Assemblyman takes on oil firm, wants state loan for Hermosa Beach

South Bay Assemblyman Al Muratsuchi on Friday announced a bill designed to take the financial heat off Hermosa Beach voters who are being asked to decide whether to allow oil drilling in their city for the first time in more than 80 years.

The legislation would allow the city to take out a no-interest loan from the state to help pay off a $17.5-million penalty the city would face if voters in the beach town reject an oil drilling proposal.

The assemblyman said he wanted Hermosa Beach residents to vote “without the gun of this financial penalty to their head.”

Muratsuchi (D-Torrance) unveiled the bill at a press conference, flanked by representatives from Heal the Bay and Stop Hermosa Beach Oil, both staunch opponents of new drilling.

The bill, if passed, could represent an innovative solution to the high-stakes question Hermosa Beach voters will likely face this fall, the result of a multimillion-dollar legal settlement that threatened to drive Hermosa Beach into bankruptcy.

If voters approve the ballot measure, oil company E&B; Natural Resources would gain the right to drill as many as 30 diagonal wells from a city maintenance yard just blocks from the beach.

Initial projections from a city-commissioned economic analysis say the city stands to gain $118 million to $270 million over the 35-year life of the project, with another $1 million to $2 million going to Hermosa Beach schools.

If they reject oil drilling, however, the city will be on the hook for the $17.5 million – the terms of the legal settlement reached in 2012.

The city already has $6 million saved up to pay toward the sum. Financing the rest could mean payments of $825,000 a year for 30 years, or $1.1 million a year over 20 years, according to the city-issued report.

Some hope the vote – and Muratsuchi’s proposal – will put an end to a years-long legal battle that has hung over the city’s head.

The 1.3-square-mile city has been an oasis from the oil derricks that once dotted the South Bay, thanks to a 1932 voter ban on all new drilling.

In 1984, Santa Monica-based Macpherson Oil dangled the prospect of tens of millions of dollars in royalties, and voters in then-cash-strapped Hermosa voted to lift the ban.

But the drilling rigs never came.

Voters changed their minds and reinstated the ban, and the City Council eventually halted the project, deeming it unsafe.

Macpherson sued, claiming as much as $750 million in damages, more than 20 times Hermosa Beach’s annual budget and enough, city leaders feared, to bankrupt it.

The city settled the suit in 2012, allowing Bakersfield-based E&B; to buy out Macpherson’s stake in the deal and limiting the city’s liability to $17.5 million.

In return, E&B; will have a shot at asking Hermosa Beach voters to exempt their project from the ban.

E&B;’s project proposal is undergoing environmental, health impact and cost benefit reviews, and city leaders are trying to meet a summer deadline to place the measure on the ballot in November.

Eric W. Rose, a spokesman for E&B;, said the firm was “unclear” why the legislation was needed because the city, if voters approve the drilling, will not be liable for the payment.

The oil question has become something of a campaign issue this year.

Muratsuchi is facing a Republican challenger, and his seat is one of a handful that political analysts consider up for grabs.

Congressional candidate Wendy Greuel, who is running in a crowded field to replace Rep. Henry Waxman (D-Beverly Hills) in a district that hugs the South Bay coastline, came out against the oil proposal Thursday.

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Twitter: @cmaiduc

christine.maiduc@latimes.com