Oil Firm Asked to Ensure Home Values Won’t Sink : Real estate: Hermosa Beach panel recommends that permit to drill be contigent on company setting up a trust fund to compensate nearby residents if property values decline.

Before they allow an oil company to extract oil in their city, Hermosa Beach planning commissioners want to extract a promise.

They want MacPherson Oil Co., which has a lease agreement with the city to drill for oil, to create a trust fund to compensate homeowners for any decline in property values attributable to the drilling.

The property value protection plan is one of several controversial recommendations in a proposed conditional-use permit that the City Council is scheduled to consider July 13. The permit is one of several required before the city can issue MacPherson a building permit to begin drilling.

“Not only do I think it’s critical, but I think it’s the right thing to do,” said Planning Commission Chair Joseph DiMonda. “If the whole town stands to gain . . . then the least (the oil company) can do for their neighbors is to assure them that this money is not going to be made on their backs.”

MacPherson has appealed the condition calling for a property value protection plan, saying it should be up to the city, not the oil company, to provide a fund. Its position has some support among city leaders. At least two council members have criticized the plan, saying other residents might seek similar guarantees in other situations--during downzoning, for instance.

“It’s like a big goal for lawyers to go after,” said Councilman Robert Benz.

“This, in my view, is opening a Pandora’s box,” said Mayor Albert Wiemans. “We have never done it in the past on things that are more severe than this oil proposal. If we start doing that now, what claims are we going to lay ourselves open for?”

The lease agreement authorizes MacPherson to dig 30 oil wells from a city yard at 6th Street and Valley Drive. The wells would be drilled at an angle to recover oil from reservoirs beneath the city and offshore tidelands. They are expected to produce up to 30 million barrels of oil over the next 25 years, generating between $42 million and $126 million in royalties for the city. The city must spend a portion of the royalties on state beach or tideland projects. The drilling project, which has twice won voter approval, will occur in the middle of a light-manufacturing area about 100 feet from the nearest house. City officials do not know how many homes are close enough to the site that residents would see the drilling or smell the oil. But DiMonda said the adjacent neighborhood “goes uphill so that everybody is looking at it and so that everything coming out of that site, including noise, is going to be heard over a (large) area.”

Details for the property value protection plan have not been worked out. But commissioners say they want something similar to the $1-million trust fund set up for Huntington Beach homeowners by ANGUS Petroleum. All 33 homeowners who live within 100 feet of the 28-oil well drilling site in that community were eligible for compensation. Before any drilling began, the oil company and each of the homeowners agreed on the appraised value of their homes, said Pat Davis, an ANGUS consultant who administered the trust.

The trust allowed homeowners who sold their property during the drilling phase of the project to be compensated for any depreciation resulting from the drilling. The general decline in the real estate market was factored out, Davis said.

As it turned out, none of the homeowners drew on the trust. One year after the drilling was completed, the trust was dissolved and the funds were distributed in equal parts to the city, the oil company and the homeowners--who received $10,000 each.

Davis, who briefed the Hermosa Beach Planning Commission on the trust agreement, called the plan “a terrible thing” that was difficult to administer and was “open to abuse.”

“The thought the company had was ‘if you were transferred or outgrew your home or had other legitimate reasons to sell your house, we wanted people to be protected,’ ” Davis said. “That didn’t mean selling to your brother-in-law and then buying it back . . . But it’s almost impossible to legally write such a (plan) that is not fraught with (the possibility of) abuse.”

David Gautschy, a MacPherson petroleum consultant who manages the Hermosa Beach project, said it is unfair to compare the Huntington Beach and Hermosa Beach projects because Hermosa Beach officials invited the oil company to drill on city property.

“ANGUS was a developer coming into a neighborhood, where this one is the city doing its own project,” Gautschy said. “If the city feels it needs to protect the property owners, then our feeling is, they can. But that was not part of the bidding process . . . and it’s not our responsibility to do it.”

Homeowners who live near the proposed oil site disagree. They say a trust fund is the least the oil company can do to protect their property values.

“The developer stands to make about 1 billion dollars to our few million, so they can damn well take it out of their pocket,” said Rosamond Fogg, treasurer of the Hermosa Beach Stop Oil Coalition, which has about 500 members.

She estimated that hundreds of nearby homes would depreciate as a result of the vibrations, odors, noise and visual blight caused by the drilling operation.

“We object to the project per se, “ Fogg said. “But if there is going to be a project, we want to be afforded the same protection people in other cities are afforded. We deserve this.”