About Oil Properties
To better understand the current challenges facing Long Beach and Oil Properties, it is helpful to consider the historical aspects that have shaped oil operations in Long Beach. This history provides an insight into the unique framework of industry, city, state relationships and government controls that have been established to allow continued oil production within the City of Long Beach (City).
The Early Days
From 1911 through 1935, the State of California (State) granted the City all of the tidelands within its city limits. The tidelands encompass the area from the mean high tide line to three miles offshore. The City received these properties in trust for the purposes of developing commerce, navigation, fisheries, and recreation.
Although oil was originally discovered at Signal Hill in 1921, it wasn't until 1932 that the Wilmington Oil Field was discovered. In 1939, the City of Long Beach Harbor Department (Harbor Department) created a petroleum division and drilled the first well under the tidelands. The Long Beach Oil Development Company (LBOD), a consortium of oil companies, was selected as the City's first oil contractor.
After a challenge to the City's rights to conduct oil operations, the California Supreme Court ruled that the conveyance of the tidelands by the State to the City included the mineral interests and that the development and production of oil from the tidelands was compatible with the trust.
Oil Revenue Issues
In 1951, after expending about $140 million of tidelands oil revenue on the Harbor and other related activities, the City still had over $100 million in unspent funds. Long Beach was authorized by the legislature and governor to spend one-half of those funds for public improvement throughout the City. A subsequent lawsuit (Mallon vs. the City of Long Beach) declared that the expenditure of such funds for general City uses were in violation of the terms and conditions of the Trust Grants. As a result, Chapter 29 was enacted by the legislature in 1956, which limited the amount of net revenue to be given to the City to 50 percent and limited their use to trust purposes only.
Eastward Extension of the Oil Field
In 1961, with subsidence under control, the City explored the area east of the Harbor District with eight core holes and confirmed that the oil field was contiguous to the eastern City limits. In 1962, Long Beach voters approved a referendum for offshore development and the Petroleum Properties Administration was created to manage oil activities outside the Harbor district.
In 1964, Chapter 138 was enacted by the State legislature, which further reduced tidelands revenue to the City with a decreasing schedule from $9 million per year to one million per year. It also defined the duties and responsibilities of the City and the State Lands Commission (SLC) for the exploration and operations of the eastern portion of the Wilmington Field, to be known as the Long Beach Unit (LBU).
Also in 1964, the City Charter was amended, transferring authority over oil production and all subsidence control operations to the City Council and City Manager, acting through the newly created Department of Oil Properties (DOP).
In 1965, THUMS, a consortium of oil companies consisting of Texaco, Humble, Union, Mobil, and Shell, was selected as the City's oil operating contractor for the LBU. The contract would run for 35 years and enable the City, as trustee for the State, to retain approximately 96% of the net profits attributable to the tidelands. Since 1989, there have been a number of contractor, Unit Operator, and ownership changes in the oil field.