Oil Deal Between PXP and Environmentalists Falters in Face of Oil Moratorium

Despite support from unlikely allies in Santa Barbara County and beyond, the historic proposal to allow new oil production in state waters near Vandenberg Air Force Base was decisively shot down last Thursday by the State Lands Commission after a grueling five-and-a-half-hour meeting at the Mar Monte hotel. The proposal from Plains Exploration Petroleum (PXP) was denied despite unprecedented backing from more than 25 environmental organizations, many of which were founded in the wake of Santa Barbara’s notorious 1969 oil spill, whose 40th anniversary was last week. Led by Lieutenant Governor John Garamendi, the commission voted 2-1 to kill the new lease proposal, arguing that doing otherwise would open up the state’s 1,100-mile coast to the “drill, baby, drill” crowd and fly in the face of California’s 40-year tradition of denying new offshore oil drilling.

Currently burnishing his credentials for a 2010 run at the governor’s mansion, Garamendi agreed that many of the concessions extracted from the Texas oil company by the S.B.-based Environmental Defense Center (EDC) were unheard of-but they still weren’t good enough. Most critically, he worried that the oil company’s promise to one day stop drilling on four offshore platforms and close two onshore processing plants may not be legally enforceable, because the federal government-which already contracts with PXP to pump oil from federal lands-could and would prevent such an end date.

Ironically, Garamendi was personally, if indirectly, responsible for many of PXP’s promises. Last year, he told the company’s executives that the only way they had any chance to drill was to meet with the EDC’s Linda Krop. When negotiations hit an impasse, Garamendi intervened again, and in April, EDC and PXP held a joint press conference announcing their historic accord. It was a kumbaya session of epic proportions, as Krop and PXP executive Steve Rusch-surrounded by a veritable who’s who of the Santa Barbara environmental establishment-breathlessly outlined the key terms of their confidential contract.

Specifically, the EDC and its clients Get Oil Out! (GOO) and the Citizens Planning Association (CPA) agreed to actively support PXP’s plans to drill for oil in state waters from Platform Irene, which is located in federal waters. Though the same environmentalists had defeated similar plans proposed by PXP’s predecessors, they feared that PXP might win approval this time around because no new platforms or pipelines were involved, the County Board of Supervisors was more oil friendly last year, and the financial benefits were considerable. To them, it made sense to negotiate the best deal possible.

With that support, PXP agreed to do something the enviros had always wanted: Provide an end date to drilling, which would be 2022 for Platform Irene, even though the feds refuse to insert end dates in leases and were opposed to this deal. Additionally, PXP agreed to shut down production at three other federal platforms by the year 2017 and close two onshore facilities in Gaviota and Lompoc. PXP pledged to use the best available air pollution control technology-spending up to $10 per ton for required offsets-and give the county $1.5 million to buy eco-friendly buses. As a cherry on top, PXP was also going to donate 3,900 acres of land-worth an estimated $100 million-to the Trust for Public Land. To the County of Santa Barbara would go $350 million in revenues over the life of the project, and PXP would kick the state $100 million even before production commenced. The company also agreed to pay the most generous royalty schedule ever, netting the state anywhere from $2.4 billion to $4.8 billion, depending on the price of oil.

Initially, the only serious opposition came from oil companies that eyed the same reserves and the EDC’s longtime nemesis Andy Caldwell, who objected to the confidential deal and questioned the wisdom of leaving lucrative oil under the ground. But the oil company opposition never materialized and Caldwell changed his position based on the promised revenues, so on October 8, the county supervisors approved the PXP proposal.

From there, everyone assumed it would be smooth sailing. But between the deal’s April 2008 announcement and last week, California’s coast became ground zero in America’s oil debate. Due to record-high oil prices making politicians everywhere pledge relief at the pump, former President George W. Bush lifted the moratorium on offshore drilling in federal waters and Congress swiftly followed suit. (Santa Barbara County supervisors also voted 3-2 in favor of a lifted moratorium last year, though with the new environmentally minded majority, that vote would likely go the other way today.) Even with new President Barack Obama, there’s little indication the moratorium will be restored, so California’s offshore oil wealth remains very much in play.

All of a sudden, the PXP deal looked a lot riskier to activists looking to protect the coast and, certainly, to politicians seeking public office. Some worried that the PXP deal sent perilously mixed messages, arguing that while fighting to keep the federal ban in place, it would be crazy to approve drilling in waters where a statewide moratorium on new leasing still exists. Federal politicians, they argued, would have every reason to believe the California coast was open for oil business.

Krop countered-and commission staff essentially concurred-that PXP’s request for an exemption to the state moratorium is positively unique. “This won’t open the door to any new projects,” Krop asserted. “There is no door.” Rather, Krop said that the PXP deal qualified as the single most effective preemptive strike that California could launch against new federal leasing off Santa Barbara’s coast. By shutting down four platforms in federal waters and two onshore plants in a region Krop described as the feds’ “bull’s-eye” for future offshore leasing, the PXP deal will discourage any oil operators from coming here. With the infrastructure removed, Krop argued, the costs would be prohibitively expensive and the oil industry would go elsewhere. “We can shut down existing oil production and help stop additional federal leasing in one fell swoop,” pledged Krop.

But not everyone bought in. One of the first to break ranks was Susan Jordan, an environmental activist statewide, wife to Santa Barbara’s Assemblymember Pedro Nava, and a candidate to take her husband’s seat in 2010, when he likely runs for Attorney General. As a close friend of Krop’s, Jordan’s dissent was awkward, especially when her husband got all members of the Assembly’s coastal caucus to sign a letter expressing concern that the PXP deal set a bad precedent and was not legally enforceable; the State Senate’s coastal caucus followed suit. Also notably against the plan was coastal commissioner and passionate environmentalist Sara Wan, who said that if the price of oil were high enough, the oil companies would build new platforms.

By the time deliberations began last Thursday, the outcome was all but a foregone conclusion. But that didn’t stop the EDC, GOO, and CPA from packing the room with supporters armed with little green plates that they waved at strategic moments. Others speaking in favor included union reps; Sheriff Bill Brown; Andy Caldwell; county supervisors Salud Carbajal, Janet Wolf, and Doreen Farr; and Santa Barbara City Councilmember Grant House, who spoke for both Mayor Marty Blum and Councilmember Helene Schneider. Opponents-led by Wan and mostly from such places as Malibu, Newport Beach, Laguna Beach, and San Diego-blasted the deal as an environmental sellout, saying it put the whole coast and the tourism industry at risk. The promise of tax revenues, commissioners were told, should not dictate their decision. “This state’s coast is not for sale at any price,” declared Wan.

Critics also blasted the deal’s confidentiality, comparing it to the controversial backroom dealings with the energy industry conducted by former vice president Dick Cheney. The commission staff acknowledged that they had seen the confidential agreement, but expressed queasiness that it had not been released to the general public for review and comment. Krop explained that the environmental conditions had been public since April, and the EDC also offered to release the deal’s full text after the hearing’s first break. But it was too late to undo the political damage, and the confidentiality issue dogged the deal throughout the proceedings.

The afternoon’s theatrical peaks belonged to Garamendi and Tom Sheehy, the governor’s appointee to the commission who proved an ardent fan of the royalties promised by the deal. (State Controller John Chiang, the commission’s second “no” vote, never explained his decision, but expressed concern about the confidentiality issue and the increased risk of oil spills.) Garamendi and Sheehy made their points chiefly through cross examination of witnesses and, at times, matters got prickly. Sheehy, for example, accused staff of seeking reasons to kill the proposal, because every time PXP addressed their concerns, staff would raise new issues. Garamendi shot back that staff was merely being thorough and told Sheehy his concerns were “off base.”

With Krop, Garamendi was gentle and complimentary, but said that there’s a big difference between shutting down a platform and making it go away. Krop admitted that nothing in the PXP contract required the physical removal of the platforms, but said that such plans are always made once production ceases and argued that the deal did prohibit PXP from transferring its leases or platforms to other oil operators.

Garamendi was more aggressive with PXP’s Steve Rusch, highlighting his company’s contract with the federal government that mandates pumping oil so long as it’s profitable. Staff argued that the federal government’s Minerals Management Services (MMS) could stop PXP from shutting down oil production, perhaps even the closing of the onshore facilities. An MMS representative was on hand, but she shed little light, explaining that the agency opposes end dates for federal platforms, but that they hadn’t given thought to what might be done if an end date was approved. As such, the argument became the blade used to kill the deal.

Rusch, for his part, dismissed such a scenario as “far-fetched” and “speculative,” explaining, “This is based on the hypothetical scenario that the feds will come in and federalize everything. While it’s theoretically possible, it just hasn’t happened.” Questioned by Sheehy, the staff could not cite any instances of the feds forcing an offshore oil operator to stay in production. However, Garamendi returned to the language of PXP’s federal contract and asked, “Is there any requirement in your contract to make the best effort to produce oil?” A subdued Rusch could only reply in the affirmative, and the deal was soon dead.

The 2-1 vote, which cannot be appealed or revoked, signaled that the State Lands Commission had little appetite for calling the feds on any potential bluff. Only lone dissenter Sheehy was willing to roll the dice and fly in the face of 40 years of California’s protect-the-coast policies. Conservative commentators have taken pleasure in seeing environmental activists getting “a taste of their own medicine” at the hands of “environmental extremists.”

For the EDC, GOO, and CPA, the only solace was that they had played so large a role in promoting the very policies that they had been seeking to change. In his testimony, the EDC’s executive director David Landecker put a positive spin on the day’s inevitable outcome. “We are really, really proud of the fact,” he said, “that it is political dynamite to approve oil projects in the channel.”