty

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

City Council members voted unanimously Monday night to support legislation that would loan state money to Hermosa Beach to help pay a penalty that could result 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 in the Assembly last month by Assemblyman Al Muratsuchi (D-Torrance), would allow Hermosa Beach to borrow the sum from state tidelands funds to help finance the payments to E&B. 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 to pay toward the sum. 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.

Opponents of oil drilling have called the bill an “innovative” way to relieve financial pressure that voters may feel as they make their choice this November.

Anti-oil activists are hoping the election will put to bed decades of legal battles that have hung over the seaside town.

The drilling debate began in 1984 when Santa Monica-based Macpherson Oil convinced voters in then-cash-strapped Hermosa to lift the longstanding ban on oil and allow them to drill at the maintenance yard site.

But voters changed their minds a decade later, reinstating the ban, and the drilling rigs never arrived. Eventually, the City Council halted the project on the grounds that it was protecting the health and safety of its residents.

Macpherson sued, claiming hundreds of millions of dollars in damages -- enough, says Mayor Michael DiVirgilio, to bankrupt the town.

DiVirgilio helped the city negotiate a settlement in which Bakersfield-based E&B bought out Macpherson’s stake in the deal for $30 million and limited the city’s liability to $17.5 million.

In return, E&B will be allowed to ask Hermosa Beach voters to exempt its proposed project from the ban.

City leaders are still conducting environmental, health impact and cost-benefit reviews of the project, trying to meet a summer deadline to place the measure on the November ballot.

Muratsuchi’s bill cleared the mostly Democratic Natural Resources Committee in the Assembly and is scheduled to be heard in the chamber’s appropriations committee Wednesday.