Attached is John Smith’s comprehensive summary of lawsuits related to Sable Offshore’s attempts to restart Santa Ynez Unit production.
If you are keeping score, there are 10 separate cases including a class action lawsuit filed by investors. New legal battles are sure to follow given Sable’s OS&T strategy. Per John:
“The combined legal challenges, injunctions, and restraining orders have significantly delayed Sable’s restart plans and prompted the company to pursue an Offshore Storage and Treatment Vessel (OS&T) strategy, which was utilized to process SYU production in federal waters from 1981 – 1994, and transport oil to markets using tankers.“
John notes that Exxon’s March 26 contractual deadline for Sable to have the SYU up and running is fast approaching. What will Exxon do in the likely event that Sable fails to meet that deadline? Does Exxon want to re-enter the SYU legal and regulatory quagmire?
The SYU’s 500+ million barrels of oil, 3 deepwater platforms, and onshore processing facilities are an enormous prize, but is that prize attainable?
Meanwhile, the latest skirmish between Sable and the Office of the State Fire Marshal (OFSM) pertains to metal loss anomalies and inspection tool tolerances. The dispute is summarized in the linked filing.
Sable contends that the Fire Marshal’s letter contradicts guidance from OSFM staff and provides examples. Sable goes a step further at the end of their response by calling for the FIre Marshal to coordinate better with the experts on his staff:
“We respectfully request that, given this background, you coordinate further with the expert team at OSFM and revisit the statements in your October 22nd letter.”
It’s not looking good for a quick resolution of these issues.
“Only in California! Newsom is blocking oil production off California’s coast from reaching their own refineries, driving gasoline prices even higher for Californians! Now, this oil production will have to be shipped elsewhere, lowering gas prices for other areas— just not for California! This is the opposite of common sense!”
BOE was a fan of Chris Wright long before he became Energy Secretary, and I agree that the resumption of Santa Ynez Unit production is economically desirable for California and the nation. However, his comment implies that OS&T processing and tanker transport is a realistic option, and I do not believe that is the case.
John Smith and I have discussed Sable’s OS&T announcement on a number of occasions, and we don’t see a reasonable path forward for this option. In addition to the significantly higher capital and operational costs and the need to acquire and retrofit a suitable floating production, storage, and offloading vessel (FPSO), the legal and permitting challenges could be even more complex than for the pipeline option (as daunting as that may sound).
The OS&T option would require a revised development and production plan, and the associated environmental review (almost certainly an EIS). An EIS would not favor this option, and the California Coastal Commission would surely rule that the OS&T/tanker alternative was inconsistent with their CZM plan. (Keep in mind that the SYU/OS&T production in the early 1980’s was approved prior to the passage of the Coastal Zone Management Act.) The Secretary of Commerce could overrule the Commission’s consistency determination, but legal objections to the override would likely delay the project for years and have a good chance of success.
Onshore processing and pipeline transportation using existing facilities is clearly the environmentally and economically preferable option. The only reasonable path forward for Sable or Exxon is to continue to pursue the onshore pipeline approvals. Federal attention should focus on jurisdiction over that pipeline, which is inherently an interstate line because it transports OCS production, and State actions that are blocking interstate commerce.
Finally, keep in mind that the SYU would still be producing today were it not for the entirely preventable pipeline rupture and the resulting Refugio oil spill. Plains Pipeline, the party responsible for this ugly incident, is no longer the owner, but that doesn’t comfort coastal residents; nor does it absolve the companies that transported their oil through the line from all responsibility.
The Refugio spill will be discussed further in an upcoming post.
As the above discussion demonstrates, the issue before the Court is not whether the specific work conducted by Sable was or is ultimately necessary or appropriate for pipeline safety. The issue before the Court is whether the Commission abused its discretion in issuing the April 10 Orders under the standards for review by petition for administrative writ of mandate.
Based on the foregoing analysis and a review of all of the arguments of the parties and the AR, the Court finds the Commission’s factual findings are supported by substantial evidence and that Sable has not met its burden to show an abuse of discretion by the Commission in issuing the April 10 Orders.
Accordingly, the petition for administrative mandate as set forth in the first cause of action of Sable’s FAP will be denied.
The road ahead for Sable continues to get rockier, and their share price took a major hit today.
As a result, on Sept. 29 Sable Offshore filed a declaratory judgement action against the State of California in Kern County. Sable is asking the court to confirm that the objectionable permitting provisions of SB 237 do not apply to their Las Flores Pipeline System.
Also, on Oct. 6 Sable filed a motion increasing the monetary damages in its ongoing case against the California Coastal Commission to $347 million. Sable asserts that their pipeline repair program was authorized by existing permits issued by the County of Santa Barbara under its Local Coastal Program and delegated Coastal Act authority.
These seem like good tactical moves on the part of Sable.
Phil also believes SYU production would reduce natural seepage: “UCSB and State Lands Commission studies (Quigley, Luyendyk, Hornafius, Peltonen, and others) have shown that when oil production is active, reservoir pressure is reduced and natural seepage declines by up to 50%. That means: •Cleaner beaches (less tar and oil) •Cleaner ocean surface (fewer sheens) •Healthier marine life with reduced chronic stress“
Note that those studies are specific to Platform Holly and the Coal Oil Point area. To the best of my knowledge, no studies have associated SYU production with a reduction in natural seepage.
While Platform Holly may be a negative spillage facility (i.e. Holly’s seep reduction may significantly exceed the platform’s production spillage), this type of seepage reduction has not been demonstrated at other platforms. Decisions on offshore exploration and development should be driven by the economic, energy security, and environmental benefits. To the extent that production reduces natural seepage, all the better. However, seepage reduction is not a primary reason for producing offshore oil and gas.
Option 1 (use of existing onshore infrastructure) is preferable from cost, air emissions, spill risk, State and local revenue, and regional energy supply standpoints. This is the only option that makes sense despite the enormous permitting challenges.
Option 2 (floating processing facility and tankers) would literally be an “in your face” act of defiance given the coastal visibility of the offshore facilities. Supporters of this option should be aware that there was no Coastal Zone Management Act when Exxon produced from Platform Hondo (the only SYU platform at the time) to the Offshore Storage and Treatment (OS&T) vessel in the 1980s. An EIS would not favor this option, and the California Coastal Commission would surely rule that this option was inconsistent with their CZM plan. The Secretary of Commerce could overrule the Commission’s decision, but legal objections to the override would seem to have a good chance of success.
The only reasonable path forward is to do the right thing and continue to pursue the State pipeline/onshore approvals. Although these approvals are substantively warranted, more litigation is probably inevitable. It will be far better to defend a good project (option 1) than a contrived workaround (option 2).
Those of us who were involved with OCS oil and gas operations in the 1970s remember the heated battles between Exxon and Santa Barbara County that led to the installation of the infamous Offshore Storage & Treatment (OS&T) facility in Federal waters. This was the first floating production, storage, and offloading facility (FPSO) in US waters by 3 decades!
In light of Sable’s difficult (bordering on impossible) onshore permitting challenges, the company resurrected the OS&T option in a recent presentation to investors (pertinent slide pasted above). The extent to which this is purely a tactical maneuver remains to be seen, but this option would be very difficult to execute, even with a supportive Federal regulatory environment.
John Smith shared the attached letter from Senators Adam Schiff and Alex Padilla, and members of the California congressional delegation. The letter questions BSEE’s inexplicable announcement about the resumption of Santa Ynez Unit (SYU) production. That announcement boasted:
“This is a significant achievement for the Interior Department and aligns with the Administration’s Energy Dominance initiative, as it successfully resumed production in just five months.“
BSEE’s announcement, which has not been explained and is still featured on their homepage, served only to further complicate the resumption of production from the SYU, which has reserves in excess of 500 million barrels.
California Senate Bill 237, the compromise oil legislation supported by Gov. Newsom, Assembly Speaker Rivas, and Senate President McGuire, opens up Kern Co. drilling in exchange for pipeline safety measures that will doom the Santa Ynez Unit (SYU) if Sable fails to restart production by Jan. 1.
Particularly intriguing is the the list (below) of SB 237 supporters and opponents. The Western States Petroleum Assoc. (WSPA), is aligned with the unions for onshore drilling and against the SYU. Note that Exxon is a prominent WSPA members! Exxon assigned the SYU to Sable and is on the hook for massive decommissioning costs if production is not resumed. Perhaps Exxon has a backup plan for the SYU?
Also note that all of the environmental groups are aligned against SB 237. Compromise is not in their playbook.
John Smith’s highlighted summary of SB 237 is attached. Here is the provision that would seem to doom Sable:
Clarifies in the Coastal Act that development associated with the repair, reactivation, or maintenance of an oil pipeline that has been idled, inactive, or out of service for five years or more requires a new CDP, as provided.
REGISTERED SUPPORT / OPPOSITION: Support Associated Builders and Contractors of California Berry Petroleum Company, LLC California Conference of Carpenters California Independent Petroleum Association California Resources Corporation and Subsidiaries California state Pipe Trades Council California State Association of Electrical Workers City of Bakersfield Consumer Watchdog County of Kern State Building & Construction Trades Council of California Western States Petroleum Association
Opposition Asian Pacific Environmental Network Action California Environmental Justice Alliance Action California Environmental Voters Campaign for a Safe and Healthy California
Center for Biological Diversity Center on Race, Poverty & the Environment Central California Environmental Justice Network Clean Water Action Climate First: Replacing Oil & Gas Communities for a Better Environment Earthjustice Leadership Council for Justice and Accountability Physicians for Social Responsibility Los Angeles
Bud's Offshore Energy (BOE) 