Huntington Beach Oil Spill - Can CA Shut Down and Offshore Oil Well? - Costa Mesa Real Estate - Orange County CA.- The Kurt Galitski Real ...

Huntington Beach Oil Spill – Can CA Shut Down and Offshore Oil Well?

By Kurt Real Estate Oct 14, 2021

The Huntington Beach oil spill has led some lawmakers and advocates to push to extend the ban on new offshore wells and shut down those already operating in state and federal waters. While state and federal officials can force wells in their jurisdictions to cease operating under certain circumstances to protect the public, doing so would risk provoking a court fight and potentially an enormous payout from taxpayers for lost earnings.

If an offshore rig does shut down, the company or companies that held the lease and the rights to operate there are responsible for returning the site to its previous condition and the bonds posted by those companies would only cover a fraction of the cost. Instead, officials are counting on the companies to remain healthy enough to pay the eventual bill.

How Much Does It Cost to Decommission A Platform?

Many factors are involved, but the three most significant are: its location (particularly the depth of the water), how old the operation is, and whether any underwater structures will be left standing. Both federal and state laws allow some undersea towers to remain after the platforms are moved, although there is debate over the safety and environmental impacts of the “rigs to reefs” program.

Aside from removing the underwater structure, the next largest cost is permanently capping the drilled wells. Each platform can be pumping from dozens of wells with pipes branching off to reach various spots along the coast. According to a report about the platforms in federal waters off California, decommissioning costs range from $19 million to $189 million per platform. The total cost for Ellen and Eureka, the two drilling platforms near Huntington Beach, and Elly, the associated processing platform, was estimated at $215 million. The ongoing decommissioning of the Holly platform near Santa Barbara is expected to cost $350 million, and it stands in shallower state waters than the three platforms off the coast of Huntington Beach.

Who Pays for Decommissioning?

The responsibility for returning a site to its natural state once the platform is abandoned rests with the company holding the lease, along with whoever worked on the site. This includes anyone who drills a well, installs a platform or pipeline, or holds the rights to operate there.

Federal and state law also gives the government the authority to bill previous operators/leaseholders if the current leaseholder cannot cover the cost. They also require leaseholders to post bonds, though much of that requirement can be waived for companies that demonstrate enough financial strength. This approach has left taxpayers on the hook for billions of dollars in decommissioning expenses that leaseholders and operators should be required to pay.

According to a 2016 report from the GAO that examined offshore platforms in the Gulf of Mexico, the Interior Department had waived the bond requirement for about $33 billion in projected decommissioning costs, taking on faith that the leaseholders and operators would be able to pay them.

An additional $2.3 billion in decommissioning liabilities may not have been covered by any form of financial assurance, the GAO said, as many platforms have been sold by large energy companies to smaller operations. This industry underwent waves of bankruptcies when recessions caused demand to fall and oil prices to plummet. According to the Dept of Interior, 30 corporations holding offshore leases have gone bankrupt since 2009.

After the Feds sent a notice to leaseholders late in 2016 to stiffen the requirement for extra bonds, which was contested in court, the oil and gas industry proposed a rule that would reduce the total amount of financial assurance required. That rule is still pending.

Court records from last year indicate that $150 million has been set aside for the decommissioning costs of the three platforms near Huntington Beach, well short of the consultants’ estimated $215 million.

Can the Government Force Decommission?

Federal law authorizes the secretary of the Interior to suspend and, eventually, cancel an offshore lease or permit in the case of a threat to human or aquatic life, property, the environment, or national security. However, the law also entitles the leaseholder to be compensated for lost profits, which could be a considerable amount.

The trouble is, the state could face a fight over future earnings if it forces an operator to close a productive platform and, if the state lost that fight, taxpayers would (again) be on the hook to pay for the profits that evaporated.

The Kurt Real Estate Group Inc. Call Them Today 877-957-6677

Distinctive Strategies that Deliver Record-Setting Results!

When you combine Kurt’s passion and knowledge of the real estate market, you really gain an appreciation for what makes Kurt different. But what truly sets him apart from the crowd are his 5 distinctive strategies…

For Kurt, getting into real estate was not an accident, it was a deliberate and calculated decision to deliver a better experience to home buyers and sellers than they have ever received before. Today, you could ask any one of hundreds of clients, read his Yelp reviews, or look at his track record of being awarded in Orange Coast and Forbes Magazine in excess of ten consecutive years and you too will say mission accomplished.

You can call him direct on his cell at 714-957-6677

Kurt Galitski | The Kurt Real Estate Group | Top 2% Coldwell Banker Agents Nationally | BRE# 01348644 | www.KurtRealEstate.com

Source: LA Times, John Healy

Join our network

Keep up to date with the latest market trends and opportunities in Orange County.