State Sues U.S. Over $15.2 Billion in Oil Royalties

The state attorney general’s office filed suit against the federal government Thursday seeking $15.2 billion in royalties that the state contends it is owed from Kern County’s Elk Hills Naval Petroleum Reserve.

The suit, filed in U.S. District Court in Fresno, was announced here by Lt. Gov. Leo McCarthy and state Controller Gray Davis. The two officials sit on the State Lands Commission, a plaintiff in the suit along with the State Teachers Retirement System and Supt. of Public Instruction Bill Honig.

The royalty money, if the state can collect, would be earmarked for spending on the teachers’ retirement system and education programs.

‘Ignored Us’

The officials said they were forced into court because U.S. Department of Energy officials have refused even to discuss the state’s claim for royalties. John Herrington, secretary of the Department of Energy, and Donald Hodel, secretary of the Interior, were named as defendants in the suit.

Controller Davis said: “For the last 11 years, the federal government has ignored us. It has kept all the money for itself.”

At issue are oil rights to 1,332 acres in Kern County that state officials say were given away in 1853 by Congress as part of California’s statehood entitlement. The land, just over 6% of the 48,000-acre oil reserve, was handed over to California. The idea was for the state to use the land to raise money for support of public schools.

California formally took title in 1903, but the land was put off limits in 1912 when Elk Hills was declared a strategic petroleum reserve for the U.S. Navy.

In 1976, Congress opened up the reserve for commercial oil production, a move that provided state officials with a basis for the suit.

The suit contends that the policy of selling oil on the open market “effectively revoked” Elk Hills’ status as a naval oil preserve.

Under a federal law, the Mineral Leasing Act of 1920, California has a right to 50% of any oil royalties pumped from “public lands,” a description that state lawyers say now fits Elk Hills.

Deputy Atty. Gen. Jan Stevens, who will argue the case for the state, said it was a decision by the Department of Energy to put the Elk Hills reserve up for sale that triggered the suit. If the field is sold, the state’s claim would be jeopardized.

President Reagan first proposed selling Elk Hills in 1986. State officials said they do not know whether the federal government has a buyer, but wanted to file a suit just in case.

At the minimum, state officials hope that the suit will cloud title to the land and block any sale until the courts deal with the legal dispute.

The suit seeks an injunction to block sale of Elk Hills until California’s claim for past royalties is satisfied. It also asks that the court establish the state’s clear ownership of the land.

The $15.2-billion figure reflects an estimate by the state controller of what the total potential recovery from the suit could be. It is based on the amount of oil pumped out of the oil field since 1977, the worth of the oil still in the ground and the value of the two parcels given to the state for support of the schools.

Davis said California’s “fair share” of oil revenues due from past sales is $6 billion. He said the state has a right to another $8 billion in future royalties, a sum that represents half the value of the oil that the Lands Commission legal staff said is still in the ground.

Finally, the state wants to be compensated for the value of the Elk Hills land it was given, said to be worth about $822 million.

McCarthy, who appeared at a Capitol news conference with Davis and Larry Kurmel, chief executive officer of the teachers’ retirement system, said: “The federal government gave us two parcels in Elk Hills 134 years ago for support of our school system. Those two parcels turned out to be a bonanza. Now they want to renege and put all of that money into the federal Treasury.”

Davis said the oil royalty money “could make a very substantial difference in the quality of education in our schools, for teachers, and for their retirement.”

“In essence, the federal government is stealing from us,” Davis said. “It is stealing from our schools, it is stealing from our teachers, it is stealing from our children’s future.”