San Fran looks to wean itself off Kern County oil revenues
Act One
BY JOHN COX Aug 3, 2019
For decades, the gift Alfred Fuhrman bestowed on his beloved San Francisco worked just as he hoped it would, paying for upkeep at Golden Gate Park and helping fund the city’s library system.
Few knew, or cared, where the money came from — until about three years ago, that is, when word got out the city had been quietly collecting royalties from petroleum production at the Kern River Oil Field, way down south in Kern County.
Bay Area environmentalists were mortified. The arrangement, still responsible for hundreds of thousands of dollars per year in city revenue, would need to end as soon as possible if San Francisco hopes to remain true to its official policies for fighting climate change.
And so it shall be: According to city staff reports and an email from a city real estate official, San Francisco will walk away from its longstanding lease agreement with Chevron Corp. covering 800 acres of land north and northeast of Bakersfield. Within a year, the parcel’s 82 active oil wells, representing a little less than 1 percent of the field’s total, are to be closed for good.
But turning a perceived environmental liability into a well-intentioned sacrifice isn’t always so simple.
Following San Francisco’s adoption of a “Keep It in the Ground” ordinance in late 2016, city officials had planned to install photoelectric solar panels on all 1,500 acres bequeathed by Fuhrman in 1941, including grazing land and about 40 acres west of Coalinga. That was supposed to raise $484,000 per year, more than enough to make up for the lost oil lease revenue.
That plan has since fallen through. Rather than continue to own the property, as originally envisioned, the city wants to sell it with a deed restriction that the land never again be used for oil production.
Act Two
Well-plugging costs add wrinkle to San Francisco’s planned oil pullout
BY JOHN COX Aug 10, 2019
This much is clear about San Francisco’s plan to withdraw itself from Kern County oil production: It isn’t going to be cheap. Question is, who’s going to pay for it?
The answer has yet to emerge from ongoing negotiations between the city and Chevron Corp., which has for decades operated 82 active wells on San Francisco’s behalf in the Kern River Oil field.
From the city’s perspective, Chevron should cover the cost of “abandoning” the wells, a highly regulated and costly process that involves using cement to permanently seal the bores.
“While I can’t get into specifics of our negotiations with Chevron, we believe our lease assigns decommissioning responsibilities to the tenant, in this case, Chevron,” John Updike, senior real estate project manager for the City and County of San Francisco, wrote in an email last week.
Chevron has declined to say publicly whether it agrees with that assessment. But the fact that the matter is still under discussion as part of a broader negotiation may suggest the company is not ready to concede the point as it tries to work out a deal on how to wind down its lease of some 800 acres of city-owned land, a quarter of which is used for oil production.
ENVIRONMENTAL POLICY
The well-abandonment question has arisen as part of San Francisco’s 2016 ordinance requiring that no city-owned property be used for oil production. The keep-it-in-the-ground policy was crafted specifically to address Chevron’s lease, which officials felt was contradictory to San Francisco’s efforts to combat climate change.
Instead of oil production, San Francisco officials said they intend to convert the land, particularly the northern portion used for cattle grazing, into wildlife habitat.
The city did not buy the property but received it in 1941 as part of a 1,500-acre donation. The land’s oil production royalties have averaged lately about $24,000 per month.
That money helps pay for upkeep at Golden Gate Park and fund San Francisco’s public library system. The royalty revenues are expected to end once Chevron’s lease expires at the end of March.
HT/flyfisher
This people are insane…
Liberalism does that to people Duke. The research is ongoing as to whether it is a precondition for liberalism or whether it is a contagion afflicting the neuro-pathways to the brain and spread by interaction with over educated idiots.
The predominant research indicates nurture rather than nature and it is found predominantly around institutions of higher learning and then spread to the general population from there.
You’re right but how about some useful links. example
Meanwhile back in town there are real (but normally third world) problems to deal with: https://www.wsj.com/articles/californias-biggest-cities-confront-a-defecation-crisis-11565994160?mod=mhp
That article is full of crap.
I’ll pass on that article.
Chevron actually has the upper hand in negotiating who pays the decommissioning cost. Decommission in normal circumstances means the wells have ceased to produce. It would normally be Chevron;s decision to close failing wells and thus their expense. However, as an abnormal circumstance the city with the lease has decided to harm Chevron, taking producing wells out of production. A good lawyer could argue that this decision is purely the city’s and thus the expenses are the city’s. Dollars to doughnuts, the lease agreement does not cover the city negating the wells in this manner, refusing to let any production at all.
theyre breaking the terms OF the bequest so is their continuing claim of owning it if they do so valid?
the sale with caveat clause also would be iffy as the original owners intent for the profit to be used for public good.
why not just sell it TO chevron
The relationship between Chevron soured many years ago under Willie Brown, that famous (Notorious) mayor of SF from ’96 to ’04. During his tenure he seemingly made it his goal to piss off Chevron. One situation occurred where a delegation from China was visiting Chevron to discuss the joint venture of CNPC and Chevron to produce base oils in Daqing. The ever supportive Willie Brown told the Chinese to not trust Chevron executives. This happened prior to the meeting with Chevron and did impact relations.
Chevron’s response to this insult was to move corporate headquarters from 555/575 Market Street to San Ramon, impacting the SF tax base as they taxed income in the city.
This SF Gate article tells some of the story: https://www.sfgate.com/realestate/article/Ending-an-era-Chevron-abandons-S-F-headquarters-2881586.php
In typical politician double speak, WB claims he wants to maintain a business friendly environment in SF. But Chevron and other major businesses sued SF for imposing too great of a tax burden on businesses. SF settled out of court and Chevron received $66 Million in settlement. So after years of bad relations with SF, Chevron moves all the remaining employees to San Ramon. A good business decision. And SF whines that Chevron should “Return the Money”
Here is the actual part of the SF Gate article:
It hasn’t been a a perfect marriage between company and city, however. Chevron was among a group of corporations (including the Hearst Corp., which publishes The Chronicle) that sued San Francisco last year, contending that their tax burden was too great. The case was settled out of court in April, said Board of Supervisors President Tom Ammiano, “because the cost of litigation would have been tremendous and the forecast for winning was slim.”
The city paid Chevron and others $66 million in the settlement, and this still leaves a bad taste in Ammiano’s mouth. “I’m sorry to see people go, but at the same time people should not foul their own nest. . . . It would be nice if Chevron would return their part of the settlement. We have an account set up just in case,” he said
Talk about cutting off your nose to spite your face…..????????
San Francisco should switch to all electric vehicles for city use. Charging should be limited to solar and wind power.
Gasoline and property taxes can go up to pay for it.
Let Chevron put up useless, virtue signaling wind turbines. They did that south of where I live and all the liberal media was wetting themselves with excitement. Same thing was done with the Glenrock Coal mine. The revenue flushed down the toilet when this is done, but can virtue signaling really have a price put on it?
Another simple solution is that the SF city and county should charge all its inhabitants 1 cent, $0.01/day for exhaling all that CO2 ‘pollution’ into the city’s atmosphere. Such tax would bring in annual revenue of about $3,000,000.
Or just put a windmill on top of their oil rigs. It doesn’t have to actually do anything other than make the Greens feel good about it.
The tall drilling rigs are removed once a well is drilled. Only collection pipes and maybe a pump are left behind.
It would be helpful to know if Alfred Fuhrman’s donation of the land to the City of San Francisco was made with specific conditions on its future use and the rights of any existing tenants on the property at time of donation.
Just a small part of fossil fuel divestment that will be countered with increased taxes. Wait for the long touted “carbon free” San Fransisco, then the lunacy will be shared equally by all. We all know it will only happen when we run out of oil but that won’t stop the shaming and incessant chipping away at our liberties.
Sorry, modern drilling tech means the wells capped will be tapped from the sides. Only ones losing revenue will be SF and it’s idiot citizens. Good.
That’s not the way it works. Most jurisdictions forbid drilling into unleased land.
Hahahaha, don’t tell them, then when they do say something simply lie. It is the State Approved California Way, don’t ya know? Then twirl them around in frivolous lawsuits sucking up millions more tax dollars from SanFran. Actively drive them into bankruptcy and default, all the while making millions from the oil and gas. Win/Win/Win. And when they complain just do it some more. Use their tactics to destroy them, that is how you destroy your enemies.
Zealots seem to have a propensity for self-flagellation.
They are talking about deed restrictions to prevent future oil production should they sell the land. Someone should carefully examine the original gift description to see if they can even legally sell it or purposely ‘destroy’ the producing wells since that is not in the spirit of how the gift was made.
Dollars to donuts no one will buy it with such a deed restriction, at least not for the kind of money it’s otherwise worth. Watch as Chevron shortly announces it won’t even need to do any directional drilling to slurp up the oil San Francisco thinks its leaving in the ground.
What a bunch of colossally dumb idiots.
And not surprisingly they all think they are the sharpest steak knife at the dinner party. Just a bunch of Chop-sticks in reality
and they think they’re the smart ones
Surely never before has a royalty owner demanded that producing wells be plugged prematurely. The law certainly says that the operator, Chevron, is responsible for plugging and abandoning and restoration, but O&G leases also state that the operator has the right to operate the wells as long as they are producing in commercial quantities.
It’s the city of San Fran that is breaking the terms of the lease and Chevron should have no liability to plug them. By law, Chevron has to operate their business with the best interest of their shareholders, if they abandon commercial wells prematurely and pay to plug them on top of that, they are in direct violation of that mandate.
Actually Chevron will bill SF and it’s idiot citizens for sealing those wells, then suck that oil out from other bores, making massive profits and damaging the people of SF. Win/Win.
Probably not in that field. Are you watching too much Hollywood?
There is nothing out of Hollywood about modern drilling tech, so, no. Perhaps you should turn off the TV and read up on the subject. SF will pay, in the end, and the citizens of SF are where the money will come from. Good luck with avoiding those facts.
Remember, this sort of behavior is only possible in our incredibly prosperous culture. This will end.
That is so true. People are only altruistic when there is an abundant surplus of resources over what is required for survival. Drop below survival level resources, and San Franciscans will be back to killing whatever and eating it. The Caribou along the Alaskan Pipeline, for example – liberals would slaughter them and eat them all.
…without guns?
A good liberal would run the caribou down on snowshoes and strangle it to death with zir bare hands in the spirit of ethnic authenticity.
Thanks Chris, I needed a good laugh…..
I don’t know what the law says, but common sense tells you that since San Francisco is the one walking away from the lease agreement then they are the ones responsible for capping the wells.
The claim that Chevron is responsible for the plugging costs is laughable IMO. SF owns the land, the wells, and the rights to oil. They got the full royalties all those decades. If Chevron were actually contractually on-the-hook for the costs, there would be no negotiations. Wishful thinking on the part of the city lawyers. Probably $10 million or more in plugging costs that the city will have to fork over to Chevron to actually cement the wells.
But it’s too bad the geology doesn’t support horizontal drilling to reach reserves underneath the SF-owned parcel…
but maybe some bright drilling geoengineer could figure it out and extract it still with some CO2 EOR and a few horizontal bores into the parcel?
Joel,
I believe current oil & gas lease arrangements are similar to those used when the Kern field was developed. Specifically:
SF owns the surface rights and the mineral rights. Apparently the previous owner donated both to SF. The previous owner leased the oil and gas portion of the mineral rights to Chevron. That lease remains in effect as long as oil or gas is produced from the the property. SF cannot rescind the lease. Chevron owns the lease.
However, mineral rights are severable from the surface rights unless there is a covenant in the donor’s deed to SF that prohibits such a severing. So it may be possible for SF to sell the mineral rights. The surface rights to the well sites are likely also owned by Chevron. Oil companies purchase the sites from the surface owner. The surface owner cannot refuse to sell (at fair market value) the surface rights for the well sites – it is in the lease.
Plugging costs are always borne by the lessee, in this case it is Chevron. I really doubt that it is a point in any negotiation. Any “negotiation” with Chevron would necessarily be related to SF buying the lease back from Chevron at full value. If SF were to purchase the lease from Chevron, SF would own the wells and the well sites. SF would then be responsible for plugging costs and site restoration.
Your suggestion that if horizontal drilling could access the oil under the property without Chevron having to pay royalties to SF for the extracted oil is a non-starter. That would be illegal.
I have never seen a lease where the surface owner is required to sell the occupied land, that is ridiculous and no land owner would be signing leases. They have the right to use the land for operations while they are HBP…
Robert,
You are correct. I mistakenly used the terms “purchase” and “sell” with regards to the use of the land for operations relating to the exploration and production. The oil company is required to compensate the surface owner for loss of use and any other damages that may result from operations and restore the surface after the well is plugged and abandoned. The oil company essentially has exclusive use of site surface while operations are ongoing.
“So it may be possible for SF to sell the mineral rights.”
That is traditional thinking, and standard legal interpretations at work.
And this is the real problem. And why it **will** cost SF money to do the Virtue Signalling they want. Just like buying a Tesla, or purchasing your roof-top solar PV’s…. climate virtue signalling costs money. It’s not a free ride.
SF wants the wells plugged under its “keep it in the ground” non-sense. This is where traditional analyses fail. If SF sells the mineral rights, the oil will still be taken out of the ground. In this case, they want it to remain there forever. They do not have those rights. That will cost them to sever the lease to Chevron so producing wells can be plugged. It will cost them to pay the lease-holder to plug the wells and abandon the resources.
If it were straight-forward Chevron’s cost to do the plugging wishes of SF (the surface owner), there would be no dispute.
We’ve heard of eminent domain as regards public taking of private land. Is there such a thing as public taking of public land? Kern county should look into it.
Under the doctrine of prior public use, one entity with the power of eminent domain might be prevented from condemning real estate owned by another entity that also has the power of eminent domain. Otherwise the two entities, e.g. state and county, could just condemn and recondemn the same property back and forth so long as each was seeking to devote it to a proper public use. I haven’t actively worked in this area of the law for over 20 years, so I have no idea whether the doctrine is still law anywhere-IIRC most of the law in my jurisdiction was very old-or whether California ever subscribed to the doctrine.
If I were Chevron’s lawyer I would be skeptical of receiving a fair trial in state or federal court in California on any sort of environmentally related fossil fuel issue.
What elitist fools.
The first generation is hungry and works hard to generate wealth. The second generation grows up in the shadow of their hard working parents and their parent’s stories of hungry times and tries to preserve and expand their father’s wealth. The third generation grows up in luxury and ease and is contemptuous of hard work, loves art and leisure, and spends the wealth. The fourth generation is broke.
Yep. Hence:
“Hard times creates strong men.”
“Strong men create good times.”
“Good times create weak men.”
“Weak men create hard times.”
“UCP sweeps NDP governance appointments out of post-secondary institutions
Social Sharing”
Michael Phair, Ray Martin out as chairs of University of Alberta and NAIT
https://www.cbc.ca/news/canada/edmonton/ucp-sweeps-ndp-governance-appointments-out-of-post-secondary-institutions-1.5249900?fbclid=IwAR3dc_3ZpYzhYIvTji8JnoUeBTWvm-0alNNHeOpEFzGlptNzAOh9fa_N2oc
Well, it’s a start to draining the liberal educational swamp in Canada !
Thanks for posting that Mark. I have a strong connection with U of A, Chemistry.
I love the “Welcome to 1950” shriek of horror. Hey, although I doubt it very much, if that’s how far back the surgical blade has to go to remove the cancer, so be it. Reboot.
More evidence if any were needed, the lunatics have taken over the asylum.
SF board of Sups is only interested in patting each other on the backs. They’ve generated endless laws that have made existence in the city impossible for most people. Meanwhile the population of the mentally ill and drug addicts who live, suffer and die on their streets explodes while the quality of life for the residents keeps suffering. But hey, there’s a few less oil wells.
Now who’s going to keep those libraries and parks open for the bums to sleep in?
In 2100 the people there will ask the question “what were the elected officials in 2019 thinking? Why didn’t they use the resources available to them? ” their craziness will be exposed but too late to help those living today.
Why did the banker break up with his girlfriend? He lost interest.
Amazing the oil wells have been producing all these years. That is one long-lived oil field.
A lot of donations of land come with restrictions such that if the property is no longer used for its intended purpose, then the title to the land reverts back to the donor’s family.
Memorial park in Houston Texas is one such example.
While I am not privy to the deed and / or the donation documents, it would be fairly common for this type of gift to have structured in a similar manner.
Of course cold bloded reality tells us that plugging thesewells will have zero impact on the use of oil for producing gasoline or diesel fuel. Not a single car in San Fran will travel a mile less because these dopes shut off the oil.
https://youtu.be/ViY2J3LPgN4
“New sun-driven cooling period of Earth ‘not far off”
It seems to me that the ‘smart’ thing to do would be to just leave everything as is. But, after all, we ARE talking about liberals, right? The cost’s associated with sealing up this property will FAR exceed the revenues they are receiving. The logic of that eludes the liberals and ‘warmists’ in the crowd. NO, they would far rather cut off their noses to spite their faces. I’m sure glad I don’t live in California anymore, especially San Francisco.
So, after in this tiny bit of moralistic moronacy SF should really up the ante and remove the Hetch Hetchy Dam. A historical burning bed, I don’t know how “Bay Area environmentalists” can live with themselves.
San Francisco wants to cap the wells and then change the land use to cattle grazing?
Why would they switch to another greenhouse gas producing activity?
Because they’re IDIOTS.
The oil and gas will be brought out, and SF and it’s idiot citizens will pay out their a$$ for it, instead of collecting royalties. Morons.
‘Pecunia non olet’
Virtue signaling is typically ineffective and exorbitantly expensive as SF is about to discover.
Lots of speculation without knowledge of the actual agreements. I get the feeling Chevron has the upper hand, SF knows it, and this is just another virtue signaling exercise that only creates division. Wait for the MSM to “report” like it’s a done deal.
“…Instead of oil production, San Francisco officials said they intend to convert the land, particularly the northern portion used for cattle grazing, into wildlife habitat….”
Oh noes… cattle grazing! SanFran is switching to a methane-generating land use…. horribly, deadly, toxic GHG methane… 86 times more potent than CO2! At least according to a 12/22/15 SciAm article: https://www.scientificamerican.com/article/how-bad-of-a-greenhouse-gas-is-methane/
The humanity!
You can’t read that fairly simple sentence?
It says the northern portion is used for cattle grazing.
It says SF claims it intends to convert said northern portion into wildlife habitat.
Maybe they mean the wild SF homeless population?
oh wildlife habitat..dont they have enough fire risk there already???
What a joke. San Francisco can only afford it’s insanity because they own the only non federally owned dam and lake inside a National Park anywhere in the Country. They own a dam, flooding Hetch Hetchy valley that floods the better twin of Yosemity (spelling) Park. They generate electricity which they sell for zillions and sell the water to hundreds of cities in California. Their other huge source of income is San Francisco International Airport. Located in San Mateo County but owned by SF, it is a huge source of income.
I saw a story this morning that San Francisco International Airport is going to ban the sale of single use plastic water bottles on the premises.
https://www.theguardian.com/us-news/2019/aug/02/san-francisco-international-airport-plastic-water-bottle-ban
And since both California and San Francisco have deemed that hydroelectric power is not considered renewable, they should shut down the hydroelectric plant and remove the dam. And then find another more reliable source of water for the city than from those periodic storms that slam the Sierra Nevada mountains. Since California is always in a drought and per their last governor always will be, what possible used could a dam be that only produces power and water resources. To paraphrase Ronald Reagan, “Tear Down That Dam!”
Now that would be a first class Virtue Signal
Why has it not occurred to the City of San Francisco to sell the surface and mineral estates to Chevron? If they did that, SF would have sidestepped any inane “keep it in the ground” issues they may have, and Chevron would acquire a 100% net revenue interest in this particular lease, which would be quite valuable for them. Besides…CVX already owns hundreds of thousands of acres of fee minerals in the Permian Basin in West Texas. This would be just another such asset in their inventory.
They’re talking about them in California
https://wattsupwiththat.com/2011/02/06/at-4-4-million-per-mile-a-road-to-snow-where/
They’ve tested them in France
https://tallbloke.wordpress.com/2019/08/16/the-worlds-first-solar-road-has-officially-crumbled-into-a-total-failure/
Other losers in the premature abandonment of the oil wells would be the state and county collectors of severance and ad valorem taxes which are often used to fund local schools. Kern County must love the thought of losing revenue due to it’s neighborly San Francisco decision 🙂
I think you should all read the part where it says, “The royalty revenues are expected to end once Chevron’s lease expires at the end of March.” If that is the case then you need to know the terms of the lease between CVX and San fran. There may be clauses in the lease that allow options; such renewals that CVX could make to extend the lease. Such as prior to the leases end date CVX may have an option to renew for 5 years , or anytime period, which suggests that is why CVX says San fran needs to pay. They may be trying to get out of this provision, violate the terms of the lease, to virtue signal.
Anyway, it is stupid for San fran to adopt this position and lose the money.
San Francisco values the perceived environmental benefits of leaving oil in the ground compared to revenue oil production generates. There is nothing wrong with this, and it’s admirable to see a city talk the talk and walk the walk.
It’s not as if they don’t have underfunded solutions to problems such as homelessness. Also, rich clean benefactors will surely pony up money to more than offset the loss of that dirty oil money to keep the libraries and parks open.
San Francisco may even become more proactive and buy all California oil fields and abandon them prematurely. This would surely almost make a difference preventing catastrophic global climate change!
SF could hire (former) lawyer Steven Donziger to sue Chevron for not adequately cleaning up after themselves, for maybe 9 billion or so.
Worked for Ecuador! -NOT