State Panel Rejects Call to Limit Cuts in Oil Royalty Checks

The state Lands Commission has unanimously rejected a proposal by thousands of Long Beach oil leaseholders to implement a year-old law designed to limit reductions in their monthly oil royalty checks.

The 3-0 commission vote Thursday was a setback for Long Beach Oil Royalty Owners Inc., a nonprofit group formed last year to protest cuts in the payments made by the oil companies to more than 12,000 leaseholders.

Rose Buchholz, the group’s president, said she was “not blaming anyone” for the delay in enforcing the law, which was authored by Assemblyman Dave Elder (D-Long Beach). But Buchholz acknowledged that she was frustrated because “this has been a long year to wait.”

In 1965, Buchholz and the others began receiving monthly royalty payments when a consortium of oil companies started drilling under their property, known as the Town Lot tract, in East Long Beach. The tract is part of a state tidelands oil field.

Production Recalculated

Two years ago the state recalculated the amount of oil produced from the tract and determined that the Town Lot owners and the oil companies had been overpaid $27.5 million in state oil revenue. Under state law, it is the responsibility of the oil companies to collect the overpayments for the state.

Of the $27.5 million, the Town Lot leaseholders owed approximately $3.1 million and their royalty checks were slashed by as much as 50%. Buchholz contended that some elderly leaseholders who have depended on the income are now receiving little or nothing.

In response to local protests, Elder pushed through the legislation to stretch out the repayment period and limit the monthly loss of income to the individual leaseholders. Under his law, the Lands Commission could limit the reduction in royalty checks to 10%. For example, if a leaseholder had received $1 in royalties, when the correct payment should have been 80 cents, the law allows the commission to reduce the payments by as much as 10%, or eight cents.

However, the law has never been implemented. Oil companies say they cannot afford to make the change, and the Lands Commission says it is not authorized to use public funds for that purpose.

Robert Austin, a lawyer for the leaseholders, complained that implementation of the law was “dead in the water” until his clients began lobbying the commission earlier this year.

Administrative Expense

Austin argued that the commission could require the oil companies to pick up the cost of recalculating the repayments as an administrative expense for operating the oil field.

However, Austin’s assertion has been questioned by the Lands Commission and the oil companies.

The dispute over who should shoulder the cost stems, in part, from the oil companies’ calculation that it would cost $2.5 million to reformulate their computer programs. It has been further complicated by the sharp decline in oil prices in the past year.

In a letter to the City of Long Beach in August, G. B. Shafter, area official for Arco, said the company has no intention of administering the change in the law. Arco controls 7,500 of the 12,000 leases.

Shafter said that the drop in oil prices has triggered “several thousand layoffs” and the company finds it “impossible to handle additional responsibility.”

At the Lands Commission, officials said it would not make sense for them to pay for the computer-program reformulation at a cost of more than $2 million because the state is only owed another $1.5 million by the Town Lot leaseholders.

No State Authority

Alan V. Hager, a deputy attorney general, said the state does not have the authority to force the oil companies to pay the administrative costs of changing the monthly payments. He said the commission also would be overstepping its authority by underwriting the payments.

Hager said that no action was taken on the issue until last week because Elder’s legislation “really contemplates a consensus of all the parties involved. . . . It doesn’t dictate anything. . . . It presupposes some give and take.”

Claire T. Dedrick, the commission’s executive officer, said the commission had been briefed nearly every month on the issue. Dedrick said the problem was not easy to resolve because “it’s not clear-cut at all . . . “

Lt. Gov. Leo T. McCarthy, a commissioner, questioned Dedrick if the state or the oil companies were guilty of foot dragging. “There isn’t really anyone guilty,” Dedrick declared.

But in an interview, Elder blasted the oil companies, saying he was “infuriated” because they balked at picking up the cost of the accounting change. “These little people (the leaseholders) are being set upon by the oil companies,” Elder declared.

In an interview, however, Arco’s Shafter placed the blame with state officials who recalculated the formula. He said Arco has been fighting the case through binding arbitration, which, if successful, would result in higher royalty checks for both the oil companies and the Town Lot leaseholders.