S.F. Springs May Hike Oil Well Fees 300% : The Oil Era Winds Down; City Wants to Entice Commercial Developers

SANTA FE SPRINGS —  The Redevelopment Agency has taken its boldest step so far in restricting oil field operations, approving a policy that increases annual well fees by 300% and gives the city power to make operators pay for the costs of abandoned wells.

City officials are eager to change the image of Santa Fe Springs from that of an aging oil town to one of attractive commercial developments. Oil field operations generate just $160,000 in annual revenue--a small fraction of the city’s $21-million budget.

“I don’t want to leave the impression that the council is out to get the oil wells, but we want to get this city developed,” Councilman Ronald S. Kernes said. “We must get some of those areas cleaned up for development.”

The policy, approved by the City Council acting as the Redevelopment Agency, will not be incorporated into city ordinances at least until October. The ordinances will receive a first reading at the Sept. 10 City Council meeting.

Cleanup of Contaminated Soil

In the last two years, cleaning up contaminated soil has cost the city $1.7 million and restoring the soil from the effects of oil production has cost developers $1.4 million.

“The fee increase is a result of what’s taken place in the last couple of years in realizing that there has been a lot of contamination of the soil . . . which has really come about because of the oil field,” Planning and Development Director Richard Weaver told the agency last week. “A source of funds is needed to deal with these problems.”

The estimated $390,000 a year generated by the new fees would be used for cleaning up deserted oil sumps, hiring a new Fire Department employee to help monitor and inspect wells, and studying possible contamination of the water table.

Despite the insistence of city officials that they are receptive to the oil business, industry representatives say the real message to them can be seen in the city’s actions last week: adoption of the new oil policy and approval of new zoning rules that can force oil companies to release surface land for commercial development.

Asked if the city is kicking the oil business out of town, Terry Laudick of Mobil Oil Corp. said, “It sure feels that way.”

‘We’ve Hit a Stone Wall’

Ed Malmgreen, executive vice president of the California Independent Producers Assn., said, “While there was some negotiations on provisions for a while there, we’ve obviously hit a stone wall.”

Mobil, with about 300 wells, is the largest operator in the city’s 1,000-acre oil field. Laudick said the fee increases mean Mobil will be paying the city $225,000 more each year, mostly due to the annual well permit fee increasing from $250 to $1,000. In addition, the cost of drilling permits would go from $100 to $2,000, but there is very little new drilling in Santa Fe Springs. The oil tax of 8 cents a barrel would remain the same.

The new policy also calls for a change in the ordinance on idle wells, now defined as those producing less than 100 barrels of oil per year. The Redevelopment Agency approved changing that standard to a well that produces less than 720 barrels a year, which city staff members say is a more realistic level of performance.

There also would be a shortening of the time period it takes for a well to be considered abandoned and an increase in the city’s power to enforce that provision. Under the existing code, once a notice of intent to abandon has been filed by a well operator or the city has declared the well a public nuisance, the operator has 180 days to abandon the well.

The agency approved shortening that to 120 days, and gave the city authority to charge the operator for the cost of cleaning up the well plus $100 a day penalty. The precise enforcement provisions have not been written.

No Economic Incentive

A city staff report said there is practically no economic incentive for the oil industry to ever abandon a well, so regulatory agencies have to press the issue.

The city wants to be able to force the abandonment of wells to open the land for commercial developments which bring the city sales tax revenue.

“It is not our intent to force the oil industry out of Santa Fe Springs, but to force it to become more efficient and responsible to the community,” the report said. “Staff views both the new tighter definition of an idle well and the new higher permit fees as two ways to provide incentives for the industry to abandon marginal wells and to cause the industry to begin to pay for the consequences of its operation in Santa Fe Springs.”

Another part of the policy is the creation of an oil field advisory committee comprised of industry and city representatives to advise the City Council. Oil officials were receptive to the idea of an advisory committee, but said the committee should have been created in time to provide input on the policy statement before the agency adopted it.

“You’re recommending the adoption of some very onerous changes to the oil code” that the committee was not consulted about, Laudick said.

Agreement Not Expected

City Manager Don Powell said there is not much chance of the city altering the proposed policies. “We don’t expect the oil industry to ever agree to increases in permit fees. I can’t imagine that ever occurring,” Powell said.

Laudick complained that he and other oil officials received less than a day’s notice that the agency would be considering the policy at its meeting last week--not enough time to respond to the city’s proposal.

Malmgreen said the city did not advise him that the policy would be considered at last week’s meeting, adding that he learned of the agency’s action from a reporter.

“I would suspect that many (independents in the city) aren’t aware of what happened,” he said. “Contrary to what (the city) has said about working with the industry, they want to run us out as much as they can.”

Powell said that because the ordinance approval process takes several months, the oil officials have sufficient time to voice their opinions.