California Offshore Oil and Gas Leasing

California’s State Tidelands comprise an offshore zone three miles wide between the coast and the Outer Continental Shelf. Although oil and gas development from fields under State Tidelands commenced in 1896, formal leasing did not occur until 1929. A total of 34 parcels were leased in state waters offshore Santa Barbara County between 1929 and 1968. Another leasewas added in 1996 through partial re-assignment of interest in a portion of an existing lease, bringing the total number of state oil and gas leases to 35. Twenty-four of the 35 state leases once situated offshore Santa Barbara County have been quitclaimed. Meanwhile, only two are currently producing – Venoco’s 3120 and 3242.

This paper provides a brief overview of California oil and gas leasing activities in the State Tidelands. Further information is available at www.slc.ca.gov.

• Status of 35 State Tidelands Leases Offshore Santa Barbara County
• Governance of California State Tidelands Oil and Gas Leasing

Status of 35 State Tidelands Leases Offshore Santa Barbara County
(previous and current, leases listed East to West)

Governance of State Tidelands Oil and Gas Leasing

Introduction

California enacted the State Lands Act in 1938, which established the State Lands Commission and assigned to it exclusive jurisdiction over all State-owned tide and submerged lands. In 1955, California enacted the Cunningham-Shell Act, which amended the 1938 State Lands Act and added more detail on leasing of submerged lands under the jurisdiction of the State Lands Commission. Both Acts are codified in Division 6 of the Public Resources Code.

The Cunningham-Shell Act represented a compromise between the competing interests: those for uninhibited offshore development and those for the preservation of aesthetic and property values in highly developed coastal areas. The State Lands Commission serves as the lessor and agency charged with much of the regulatory oversight of leasing, exploration, and development of the State Tidelands. The Commission assumes the primary or lead regulatory responsibility to ensure timely abandonment, conduct adequate environmental review, require appropriate mitigation, and ensure regulatory compliance. The Commission promulgates and enforces regulations in Title 2 of the California Code of Regulations.

Oil & Gas Lease Terms – Pre-1955

Oil and gas leases issued prior to the 1955 Cunningham-Shell Act did not contain detailed terms and conditions. The leases conveyed primary terms of five, ten or twenty years to the lessees. These terms could be and were extended one or more times by agreement of the lessee and the State. The lessee had 45 days to begin drilling the first well and was required to pursue the drilling program diligently thereafter.

Oil & Gas Lease Terms –1955-1968

Leases issued after enactment of the 1955 Cunningham-Shell Act were given a primary term of 20 years or for as long thereafter as gas or oil is produced in paying quantities. However, the lessee must initiate drilling of the first well within a three-year drilling term and continue drilling until the lease is fully developed. The three-year drilling term commences upon execution of the lease unless the lessee requires an additional, reasonable period of time to construct offshore islands or structures (such as fixed production platforms) necessary for drilling, including time to obtain necessary governmental approvals. The State may cancel the lease, after notice and demand for performance, if the lessee fails to exercise due diligence towards drilling for purposes of discovering oil or gas in payable quantities..

Once oil or gas is discovered in payable quantities on post-1955 leases, the Public Resources Code (§ 6827) requires the lessee to pursue development with reasonable diligence as follows:

If, at any time or from time to time, before or after the expiration of the primary term of the lease, the leased lands cease to produce oil or gas, the lease shall, nevertheless, continue in full force and effect if within six months after the cessation of production, or such longer period of time as the commission may authorize, lessee shall commence and thereafter prosecute with reasonable diligence drilling deepening, repairing, redrilling, or other operations for the purpose of restoring production of oil or gas from the leased lands.

The State may suspend the obligations imposed by lease provisions if the lessee is prevented from complying due to wars, strikes, riots, acute and unusual labor or material shortages, acts of God, laws, rules and regulations of any federal, state, county, or municipal jurisdiction, or other unusual conditions. The State Lands Commission imposed such suspensions following the 1969 oil spill from Unocal’s Platform A on the Outer Continental Shelf. In response to the spill, the State Lands Commission established a drilling moratorium to prevent a similar occurrence from oil drilling in the State Tidelands. The moratorium suspended the three-year drilling period for leases where oil or gas had not yet been discovered in paying quantities. The suspensions remain in effect until the moratorium is lifted. The moratorium, in turn, remains in effect until the lessee requests and receives permission from the Commission to begin drilling operations. As a result, three leases offshore Santa Barbara County are still subject to suspensions (lease nos. 2991, 3503, and 3004).

California Coastal Sanctuary

Commencing with the Cunningham-Shell Act of 1955, California has withheld several tidelands from oil and gas development. The 1955 Act protected an area of tidelands Offshore Santa Barbara County that stretch west from Summerland Bay to Coal Oil Point, and included waters offshore the unincorporated area of Montecito, the City of Santa Barbara, and University of California at Santa Barbara. It also protected the state tidelands around the islands of Anacapa, Santa Cruz, Santa Rosa, and San Miguel.

In 1994, State Senator Jack O’Connell authored the California Sanctuary Act that, with three exceptions, prohibits leasing of any State Tidelands for oil and gas development (California Public Resources Code §§ 6240 et. seq.). Oil and gas leases in effect as of January 1, 1995 are unaffected by this Act until such leases revert back to the State, at which time they become part of the California Coastal Sanctuary. The prohibition on oil and gas development in the Sanctuary includes three exceptions relevant to tidelands offshore Santa Barbara County:

1. A legislative determination that, following a finding of a severe interruption in the supply of energy by the President of the United States, the energy reserves within the sanctuary will contribute significantly toward alleviating such interruption.
   
   
2. The State Lands Commission determines that oil and gas deposits contained in tidelands are being drained by means of wells upon adjacent federal lands and leasing of the tidelands for oil or gas production is in the best interest of the State.
   
   
3. The State Lands Commission may adjust the boundaries of existing oil and gas leases to encompass all of a field partially contained within the existing lease subject to specific conditions (Public Resources Code § 6872.5).

The Sanctuary Act does not affect the authority of the State Lands Commission to provide necessary ingress, egress, or access to pipeline facilities and other utilities by the lease of rights-of-way or other means.

 

Planning and Development Energy Division 123 E Anapamu Street Santa Barbara, CA 93101 Telephone: (805) 568-2000 Fax: (805) 568-2522 Website: www.countyofsb.org/energy/ E-mail Contact energy@co.santa-barbara.ca.us The Official Site of the County of Santa Barbara, Energy Division Copyright©2005 County of Santa Barbara. All rights reserved.