Oil and Water No Longer Mix : Venice: The company that owns the last remaining wells on the beach is facing financial troubles. Los Angeles officials are trying to terminate the firm’s lease.

With a whimper, the petroleum age is ending in Venice.

The last remaining oil wells on the beach along Santa Monica Bay, a cluster of nine wells enclosed by a 14-foot fence near the Venice Pavilion, haven’t produced a drop of petroleum for more than a year.

The operator of the wells, a financially troubled concern named Damson Oil Corp., says it lacks the money to get the wells up and running. Los Angeles city officials say that if Damson has no plans to resume production, they will look for ways to terminate the company’s lease, which runs until 1995, and try to force Damson to abandon the wells and restore the beach now.

Watching the situation are a group of community activists engaged in a long-shot effort to separate Venice from Los Angeles and incorporate it as an independent city. They contend that the Los Angeles Department of Parks and Recreation has violated its promise to spend revenues from the wells on projects in Venice.

And they want the money they say they are owed.

“It’s just been one misuse of the money after another,” said Larry Sullivan, former president of the Venice Town Council and a leader in the fight for cityhood.

The beach wells, drilled in the mid-’60s by a Mobil Corp. predecessor, are reminders of Venice’s oily past. Oil was discovered in 1929; in the early ‘30s, the Venice-Del Rey Oil Field supported 148 wells that produced 46,932 barrels of oil and 2 million cubic feet of natural gas daily, making it the fourth-largest oil field in the state.

The nine beach wells draw from the more recently discovered Venice Oil Field, which lies partly beneath the land and partly offshore. They were highly productive for Mobil at first, pumping more than 2.5 million barrels of oil from 1966 to 1976. The yield fell sharply after that, however, and Mobil sold its interest in the field in 1976 to the Stinnett Oil Co., a Damson subsidiary. Damson changed the name of Stinnett Oil to the Venice Beach Development Corp. in 1988.

By 1989, only two of the wells were in operation, one onshore and one offshore. The two wells yielded 19,970 barrels of oil in 1989 before production ceased in August of that year.

The field has produced more than 3.6 million barrels of oil, and geologists estimate that 428,000 barrels remain. The remaining oil is costly to extract, however--98% of what the wells brought up in 1989 was water, according to statistics compiled by the Division of Gas and Oil of the California Department of Conservation.

K. B. Battaglini, a senior attorney for Damson, said that to operate profitably, the wells would have to be reworked extensively and that the company doesn’t have the money to do so.

According to Damson’s 1989 annual report, the company suffered in the industry downturn that preceded the political crisis in Iraq, when oil and gas prices and demand were low. The report said Damson, which is headquartered in New York and has corporate offices in Houston, had been “required to sell a significant portion of its oil and gas properties during the last four years in order to meet debt service obligations and to maintain working capital levels.”

Battaglini acknowledged that the company’s financial situation played a role in the decision to stop production in Venice, but he added that the hostile political climate in Southern California toward onshore and offshore drilling also discouraged the company from making a major reinvestment in the wells.

“I think everybody is waiting for the lease to expire,” Battaglini said.

The city, however, may not be willing to wait that long. Frank Catania, director of planning and development for the Department of Parks and Recreation, said Damson has not made its scheduled monthly royalty payments to the city for nine or 10 months.

The terms of the lease allow the city agency, which signed the original agreement with Mobil in 1965, to seek an early termination if production stops for more than 30 days. Catania said that if agency officials conclude that Damson has no plans to resume production, they will probably seek an early termination of the lease.

When the lease is terminated, Damson will be responsible for abandoning the wells, a costly process that involves removing pipes, filling the hole with a special type of mud and placing concrete plugs at various intervals. In addition, Damson must remove all surface structures and restore the beach to its original condition.

In a 1989 letter to the Department of Parks and Recreation, when Damson was seeking the consent of the city to sell its Venice oil field to another company, it estimated abandonment costs at $2.06 million.

Damson posted a $200,000 bond to cover abandonment costs when it took over the well in 1976. If the company seeks bankruptcy protection before the facility is abandoned, the city’s only recourse would be to submit a claim as a creditor.

Catania noted that the city denied Damson permission to make the 1989 sale on the grounds that the acquiring company was too small and city officials feared it would not have the assets to cover abandonment costs.

Still unresolved is the disagreement between the Venice activists and the city over how much money the wells have generated for the city and how the money has been spent.

Sullivan contends that city documents he has obtained show that Los Angeles received at least $5.7 million in royalties and other revenues from the Venice wells from 1965 through 1989.

He said most of the money was to be used exclusively for improvements at Venice Beach and cites press releases and correspondence from 1966 he obtained from the Department of Parks and Recreation to back up his contention.

Catania responds that Sullivan’s estimate of revenues is too high and says the money was never designated specifically for Venice Beach.

“The agreement was that the money would be spent to improve the beaches,” Catania said. The revenues, which he said amounted to $2.95 million through 1990, all went into the Beach Capital Improvement Fund, which pays for projects at all city-owned beaches.

Catania said the city has spent an estimated $2 million at Venice Beach since the oil wells were drilled. Among the capital improvements paid for, at least in part from oil royalty funds, are the bike path, restroom facilities, lifeguard headquarters, parking lot improvements and landscaping, he said.

The prevailing view in Venice seems to be that the community has about as much chance of getting Los Angeles to cough up the oil money as it does of gaining independence as a separate city--namely, not much.

Sullivan, however, remains optimistic.

“We’re hoping that the city of L.A. will simply return the money to Venice Beach for civic improvements,” he said. “Because if we become a city, we’ll sue for the money, plus interest.”