Tranquillon Ridge Project
Frequently Asked Questions
January, 2010
1: Have PXP and the Environmental Defense Center made changes to the April 2008 agreement to address the concerns raised at the original State Lands Commission hearing?
PXP and EDC have recently incorporated amendments to the agreement that are designed to address the core criticisms raised at the initial State Lands Commission hearing and provide enhanced assurances that the environmental benefits negotiated in the agreement will materialize as intended.
The historic agreement between PXP, EDC, Get Oil Out!, the Citizens’ Planning Association and their environmental coalition contractually requires PXP to shut
down and abandon all its oil and gas production wells offshore California at Pt. Pedernales and Pt. Arguello and remove the onshore facilities supporting those operations within 14 years of initial production. The environmental groups involved in the settlement agreement have full confidence the contract is legally enforceable.
In addition to the guarantees built in to the contract, Santa Barbara County and California State Lands Commission permits will include enforceable end date provisions that provide additional layers of assurance that the environmental benefits are guaranteed to materialize.
Three key additions have recently been added to the PXP/EDC agreement to give the public and policy makers assurances that the agreement will function as intended.
| A clause has been added that names the State of California as a third party beneficiary of the environmental benefits outlined in the agreement. The Attorney General exclusively shall have the right to intervene and participate as counsel of record for the State of California should either party or the federal government seek to prevent the agreement from taking effect. |
| A clause has been added that requires PXP to forfeit 100% of any profit the project generates beyond the 14 year life of the lease. The addition of this disengorgement provision creates the ultimate “poison pill” and provides absolute evidence of PXP’s commitment to abide by the contractual terms of the agreement. |
| A clause has been added which states PXP will surrender its federal leases after the end date. |
2. Do PXP and EDC intend to make the agreement public if and when a new State Lands Commission hearing is scheduled on the project?
In retrospect, PXP and the environmental coalition should have released the agreement before the State Lands hearing last year. It is certainly true that everyone
from both sides understand there was nothing to hide. PXP and EDC are revising the agreement and the public and state’s policy makers will certainly be given every
opportunity to review the agreement before the State Lands Commission hearing.
The sooner the T Ridge project is approved, the sooner the environmental and revenue benefits to the state will materialize. The Governor’s budget anticipates the
$100 million royalty prepayment will materialize in the current fiscal year (09/10). This goal can be achieved if the Commission elects to schedule a hearing within the
next month or two.
3. What is the Mineral Management Service’s (MMS) current position towards the project?
We cannot speak on behalf of the MMS; however the agency has gone to great lengths in the past to work through complex issues with the SLC concerning rights of use that would allow the project to come to fruition.
4. How does PXP address the concerns of opponents that the end dates in the EDC contract are not enforceable?
Although EDC and PXP have always maintained that the agreement is fully enforceable, we have made a number of modifications to the agreement to address the
questions that have been raised. No amount of amendments can ever be added however to address the hypothetical “what if” arguments that individuals intent on
opposing the project are leaning on.
Allegations have also been raised that the federal government would seek to prevent the project from terminating after 14 years, or possibly even issuing a new lease allowing a third-party to continue the operations. Neither hypothetical scenario poses a realistic or viable possibility for the following reasons:
| a. The platform, pipelines and Lompoc Oil and Gas Plant (LOGP) are all owned by PXP, not the federal government. The pipelines cross federal, state and local jurisdictional lines. The LOGP is located entirely within Santa Barbara County. |
| b. The platform cannot produce oil or gas without use of the pipelines to transport production to shore. The LOGP must also be used to process the oil and gas once it reaches shore. These facilities are the lynchpins of the offshore operation. |
| c. The EDC-PXP agreement requires PXP to remove these facilities and restore the affected lands after the 14 year End Date. Once the LOGP is removed and the underlying lands are restored, the lands will be deeded to a conservation organization or to the State for permanent preservation. In short, these lands cannot be used after the End Date to support offshore oil and gas operations. These requirements of the agreement are independently enforceable by the parties and the Attorney General regardless of whether the agencies enforce their own End Date and land restoration conditions. |
| d. PXP has agreed to surrender its federal leases after the end date. |
| e. The abandonment costs associated with the offshore facilities would prohibit a third-party from assuming operations. Critics who suggest the Environmental benefits are “not guaranteed” base their arguments on the hypothetical suggestion that the federal government could potentially attempt to exercise eminent domain over PXP’s private onshore property in 14 years to thwart the will of the state and the environmental settlement. Such suggestions are so speculative they are not credible. It would amount to the federal government sending in the marines to surround our facilities to keep them running, then talking an oil operator to take over a depleted oil field with an abandonment liability that would exceed it’s economic viability. The federal government has never made a statement that it is contemplating such an action. Furthermore, Deputy Attorney General Alan Hager testified at a January 6, 2009 hearing of the State Lands Commission that the federal government has never exercised eminent domain over a private oil production facility in the history of the United States and that such a scenario would be unlikely. |
5. Is it true that PXP does not control title to all of the 3700 acres of onshore land to be conveyed for public use and is unable to guarantee transfer because of those title issues?
At the time of the initial Commission hearing the due diligence process for the lands in question was ongoing. The title review process has now progressed to the point that the Trust for Public Lands (TPL) has provided PXP and EDC a letter stating that there are no title or physical condition issues that will prevent the land transfers from occurring. If the project is approved, the State of California can be assured that the land transfers will take affect. If the project is not approved however PXP is under no obligation to transfer or enroll the lands in a permanent conservation program.
6. PXP conducted a statewide poll that gauged voter attitudes about the project. What did it find?
The noted Democratic polling firm of Fairbanks, Maslin and Maullin and Associates polled 600 likely November voters this past August. The cross sampling of respondents tracked with statewide registration trends. The poll had a margin of error of 4% and found that an overwhelming majority of Californians support the T Ridge Project because of the many benefits it provided to California’s economy and environment. Voters were particularly supportive of the up to $4 billion in sorely needed revenues the project could potentially generate for the state, the 3,700 acre land donation, and fact that the project involves completely offsetting the project’s greenhouse gases despite possible AB 32 exemptions.
The survey found that 2/3rds of California voters favored the T Ridge project after hearing a complete battery of the arguments both PXP and project opponents have been using over the past year. Nearly every argument the opponents have used was included in the poll. Over 70% of Independent and Decline to State voters expressed support for the project after hearing the arguments for and against the project. A majority of Democrats expressed support as well. 94% of poll respondents stated that the state’s budget problems were an extreme or very serious problem. The $100 million royalty prepayment and $4 billion in possible royalty revenue were viewed as key benefits the public felt was too important to pass up. 60% of self described liberals and environmentalists expressed support for the project – particularly for the land donation opportunities.
Six legislative coastal and swing districts were also polled as part of the process. The margin of error for the individual district samples was 6%. The results tracked nearly identically with the statewide poll results — including the Central Coast region. Voters in the Central Coast were strongly supportive of the revenue opportunities. Santa Barbara County stands to gain $314 million in new property tax revenue if the project is approved in addition to another $14 million in revenue from state royalty proceeds. Refusal to approve the project would prevent this funding from materializing.
In the final analysis, the proposed project and side agreement represents a historic “win-win” that provides major revenue and environmental benefits for the state. If the project is approved, our state and country get the opportunity to tap a significant source of domestic oil. EDC and the environmental parties get the opportunity to accomplish their activist goals of reducing the number of active platforms along the coast through contractual means.
7. How much is the T-Ridge deal worth to PXP over the life of the proposed lease?
Under the prior draft royalty contract proposed by the State Lands Commission last year, the state stands to gain as much, or more revenue in all price scenarios, than PXP would. Commission staff testified that the contract they had negotiated was themost lucrative and heavily weighted in favor of the state ever.
