State Rejects Hermosa Oil Drilling : Lands Commission: Officials refuse to approve the controversial plan to boost city revenues because of inadequate underground drainage.

A controversial plan to boost city revenues in Hermosa Beach by drilling for oil at a city maintenance yard suffered a major setback this week when state officials refused to approve the plan.

Hermosa Beach officials approved a lease agreement with Macpherson Oil Co. last fall that authorized 30 wells at a city yard at 6th Street and Valley Drive. But officials cautioned at the time that the plan had to negotiate a maze of governmental agencies before it would become reality.

The biggest obstacle was the State Lands Commission, which recently told the city that it cannot approve the project because of insufficient underground drainage.

Acting City Manager Steve Wisniewski called the commission’s decision, which the city received in a March 20 letter from commission Executive Director Charles Warren, an expected delay. He said in an interview Wednesday that city officials intend to argue before commission officials that adequate drainage exists.

The commission had ruled in 1985 that there was adequate drainage to permit drilling in Hermosa Beach. But that was when oil wells in adjacent Redondo Beach were flowing. Since those wells were abandoned, the commission has ruled that underground drainage is inadequate and that they cannot approve the project.

Hermosa had several wells in the 1920s, but noise and fumes prompted the city to ban oil drilling in 1932. By 1984, voters revived the drilling idea, passing two pro-oil initiatives as a way to raise money to repair the city’s crumbling streets and sewers.

Since then, the project has stalled, with arguments arising over how much revenue the city will get from drilling, as well as how much noise and pollution will be generated.

In their most recent estimate, Hermosa Beach officials say the financially strapped city would receive from $24 million to $92 million during the term of the 35-year lease with Santa Monica-based Macpherson Oil. The Hermosa Beach School District would receive 20 cents a barrel.

The wells would be drilled at a slant to recover oil from reservoirs underneath the city and the offshore tidelands. A 160-foot-high tower would store the oil rig.