Whittier says oil revenues could top $1.5 billion; court challenges remain

Bob Henderson (SGVN/Staff photo by Watchara Phomicinda)

WHITTIER - Oil, almighty. If Matrix Oil Corp. drills for the black gold in the Puente Hills - and only a judge can prevent that now - Whittier will have a lot of green on its hands. Maybe more than anyone realized. Maybe more than $1.5 billion, according to City Councilman Bob Henderson.

That's why Henderson prepared a report for the City Council last week urging Whittier to be prepared with a plan to handle oil revenues.

"The fund could easily grow to a half-billion in a short amount of time," he said.

And then, "over a billion and even higher if the oil field is as productive as the oil companies believe."

If that money starts flowing in the large amounts predicted, it ought not be spent loosely,

Joe Vinatieri (SGVN/Staff photo by Keith Durflinger)

said Henderson.

The implications could be staggering, said Jim Markman, an attorney representing the city in oil lawsuits, such as giving the city the ability to operate without raising taxes.

"It could be tremendous," he said.

However, Henderson and Councilman Joe Vinatieri, both members of the Mineral Extraction Financial Plan Subcommittee, qualified their remarks at last Tuesday's council meeting by stating that there are no guarantees of oil income.

"It's speculative," said Vinatieri. "We have no idea of how much oil is out there."

Mike McCaskey, vice president of Matrix Oil Corp., said Henderson's estimates of oil revenue for the city are in line with the high end of estimates of the royalties

the city will receive, based on a 2011 environmental impact report.

That report forecasts annual royalties of $7 million to $115million based on production of 1,000 to 10,000 barrels per day.

Santa Barbara-based Matrix has a 25-year lease on city-owned land in the Puente Hills, where the drilling is planned. Royalties of $100 million for 10 years would bring the city $1 billion.

Some California oil wells have been producing for more than 100 years, McCaskey said.

"It's possible, sure," said McCaskey. "It's a significant amount of money coming in, and they want to have a plan."

Even if royalties come in at low end of the predicted range, over a 25-year period the city would receive $150 million to $200 million, he said.

"That's pretty significant considering the city budget is $70 million," McCaskey said.

The amount also depends on the price of oil, which is volatile.

Chevron Corp. began to leave the field in 1991 because production costs were too high compared to the price of oil, according to McCaskey. At the time, oil was selling for only about $20 a barrel.

The project faces several serious legal challenges in court, however. One of the arguments centers around the fact that the city used money from Proposition A, a county voter-approved measure that taxes all county property owners, to buy the large swath of land in the Whittier Hills nature preserve. A portion of the preserve acquired with Prop. A dollars is proposed for oil and gas exploration.

The Los Angeles County Regional Park and Open Space District objects to only Whittier residents benefitting from this project. The district says that 1992's Prop. A measure taxed all county property owners and therefore, all of the county should benefit if the project goes forward.

"The repeated actions and statements of Whittier indicate a desire by the city to gain an unfair windfall from the oil drilling project that could allow Whittier and property owners in the city to receive a greater benefit than other County property owners subject to the Proposition A assessment," according to the county's lawsuit filed Oct. 25.

"Unless prevented by orders of the court," according to the county lawsuit, "Whittier will continue to take additional actions to allow proceeds from the oil drilling project to be spent in contravention of Proposition A and the project agreement."

McCaskey said while the outcome of the lawsuits facing the oil project remains an unknown, "we're very optimistic that they'll be resolved."

The primary litigant, Open Space Legal Defense Fund, has dropped its suit. However, the county, along with the Mountains Recreation Conservation Authority and the Santa Monica Mountains Conservancy, will press their arguments in court Dec. 21.

"We're already submitting plans to start drilling in early 2013," said McCaskey.

Markman also cautioned that the amount of money Whittier will receive depends on multiple factors: the success of the test wells, how much oil is produced and the price of oil.

That said, however, "I would say that because of the potential of this, I can't imagine a councilman not supporting this plan," he said.

"Opportunities such as this are rare," he added.

"Also, the county, I'm sure, will share in this," Markman said. "When there's that much at stake, you have to pursue it."

The city's Mineral Extraction Financial Plan Subcommittee was tasked Sept. 11 with drafting recommendations for managing any revenue from forthcoming lease and royalty payments from the 2008 mineral extraction lease with Matrix.

At last week's council meeting, Henderson and Vinatieri said it is prudent to plan for a funding windfall.

"The funds must be allocated so that a portion can be used today to benefit the residents of Whittier, and a significant portion is to be preserved in an Endowment/Trust Fund to insure future generations can be afforded both a continuing revenue stream from the investment of the Fund's corpus ... and to provide a safety net to the City in the case of catastrophic disaster losses," said a staff report on the subcommittee.

Staff Writer Steve Scauzillo contributed to this report.

peter.fullam@inlandnewspapers.com

626-544-0821

Source: http://www.whittierdailynews.com/ci_22017210/whittier-says-oil-revenues-could-top-1-5?source=rss_viewed

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