Oil & Water

What keeps Hermosa … Hermosa? This question has sparked much soul-searching among those debating the prospect of oil drilling in the city. Some champion a financial windfall; others lament environmental risks and potential loss of character. The tradeoffs are real, and
with $1 billion and the fate of the South Bay in the balance,
the stakes are higher than ever.

The former mayor and veteran city councilman had served the people of Hermosa Beach in elected office since 2006. Six years later, as he sat in the office of his downtown law practice and “contemplated what the world would look like” in a few months time, it seemed to be the end of the line—not just for his political career but for his city.

Kit Bobko was anxious.

Kit had been representing Hermosa Beach (alongside its legal team) as the city navigated its longtime dispute with Macpherson Oil, one of the largest energy producers in the state of California. The city awarded a lease to Macpherson to drill for oil and gas beneath the city in 1992 (despite several previous voter-approved bans on drilling dating back 60 years prior). But after the voters reinstated the ban on oil drilling in 1995, the city council opted to cancel that lease in 1998, citing environmental, health and safety concerns in the face of mounting public pressure. 

So Macpherson did what big companies do: They sued for damages, to the tune of $750 million. As a city with a budget of about $36 million, an adverse judgment (like the ones his mock juries had been returning as the trial finally approached in 2012 after a decade of motions and appeals) would almost certainly bankrupt the city and even threatened to wipe it off the map entirely.

“We were actually exploring things like disincorporation,” says Kit, “which would mean Hermosa Beach would cease to be. It was life or death for the city … and the prospects were grim.”

Out of options, burning through $200,000 per month in legal fees and hurtling toward litigation, Hermosa Beach got what Kit describes as nothing short of a “miracle,” albeit in the unlikely form of a phone call from the man who held the proverbial sword of Damocles: Don Macpherson, Jr.

“I think I’ve got somebody you need to talk to,” said Don, public enemy #1 in Kit’s beachfront city. “Would you be willing to meet with him?”

After a month of “intense” meetings and phone calls, a tripartite agreement was hammered out between the city council, Don Macpherson and Steve Layton, president of E&B Natural Resources in Bakersfield, California. 

E&B would pay Macpherson $30 million, and Macpherson would drop its suit against Hermosa Beach.

In exchange, Hermosa Beach agreed to put the question of whether to permit E&B to move forward with the drilling project at the city’s maintenance yard before voters in 2014. Should the people vote to uphold the ban, Hermosa Beach would pay E&B $17.5 million.

On March 1, 2012, a month before trial was scheduled to begin, Kit watched—as if peering into the world of powerful men—as codes were exchanged, transactions were confirmed, papers were signed and $30 million changed hands. 

“It was straight out of a James Bond movie,” he says.

The settlement was ratified (unanimously) by the city council, signed by the mayor, rushed to the courthouse to be filed, and “enormous relief” washed over Kit as the prospect of a $750 million judgment that had loomed over the city for a decade disappeared. 

“All the horrible things I had been dreaming about a few weeks were gone,” he says. “We had solved the unsolvable.”

The city had saved itself, but the settlement opened the door to oil drilling once more, setting the stage for another chapter in the long history of conflict between those who would cash in on the riches lying beneath Hermosa Beach and those who are loathe to risk the surf and sand that has been the economic and cultural lifeblood of the city since its inception.

Now 2013, Kit is mayor again, and his is one of three city council seats up for grabs in the November elections. These elections could serve as a referendum not only on the settlement he helped engineer but also on the larger vision for the future of the city that oil drilling promises to deliver.

Amidst all the conflict, at least this much is true: The question that has defined the last century of Hermosa Beach history will play a huge role in determining the course of the next.

 

When Michael Collins opened his copy of The Beach Reporter one morning in March 2012 and read that a settlement had been reached and oil drilling was back on the table, he looked out his kitchen window down at the city maintenance yard and thought, “That’s not a good idea.”

From his home on Eighth Street and Valley Drive, Michael “can throw a tennis ball” into the proposed drilling site, a lot adjacent to the historic Cypress “light industrial area,” still home to several small businesses of Hermosa Beach past: surfboard shapers, music studios, artists’ space.

So Michael, a psychologist and 13-year South Bay resident, began calling neighbors and friends, rallying support around the idea that “we gotta stop this thing.” They started attending city council meetings and, after seeing some familiar faces in the crowd week after week, quickly learned that they weren’t alone in their alarm.

Stacey Armato, a young lawyer with two small children ages 3 and 2, recently planted roots in Hermosa Beach so she and her husband could walk their kids across The Strand to play on the beach. When she learned the terms of the settlement, she thought, “I should roll up my sleeves” and get involved.

Michael and Stacey parlayed casual concern into organized resistance, launching Stop Hermosa Beach Oil—a grassroots political action committee aimed at getting out the vote to uphold the ban on oil drilling in 2014. As of this writing, the group counts a few dozen active volunteer members and more than 1,500 followers on Facebook.

Among them stands Barbara Guild, 86, who resisted Shell Oil’s 1957 attempt to push through a vote lifting the ban on oil drilling by offering the city a $500,000 “bonus.”

“Little did the oil companies know that Hermosans were a different breed from the ordinary variety of small town yokels,” wrote Guild in a 1980 op-ed in The Easy Reader. “Radical was not quite the word for them; Bohemian was not it either. Hippies were not heard of then. But the people who had chosen to live in Hermosa had chosen to live here because they love the ocean, the daily afternoon breeze, the beautiful sunsets, the warm winter days, the nearness to the big city, the friendly people and the small-town spirit.”

"We were actually exploring things like disincorporation,” says Kit, “which would mean Hermosa Beach would cease to be. It was life or death for the city … and the prospects were grim.”

Echoes of Barbara’s sentiment are evident in today’s resistance. “Hermosa Beach is a very prosperous and beautiful place filled with people who moved here because of the way it is right now,” says Michael. “It’s perfect just the way it is.”

Their concerns with E&B’s proposed oil drilling project are many, but it boils down to the argument that drilling 30 oil wells and four water re-injection wells in the middle of such a densely-populated, 1.4-square-mile area creates an unprecedented health and safety risk to Hermosa Beach residents. Toxic chemicals, they say—including known carcinogens—could be released into the air and leaked into the groundwater. That, coupled with the ever-present possibility of an oil spill, is not a risk they’re willing to take.

In order to circumvent the statewide ban on new offshore oil drilling leases ordered by the California Coastal Sanctuary Act of 1994, E&B proposes to drill from the city yard (a few blocks east of the beach) underneath the city and into the sea floor, a process known as directional, or “slant” drilling. 

“They’ll say this is 100% safe, and they’ve engineered everything so that nothing can go wrong,” says Michael, “but that’s what the people in Louisiana thought when BP was out there drilling.”

But rather than emphasizing the negative, Michael and Stacey have waged a campaign that doubles as a celebration of Hermosa Beach, adopting as their rallying cry “Keep Hermosa Hermosa.” They’ve blanketed the city with their slogan—stickers slapped on the back of laptops, banners hanging from balconies overlooking The Strand, trucker hats perched atop beach volleyball players. The message is delivered in green, as if to say that oil drilling has no place in a city with a general plan that focuses on “enhancing sustainability” and “progressing toward becoming carbon-neutral.”

Their vision for the future of the city looks very much like the city of today: healthy, active, green—and oil-free. 

“They have one argument to make: We’re gonna give you money,” says Michael. “It’s a bribe with a dangling carrot. Stacey and I have donated our time … trying to unite this town. It’s hard to find people in the community who are out speaking for oil for free.”

 

“DID YOU KNOW? With voter approval and full implementation of E&B’s proposed oil recovery project, the city of Hermosa Beach could gain an estimated $519 million in new revenue for city services and community improvement, according to a recent independent economic study.”

By now you should know, as this series of advertisements has been lining the pages of local publications for months. Its author, Tiffany Rau, says Michael and Stacey aren’t the only ones who want to “keep Hermosa Hermosa.”

“I want Hermosa to stay the way it is, and I think it needs money to do that,” says Tiffany, a longtime Hermosa Beach resident and former Arco employee whose consulting firm, Rau Communications, was hired by E&B in May 2012 to “educate” voters about their proposed project.

From E&B’s rented office space on Pier Avenue, Tiffany points to growing inadequacies in the city’s school, safety and sewer systems—Mayor Bobko recently referred to the sewers as “decrepit.” Tiffany says the city needs to find “a new revenue source to take care of” these issues, and this “safe and environmentally responsible” project is its best bet.

E&B projects to recover about 35 million barrels of oil—approximately 8,000 per day at peak production—and 2.5 million cubic feet of associated natural gas from the Hermosa area of the Torrance Oil Field. These will be sold to a local refinery and fed into the world’s largest gasoline market: Los Angeles.

The company plans to pocket a $900 million profit after recouping its initial $200 million investment. The city would receive a 15% royalty (subject to Tidelands Trust restrictions). The school district would receive a smaller royalty (based on mineral rights ownership) plus 20¢ per barrel, or about $12 million. And Macpherson Oil would receive about a 5% royalty.

"The nature of the business we’re in is one where you make investments that turn out to be big goose eggs. Dry hole. Nothing’s there,” says Steve. “Here, the oil resource is known. This project has risk, but the risk is on a different end of the drill bit.”

Most of the oil E&B wants is in the “tidelands” under the beach west of the mean high-tide line and under the Pacific Ocean. In 1919, the state granted Hermosa Beach its tidelands to be held “in trust” for the people of California, so while 37.5% of royalties from oil recovered from that region would flow into the city’s general fund, the majority of tidelands royalties would be restricted for use “solely for the establishment, improvement and conduct of a harbor and for the establishment of bulkheads or breakwaters for the protection of lands within its boundaries, or for the protection of its harbor, and for the construction, maintenance and operation thereon of wharves, docks, piers, slips, quays and other utilities, structures and appliances necessary or convenient for the promotion or accommodation of commerce and navigation, and the protection of the lands within said city.”

Using E&B’s projections, $285 million of unrestricted funds and $234 million of restricted funds could be delivered to the city over the 35-year life of the project, with the majority of those funds expected to arrive in the first 10 years of production.

And that’s “the only reason people should support this project—” says Steve Layton, who took over as president of E&B in 2000, “if they believe the financial benefits are enough to outweigh the costs that they perceive.”

Steve says oil is in his DNA—his family has been in the business for 100 years. When he picked up the phone to call Don Macpherson, Jr., a fellow board member of the California Independent Petroleum Association (CIPA), to strike the deal that would end the “long saga of litigation” in Hermosa Beach, he knew he was taking a calculated risk: invest in a project that might never break ground in the hopes that, if it does, it becomes E&B’s second most significant asset, bringing it closer to its stated goal of “becoming the largest privately owned independent exploration and production company in California.”

“The nature of the business we’re in is one where you make investments that turn out to be big goose eggs. Dry hole. Nothing’s there,” says Steve. “Here, the oil resource is known. This project has risk, but the risk is on a different end of the drill bit.”

While he acknowledges “it is a complex project in a very sensitive area,” he believes “people are uncomfortable with it based on knowing only part of the story” because that’s “what happens in the old game of telephone.” 

The technological advancements of the last decade, particularly GPS, have helped companies like E&B push the boundaries of oil exploration and recovery into previously unreachable areas.

But both Steve and Tiffany are adamant that their progress hasn’t come at the expense of safety. 

They say truck traffic will be limited; fumes contained underground; noise kept at a dishwasher-like 45 decibels; and wastewater re-injected underneath the sea floor to avoid the subsidence that has plagued nearby Long Beach. 

As for the risk of an ocean oil spill, they point to a 16-foot-thick wall, 200,000-barrel containment basin and four-second shutoff valve. They say these factors limit the possibility to a remote set of circumstances: A truck carrying oil could overturn and burst on a particularly rainy day, conceivably dripping oil onto the road that might be washed into that subpar sewer system and carried out to sea.

But if it does happen—as it did in 1998 when 450 to 1,500 barrels of crude oil were discharged into the Louisiana wetlands by Equinox Oil (of which Steve Layton was CEO until Franceso Galesi purchased its assets out of bankruptcy and formed E&B, retaining Steve as president)—“You don’t have to worry about trying to chase us down as we’re running out of town,” Steve says. “We’re gonna be there.”

 

It was the height of summer—July 24—but instead of enjoying the sun and scenery that has made “The Best Little Beach City” famous, hundreds of Hermosa Beach residents had packed themselves into the community theatre on Pier Avenue to, as the civic saying goes, make their voices heard—some significantly louder than others.

“Are we gonna be Carson in 10 years?”

“Will you be looking at fracking?

“Can you mitigate an earthquake?”

Grumblings of discontent permeated the crowd as a panel of consultants from Marine Research Specialists (MRS)—hired by the city to conduct the Environmental Impact Report (EIR) mandated by the California Environmental Quality Act (CEQA)—answered questions deep into the night.

“So you’ll be evaluating risk on something that’s never been done?” asked one member of the audience.

“In a way, you could say it that way, yeah,” replied a panelist to a burst of laughter and applause. “The technology is nothing new. It’s the proximity to the population … and tolerance is up to each individual within the community.”

This meeting was the first of three public scoping meetings to determine the courses of three separate, independent analyses of E&B’s proposed project. The EIR is the only piece of analysis required by law, but the city also commissioned a “Health Impact Assessment” and “Cost/Benefit Analysis” to complete the portrait of how oil drilling would affect the community. 

While these two optional reports (to be completed by December and January, respectively) will serve as both a check on E&B’s staunchly sunny projections and a resource for voters as they head to the polls in November 2014, the EIR will examine potential impacts across a broad spectrum of issues—from air and water quality to earthquakes and subsidence to traffic and noise—and recommend mitigations to minimize those impacts.

MRS will present the draft EIR to the public in December and open the floor for public comments. Interested parties—citizens, activists and government agencies—will comment. MRS will then attempt to address and resolve those comments in the final EIR, to be completed by April and put before the city council for a vote in June.

There is no regulatory agency overseeing the process. The city council votes on whether the EIR meets CEQA standards, and citizens reserve the right to sue the city under CEQA if those standards are not upheld. If the EIR is certified by the city council, the mitigations recommended by MRS become legally binding obligations for E&B if and when the project moves forward. These reports should outline the consequences of both lifting and upholding the ban, highlighting a distinct set of tradeoffs for undecided citizens. 

If the vote to lift the ban fails and the city owes $17.5 million to E&B, “it won’t cripple us,” says city manager Tom Bakaly, “but it will really force us to prioritize our services and look for new revenue sources,” possibly in the form of new taxes.

If it passes, “it could set a precedent that effectively opens up the Santa Monica Bay for oil drilling,” says Mark Gold, who resigned as president of Heal the Bay in 2012 to become the associate director of the Institute of the Environment and Sustainability at UCLA.

“Between the noise and the vibration, this is gonna put me out of business,” says Karl Grossman, 60, who gives music lessons at his recording studio, Music Focus—a community staple located directly adjacent to the city maintenance yard. “I’ve got kids coming in here, so my conscience says there’s no way I can continue if there’s an oil field being drilled four feet from my wall. If this passes, I’ll be gone.”

Meanwhile, the battle of competing and contradictory facts continues. In a series of letters to Ken Robertson, director of the Hermosa Beach Community Development Department, some of the state’s largest environmental groups have thrown their collective weight behind Michael Collins, Stacey Armato and the Stop Hermosa Beach Oil cause.

“A project of this magnitude has the potential to undermine the positive environmental work that your residents, and our volunteers, have done over the past 25+ years,” wrote Sarah Abramson Sikich and Dana Roeber Murray of Heal the Bay.

“Surfrider is gravely concerned about the unsafe practice of directional drilling for well creation,” wrote Stefanie Sekich-Quinn and Craig W. Codwallader.

“At the public scoping meeting that took place on July 24, 2013, the EIR consultant made representations that the project would not involve the use of hydraulic fracturing (“fracking”), a controversial well stimulation method in which large quantities of water and chemicals are injected at high pressure into the subsurface to fracture the rock and extract oil and gas,” wrote Damon Nagami on behalf of the Natural Resources Defense Council. “However, we found nothing in the scoping document to confirm this representation.”

E&B brushed aside concerns that their public record of spills—most recently 2,000 gallons of “red diesel” in an oil field in unincorporated Kern County in February 2012—contradicts public statements concerning the possibility of a spill in Hermosa Beach. 

“You would not trust an oil company who did not have a number of spills reported,” says Tiffany Rau, “because that means they’re not reporting.”

The only indication of which way the city might be leaning will come on November 4. In the race for those three open city council seats, the so-called “oil question” has clearly divided the candidates between those speaking out against drilling and those remaining conspicuously silent for the sake of “neutrality”—and one who can’t make up his mind.

Nanette Barragan says that her unannounced visit to E&B’s Huntington Beach facility convinced her that oil drilling “is not something I want to have here.” Hany Fangary is a founding member of Stop Hermosa Beach Oil and says his position is informed by his work as an environmental engineer and environmental lawyer. Greg Savelli decided to make his opposition known when he saw families forced to evacuate their homes in nearby Hawthorne after an explosion sent flammable methane gas into the air in mid-September.

Mayor Bobko, on the other hand, says he is “100% committed to being an unbiased clearinghouse of fact” for the voters in 2014. As such, he (along with the rest of the city council) has refused to take a public stand on either side of the issue in this year’s election. 

Candidates John Bowler, Carolyn Petty and fellow incumbent Jeff Duclos joined him in that “pledge of neutrality,” though asked recently if he would support the project, Jeff Duclos answered, “Would I lean favorably toward approving it? No. I think there’s far too many questions that have been raised that haven’t been answered, but I think we need to allow them the opportunity to make their case.”

Asked about his opponents’ pledge of neutrality, Hany Fangary said: “I don’t see how maintaining a neutral stance on probably the most significant issue facing the people of Hermosa Beach in a 30-year span is serving the voters.”

Kit Bobko is betting that a “quiet majority of folks are waiting to be convinced,” and whether or not his political calculation pays off, he might be right. The publication of those three independent reports will mark the beginning of a critical period of citywide soul-searching as November 2014 approaches. 

Can E&B drill for oil and maintain a healthy environment? Can the city uphold the ban and still pay for essential services? Does all that money safeguard or jeopardize that defining “funky” character of the city in the future?

So, Hermosa Beach, it’s up to you. And there’s really only one question that matters: What do you want to do?

 

 

MATH DRILL

$17.5 million

amount the city of Hermosa Beach will pay E&B Natural Resources if residents vote in 2014 to uphold the drilling ban

$285 million 

the estimated unrestricted funds that the city of Hermosa Beach would receive over 

35 years of drilling

More than 1,500 number of followers on Keep Hermosa Hermosa’s Facebook page

8,000

barrels per day E&B projects it will recover at peak production from the Hermosa area of the Torrance Oil Field

$900 million

amount E&B will pocket as profit after recouping $200 million investment

20¢

per barrel, or about $12 million, that could go to the school district

 

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