THE BLOG
03/03/2015 09:31 am ET Updated May 02, 2015

Hermosa Beach -- Remember When -- Beach Boys

Hermosa Beach, CA. The Beach Boys in the 1960s sang about "California Dreaming" at places like Hermosa Beach south of the Los Angeles Airport. The beach community attracted post World War II "baby boomers" who surfed and tanned in their bikinis and hot cars. John DeLorean brought the GTO car from GM and started a new market for America.

Today, things are the same with one BIG difference. In the 1960s, the oil and gas industry learned that there were large off-shore deposits of oil under the sea off the southern California coast. They drilled from oil platforms, that after several accidents causing massive spills and some lives lost, were prohibited by California State law in the late 1960s. But the oil industry then started to explore for oil on the sea shores next to the Pacific Ocean. Not unexpectedly they found massive reserves of oil (and later gas).

In Hermosa Beach there was a city owned lot about six blocks on shore from the ocean that was permitted by the then City Council for the company to drill for oil. In the 1970s the oil industry was controlled by the middle-east companies through OPEC and were controlling the price of gas at the filling stations. Long lines abounded in California, the U.S and the rest of the world for gas to fill cars. So Hermosa Beach made the deal with the oil company to dig on its City land there.

However, over the drilling was delayed due to a vote by the citizens of Hermosa Beach at a special election who wanted to stop the oil wells. The result was a court case that went to Appeals and the decision in the early 21st Century was that the citizens needed to vote again: this time if they voted to reject the oil company (a new company bought the old company's contract) then the City would pay the oil company $17 million. If the voters voted for the oil drilling then the fee to the oil company would be only $3 million.

In 2012 the City Council decided to get some objective opinions to for the voters on the pros and cons about the oil well in the City. From a public request for bids, the City hired a company to do a Cost-Benefit Analysis (CBA). The "Competitive" bid (which is questionable due to the partnering company and them having done business in Hermosa Beach before) to "Oil (and Gas) Drilling and Recovery Cost Benefit Analysis" in the middle of the City of Hermosa Beach. The Report was co-authored by ABC Companies (NOTE: the actual names are not listed here due to both legal and due diligence reasons) of which one is a city accounting firm in Los Angeles, California (founded in 1986 as a "Minority Business Enterprise) and MNO (NOTE: a not to named oil and gas industry sub-consultant) in 2012 listed only as an individual's name in the Central Valley of California.

The ethical issues raised in this Report are significant. For example, if the MNO oil company is part of the CBA then how did an evaluation result in 2003 "relative to fiscal benefits that his property located at 725 5th Street in H. B will generate for the City in different land uses are likely to be considered while the application for a change in land use entitlements for the Property was processed."

Then in 2005, "Client retained ABC accounting firm to prepare a comparative analysis of the principal direct site-specific fiscal revenues that a Property in Hermosa Beach was generating as well as the principal fiscal revenues that the property could be expected to generate if converted to either condominium or mixed retail and residential rental use. The Client was applying for a change in land use entitlements for the Property, and intended to use this analysis for the City, since the City was likely to consider the relative fiscal revenues the Property may generate under alternative land use distinctions, as the application was processed."

The situation on both ethical and accounting terms gets worse. The Report was a draft that was presented to the City Council. Questions and issues were raised but little was changed. In fact, the authors "defended" themselves and their data that they presented. The list of examples of serious errors is long. Consider just a few.

The authors never answered questions given in writing and then at City Council discussion on CBA Report from earlier "Draft": 1) property values from 2007 (taken in 2007) more current with 2008 Recession included; 2) externalities such as costs for insurance, prevention, weather (storms and earthquakes) as well as health of people in the community; 3) surrounding communities; and 4) lifecycle costs including now (2014-15) recent low prices for oil and gas in the "market", pipelines, job creation and then loss, value of business (taxes) and schools, etc.

The basic data is questionable. The Report classifies the land areas as Tidelands and Uplands. The chart below notes that there are expected revenues which are low and expected to high from the expenses with net revenues for the applicant oil and gas company. In section 7.0 of the ABC Report on CBA, they state as City Revenue Formula (#7.1) that "estimates that 78.3% of production will be from the Tidelands, and the remaining 21.7% will be from the Uplands." The basic problem and issue here is the definition of Tidelands. According to Wikipedia, Tidelands means:

Tidelands are the territory between the high and low water tide line of sea coasts, and lands lying under the sea beyond the low-water limit of the tide, considered within the territorial waters of a nation. The United States Constitution does not specify whether ownership of these lands rests with the federal government or with individual states. Originally little commercial value was attached to tidelands, so ownership was never firmly established, but the coastal states generally proceeded as if they were the owners. Some states, such as Mississippi, directly administer these lands under the public trust doctrine.

The problem is the applicant oil and gas company wants to drill at its City land location under the beach area into the ocean in order to get over 70% of its revenues from that location of oil and gas. In short, offshore drilling will be done from on-shore. California does not have a law prohibiting such drilling by oil and gas companies, but this could be the legal proof of this dangerous action by the applicant company. If the voters approve the oil and gas company to proceed to do so in the future all along the California and other shore lines of the U.S. Some people feel that this horizontal drilling is "fracking" but "officially" and legally it is not since fracking involves the use of liquids to be put into the oil wells in order to push or move the oil and gas out of the ground.

The result as noted in Figure 18 from the ABC Report:

There is no doubt the ABC and MNO want to drill under the beach land area into the ocean. However, this horizontal drilling has other serious problems. As noted below, while this is labeled as hydraulic fracturing, the process is the same for horizontal drilling except there is no injection of water.

Hence the land area where the well drilling is located will have more than one drill pump and need both processing, piping and trucks for shipping and processing.

Recent accidents and now earthquakes are being linked to oil and gas drilling in Ohio, Oklahoma and Texas.

The danger in terms of the environment is one thing but the danger to people, their homes and community is another. And is far worse given the growing number of "accidents" in the oil drilling, shipping and processing processes in the U.S and around the world.

The impact on water from the drilling is extremely dangerous and harming the farm and agricultural industries.

Communities and cities around California are taking stands against fracking but also need to know about the dangers of drilling horizontally for off-shore oil and gas supplies.

New York State has taken action against the fracking while other communities and states. What is critical is that oil and gas are being replaced by renewable energy resources which are becoming less expensive and far less dangerous to the environment. Bloomberg reports in early 2015 that the costs for green energy will be far better (and even beyond) competitive with the coal. oil and gas industries.