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HomeMy WebLinkAboutSupplemental - Email from Robert GoldbergGloria Harper From: Robert Goldberg <rgoldberg @live.com> Sent: Sunday, March 24, 2019 7:33 AM To: Mike Varipapa; Joe Kalmick; Thomas Moore; Sandra Massa- Lavitt; Schelly Sustarsic Cc: Jill Ingram; Craig A. Steele; Gloria Harper Subject Revised Comments on Closed Session, Item B: Correction of "Out -of -City" Production Tax to 1 Cent per Barrel Attachments: oil.CRC.xls; Oil.CRC.MC REGULATIONS.doc; Oii.CRC response.pdf, Oil.City Boundary per General Plan.pdf Robert Goldberg has shared OneDrive files with you. To view them, click the links below. Oil.Map of Well Bottoms in PRC 186 l.pdf Oil.demand letter to CRC l.pdf Dear Council and Staff, Item B on the Closed Session Agenda is an unspecified "Initiation of Litigation." I do not know who the City is considering suing. However, if it is California Resources Corporation (CRC), then I would like to offer the following comments and recommendations. These are based on the City's demand letter dated 9/26/18 and CRC's response dated 10/11/18 (obtained through PRA requests), a review of the cited Municipal Code sections, and maps of the City boundary and oil well locations within the off- shore State drilling lease area, PRC 186.1. I see four problems with our demand for over $9 million dollars. Problem #1: MC 5.55.005 (attached) defines the Scope of oil production license taxes. It states that these taxes do not apply when "wells are located and bottomed on state -owned tide and submerged lands." The well bottoms are clearly on state -owned submerged land that is leased to CRC. The question is whether the well heads ( "tops "), which are located on Island Chaffee in Long Beach, are also legally considered to be on "state -owned tide and submerged land ?" If so, then CRC would be correct in their assertion that no taxes are due. Island Chaffee is part of a "Public Trust Land Grant" made by the State Legislature to Long Beach many years ago. This was one of 300 such grants made since California became a state. Long Beach is a "Trustee" for the Island, and there exists a profit sharing agreement between Long Beach, CRC, and the State Lands Commission (SLC) regarding this facility. However, I am not sure who the "owner" of the land /island is under this agreement. To answer this question, a representative from the Long Beach SLC Office referred me to their oil and land attorney in Sacramento, Joseph Sable (916- 574 - 0964). I would recommend that Council direct staff to get an opinion from Mr. Sable. If he agrees with CRC that Island Chaffee is "state- owned, " then our tax demand should be dropped. Problem #2: The tax amounts due in the City's demand letter (Exhibit C) are based on "In -City Production" (MC 5.55.105.A). This MC section includes a barrel tax of 40 -70 cents per barrel (based on the cost of oil). However, the City's demand letter states that CRC failed to pay the license tax due for "Out -City Production" (MC 5.55.105.8), which is clearly the correct MC section to cite. This section of the MC has a tax rate of only 1 cent per barrel. So the City's demand letter says, in effect, that CRC should have paid us the much lower amount in sub - section "B ", but now you owe us the higher amount in sub - section "A." I would recommend asking the City Attorney what the likelihood is that we would prevail in court in demanding payment based on a non - applicable MC sub - section. Problem #3: The City's boundary only extends about a mile into the ocean per the attached map from our General Plan, while the PRC 186.1 lease area extends almost 3 miles out (see attached "Map of Well Bottoms" which is Exhibit A in the City's demand letter). Comparing these maps and using the length of the pier as a distance marker, it appears that only seven of the 23 -25 wells are possibly within the City boundary, and therefore, taxable. This is problematic since the City's demand amount is based on production from all 23 -25 wells in PRC 186.1. I would recommend asking the City Attorney if the General Plan boundary map is accurate. If not, the City should produce an updated map for the Council's consideration before taking action in this case. Problem #4: The City's demand letter requests payments based on oil production going all the way back to 2005. However, it is my understanding that in the absence of a local ordinance specifying a statute of limitations, civil recoveries for monies owned are limited to a three -year period by CA Code of Civil Procedures, Section 338. I would recommend asking the City Attorney what the likelihood is that we would prevail in court in recovering payment based on 13 years of past oil production. Assuming that Island Chaffee is not "located ...on state -owned tide and submerged lands" (Problem #1), 1 recalculated the "Amounts Due City" (Exhibit C in the City's letter) taking into consideration Problems #2-4 above. This resulted in a revised amount due of $4939 plus Mr. Kirste's 15% commission of $741 for a total of $5680 (see attached spreadsheet). If we receive a favorable opinion from the attorney for the SLC regarding Long Beach's ownership of Island Chaffee, I would recommend that we send a revised demand letter to CRC for this amount (or slightly higher to reflect several months of additional production). Thank you for your consideration and service, Robert Goldberg 2 c v o kD N 3 n H m i v v W x F p a` yj u 0 M Oat 0 Eo o rn x O N N N N to H Z a O ri 2' H C v C O1 O o° m IT a Y 0 c �, vi a°'i* ti 0 v d u N L x y CL — F w U u C u w m y m W u t0 ti O N \ m Y V1 W ti O N r c V 0 O M "T U1 N N O Oft N Oat N Val N N x H c n N y u N 3 n H m i v v W x F p a` yj u 0 M Oat N O Oat N n -T CG V) U1 u N y u N 3 n H m i v v C .2 V d v E Lo 0 00 N O c a o x x ° V 0 O a o c 0 mO to oao 0a0 m Z a O ri N N H C CG V) U1 L 7 o N y u N 3 n H m i v v C .2 V d v E Lo 0 00 N O r N t0 x O o F ° V 0 O a N ti ao n m M m o 0 H C c '- C! J ^ 3° u m N N N L w U u C u w m y m W u t0 ti O N r O N W ti O N r N LL N C O N E 0 v v Y O w N 9 (O E O 0 rn v M W d C Title 5 BUSINESS LICENSES AND REGULATIONS Chapter 5.55 OIL AND GAS PRODUCTION 5.55.005 Scope. Nothing in this chapter shall be deemed to conflict with state laws concerning drilling for oil on state -owned tide and submerged lands. Nor shall the provisions of this chapter apply to drilling and production of oil where wells are located and bottomed on state -owned tide and submerged lands. (Ord. 1515) 5.55.015 License Tax. A. In -City Production. Every person who engages in the business of producing crude oil, gas, petroleum, or other hydrocarbon substances from any well located in the city shall pay an annual license tax computed as follows: 1. $150 per producing well ( "the base tax "); plus 2. $30 per producing well ( "the annual oil permit well fee "); plus 3. 20.5¢ per barrel of oil produced and shipped from the well during each fiscal quarter of the fiscal year ( "the per - barrel tax "). Such amount shall be adjusted annually on July 1st of each year in accordance with the change in the producer price index during the previous fiscal year, but in no event shall the per barrel tax be adjusted to a rate below 12.5¢ per barrel of oil produced. Such adjustment shall be determined by the director of administrative services. For purposes of this section, "producer price index" means the producer price index for crude petroleum (domestic production), as prepared by the Bureau of Labor Statistics of the United States Department of Labor, or if such agency shall cease to prepare such an index, then any comparable index covering the Los Angeles and Orange County areas prepared by any federal or state agency, which is approved by the city council. 4. The base tax and the annual oil permit well fee shall be paid by September 30th for each fiscal year. The base tax and the annual oil permit well fee shall be paid for each new well commencing production after such payment dates within 30 days after the commencement of production for such well. 5. The director of finance shall notify each person required to pay the per - barrel tax of the rate to be used for each fiscal year. Such payment shall be made during each quarter of every fiscal year in the manner provided herein, on or before each succeeding September 30th, December 31st, March 31st and June 30th, respectively. Production during the months of June, July and August shall constitute the measurement of the amount due on or before September 30th for the first quarter of a fiscal year; production during the months of September, October and November shall constitute the measurement of the amount due on or before December 31st; production during the months of December, January and February shall constitute the measurement of the amount due on or before March 31st; production during the months of March, April and May shall constitute the measurement of the amount due on or before June 30th. 6. For the purpose of determining the license tax in this subsection A: a. A well is located in the city if the surface location of the well, the surface of the well itself, or if any portion of the well head is located in the city, irrespective of the subsurface location of the well, the producing interval thereof, or where the hold of the well may be bottomed. B. Out -City Production. Every person conducting, managing, carrying on, or engaged in the business or activity of producing crude oil, gas, petroleum, or other hydrocarbon substances or products from any well or wells where such well, or any portion of such well passes through or is bottomed under any real property in the city and where portions of such well are located in one or more other jurisdictions and where such well head is not located in the city, shall pay the sum or sums in the manner and to the extent as hereinafter provided for a business license tax: 1. The sum or sums to be paid on a per fiscal year basis, payable quarterly. 2. For each fiscal year there shall be paid in the manner hereinafter provided, on or before September 30th, December 31st, March 31 st, and June 30th, respectively, an amount equal to 010 per quarter for each barrel of oil produced by each well in excess of 300 barrels per quarter. Production during the months of June, July, and August shall constitute the measurement of the amount due on or before September 30th for the first quarter of the fiscal year; production during the months of September, October, and November shall constitute the measurement of the amount due on or before December 31st; production during the months of December, January, and February shall constitute the measurement of the amount due on or before March 31st; production during the months of March, April, and May shall constitute the measurement of the amount due on or before June 30th. 3. For the purpose of determining the per license tax in this subsection B: a. A barrel of oil shall consist of 42 gallons (United States) of crude petroleum or hydrocarbon substances corrected for temperature variations in accordance with methods generally approved in the petroleum industry. Petroleum or hydrocarbon substances mean crude oil remaining after the removal therefrom of water or other impurities by preliminary processing in the vicinity of the well site preparatory to the shipment thereof. b. If oil produced from multiple wells shall be commingled without the production of the respective wells being separately measured, each well whose production has been so commingled shall be considered as having produced an equal part of the total. 5.55.030 Delinquency. If any fee herein required to be paid to the city is not paid at the time and in the manner provided, the same shall, 30 days thereafter, automatically be and become delinquent, and a penalty in an amount equal to 25% of such fee shall be added thereto for such delinquency, which penalty shall be and become a part of such fee and shall be enforced and collected as a part of such fee. (Ord. 1515) Chapter 5. 10 BUSINESS LICENSE TAX 5.10.065 Determination of Tax Amount by City. A. The collector may determine the amount of business license tax owed by a person carrying on business in the city in any of the following circumstances: 1. Such person fails to apply for a business license. 2. Such person fails to file a required statement in a timely manner. 3. Such person files an incorrect statement or incorrectly computes the amount of tax due. B. The determination of the business license tax owed shall be based on information available to the collector. Written notice of the determination, and a reasonable opportunity for a hearing regarding its appropriateness, shall be given to the person liable for payment of the tax. If application for a hearing is not made within the designated time, the business license tax determined by the collector shall be final and conclusive. (Ord. I5I5) 5.10.085 Delinquency. A. All business license taxes are delinquent as follows: 1. Daily Taxes. Delinquent at 5:00 p.m. on the due date. 2. Annual Taxes. Delinquent at 5:00 p.m. on July 30th except all annual business license taxes paid on a gross receipts basis are delinquent at 5:00 p.m. on August 31st. 3. New Businesses. Taxes for new businesses commencing after the first day of July are delinquent at 5:00 p.m. on the 30th day from the commencement date. B. A penalty of 25% of the tax amount shall be added to each business license tax remaining unpaid 30 days after it becomes due. A penalty of 50% of the tax amount shall be added to each tax remaining unpaid 60 days after it becomes due. A penalty of 100% of the tax amount shall be added to each tax remaining unpaid 90 days after it becomes due. Notwithstanding the preceding, unpaid taxes based on gross receipts, other than taxes on new businesses, shall have a penalty of 25% added on September I st, 50% added on October l st, and 100% added on November 1 st. All penalties shall be cumulative. C. The collector may, upon receipt of a written request before the delinquency date, extend for not more than 30 days the deadline for paying the business license tax. (Ord. 1515) 5.10.150 Penalty. C. The amount of any business license tax and penalty imposed by this chapter shall be deemed a debt to the city. The city may pursue any legal remedy available for the collection of any delinquent business license tax, and penalties and administrative costs incurred in connection therewith, including attorney fees. Neither the arrest, prosecution, conviction, imprisonment nor payment of a fine for the violation of this chapter shall satisfy or diminish the indebtedness to the city created by this chapter. (Ord. 1515) q TOEL RIVESLLF October 1 1..'.01 R Lia Email rn jingranrasealbeachca.grn- & I.S. Nail Jill R. Ingram City Manager City of Seal Beach 211 Eighth Strect Seal Beach, California 90740 74 500 Capgo! Mall, stole teoo Sacramento, CA 95814 T 916 447 07001 F 916.447 4781 Wnv Stoel Cam MICHAEL N Vu i; D 916.319 46 michael. mills@stoe;.con Re: Demand to California Resources Corp. for Business License Tax Payments ()car Ms. Ingram: This office represents California Resources Corporation ("CR("'). I am in receipt of a letter from Mr. Greg Kirste, dated September-26. 201 R. as well as your earlier letter, dated September 17. 2018. both of which were addressed to Mr. Marshall Smith. Senior Executive Vice President and Chief Financial Olrticer or CRC. In Mr. Kirste's letter of September 26. he demands that CRC pay the city of Seal Beach S9 UI,353.11 purportedly for unpaid "business license tax` payments going back to 2004. as well as associated costs ­to discover, investigate and finalize this matter' pursuant to the City of Seal Beach Municipal Code S 5.10.015 [Business License tax Requirement] resulting from CRC's oil and gas wells located in the state -owned tidelands on California State Lands Commission Lease No. PRC 196. and which. according to Mr. Kirsm are 'bottomed with the City's municipal boundaries." Mr. Kirste's demand to CRC is without any basis in suite law or the City's municipal code. Because the demand is bogus, CRC hereby rejects it in its totality. It is undisputed that the oil and gas wells in question are bottomed in State -owned lands. It is well- established that the State of Calilomia received title to the tidelands and submerged lands along the State's Coastline. (Pub. Res. Codeva' 64X)9) The Calilbmia State Lands Commission W exclusive jurisdiction over all "un- gnanied" tidelands and submerged lands. (Id. at k 6301) CRC's wells were lawfully drilled pursuant to a aalid state lease and are not covered by Chapter 5.55 ofthe .Municipal Code (which Bove its blsintss license taxes in your City). Please take note that the Seal Beach Municipal Code at 0 5.144.4105 exnlicitl states th n: 4 5', Ss:ccS "EMUSI 1 pre511,. IOTU City of Seal Reach October 11. 2018 Page 2 Nothing in this chapter shall be deemed to conflict with state laws concerning drilling for oil on state -owned tide and submerged lands. Nor shall the provisions of this chapter apply to drilling and poduction of oil where wells are boated and bottomed on state -owned tide and submersed lands. (emphasis added) Mr. Kirste has not provided, nor have we been able to identify, any grant from the State of California to the ChN of Seal Reach relating to the tidelands and submerged lands_ Accordingly. pursuant to the plain language of Municipal Code §- rFH:8Fl5. we reject in its totality Mr. Kirste's demand for 59341353.1 1 in fees and penalties. S, 5- 5'i1s' Moreover. I ask that the City reimburse my clients $5.000-00 for its costs incurred in investigating this matter and retaining counsel. As outlined above. this demand is wholly unsupported by law, so the costs to respond to it should not be borne by my client. Finally. please inform Mr. Kirste that he must immediately discontinue the frequent telephone calls that have been made to officers and employees of CRC in recent weeks. 'nccy are disrupting to the company's business. All further communications or correspondence relating to this matter - for which I expect there to be little. if any - may be directed to our law firm and specifically to my attention. �Sincerely. Michael T. Milts cc: Craig Steel. Esq., Richards. Watson & Gershon. Seal Reach City Attorney Adam Smith, Esq. (CRC) 9812ovsi : �ue«mzv r, _J I I I I I i J� 1 I I cu w moo LU a b (V • p OV • O ♦ O� 4 ♦ • I i o m s 0 MME 331 a wwsq t] Lu�6Q O�Cas�pifm z a m a v c w a c c 7 m LL 0 C o. Y V G 'J. aM EXHIBIT A PRC 186.1 Wells September 26. 2018 via email Mr. Marshall Smith Senior Executive Vice President and CFO California Resources Corporation 27200 Tourney Road, Suite 315 Santa Clarita, 91355 Dear Mr. Smith: The City of Seal Beach ("City ") recently learned that Oxy Long Beach Inc. ( "OLBI ") began redeveloping offshore State Oil & Gas Lease PRC 186.1 ( "PRC 186') in June 2005 by drilling wells from Island Chafee located in the adjacent Long Beach Unit (Exhibit A - Wells). Because the wells drilled into PRC 186 are bottomed within the City's municipal boundaries, OLBI was required, but failed, to obtain a City business license prior to commencing operations (Exhibit B - Timeline). Documents reveal OLBI was a highly knowledgeable oil and gas production company, was aware it was drilling into the City's jurisdiction, and was instructed by the California State Lands Commission to "obtain all necessary permits and approvals from state and local agencies before commencing operations." The Municipal Code of Seal Beach states, "Every person conducting, managing, carrying on. or engaged in the business or activity of producing crude oil, gas, petroleum, or other hydrocarbon substances or products from any well or wells where such well, or any portion of such well passes through or is bottomed under any real property in the city and where portions of such well are located in one or more other jurisdictions and where such well head is not located in the city, shall pay... a business license tax" ( §5.55.015). In the event a company is found to be producing oil or gas without a business license, the Municipal Code requires the City to determine the business license amount owed ( §5.10.065). Finally, the Municipal Code requires companies pay penalties on all unpaid amounts ( §5.10.085 and §5.55.030). Pursuant to California Constitution (Article XI), California Government Code ( §37100), Seal Beach Municipal Code, OLBI / Unit Operator Facilities Agreement, and California Code of Civil Procedures ( §338), the City has determined OLBI's successor company, California Resources Long Beach, Inc. (`CRLBI "), shall owe the City: a) For PRC 186 oil production that occurred between June 1. 2005 and February 28, 2018: $8,122,915.75 (Exhibit C - Estimated Amounts), plus b) For PRC 186 oil production occurring between March 1, 2018 and the date CRLBI obtains a City business license: $0.7269 per barrel, plus c) For PRC 186 production occurring after CRLBI obtains a City business license: All amounts required by the City's Municipal Code. Additionally, CRLBI shall owe the City $1,218,437.36 for reimbursement of actual costs (excluding possible future legal costs) the City will incur to discover, investigate, and finalize this matter ( §5.10.150). The City has authorized Municipal Petroleum Analysts, as the City's agent, to represent the City's interests and to work with CRLBI and its parent corporation, California Resources Corporation, to finalize the above estimated amounts and promptly resolve this matter, with all amounts, terms and conditions subject to the City's final approval. I would appreciate an opportunity to meet with you or your designee at the earliest possible date to discuss and answer any questions. I can be contacted at (949) 463 -6108. Respectfully, / l K Greg Kir� Authorized Agent for the City of Seal Beach CC: Victoria Beatley, Director of Finance / City Treasurer Michael Preston, Executive Vice President, General Counsel & Secretary V \ e Jb S . 3ti �U Q u 0 ! hb ti V1 Z O d V J W J cO C O m V v U y O � � o �o u � ti V Q y N ^q y y �n a V w O ✓v EXHIBIT B Timeline of Events OLBI Acquires ChevronTexaco's 50% Interest in PRC 186 OLSI Acquires ExxonMobil's 50% Interest in PRC 186 (see Komin letter) State Lands Commission Assigns PRC 186 Lease to OLBI State Lands Commission Approves OLBI's PRC 186 Development Plan OLBI & Long Beach Execute Pass Through Fee Agreement #29102 OLBI & Unit Operator Execute Facilities Agreement #29103 OLBI & Others Execute Dry Gas Agreement First OLBI Producing Well Completed in PRC 186 (C -332) Parties Execute First Amendment to Facilities Agreement Parties Execute Second Amendment to Facilities Agreement OLBI & Others Execute Natural Gas Delivery Agreement #32227 All Parties Execute Assignment Consent Agreement (2014 Oxy Spinoff) ZU" QXYLO�S"C" Me CcOnOIC. -2 '4,�tmel III �W2 S,,btV,,L SAM* L"se- PRC 'Be RRc 14" On -wi own in rcar •eol ,fs •tA he Sell La•ft Commissiro ML-M cc,,Alpelt to -s- armor' ,I•M.1 Le,eii, alLwC lqr� ­FAaC -W! "1' 10 T"ur re 1"BI; OLE-It at—jvw -,, rte,.q5 ea- MI ryas ob'a­wt •Pc•.ir! lz Inc tat from J,aOnlWb.i OLSI so -,,l :• ., ,,W Is i'rRM1Mmlt Ots, .41 $ub,l R am of r V 1,e epc, nI,srtom CAN S no t,"O R.•, zf -jV, vr :;Vj be ,,k, A LAI,a"d ta rwe cona a, ,n,,kj l,'.• 1,W. lh; 111, in late .rr llqja.wif, •al, 7l, .,!uW are,-ail vy=W lWany U=Mn a Q 0I.W 'ae:o the WC1.3 slaw w .,n :d;,cl, It* lq�* *#vq1ocmylc,1.*I �. P"daVe- 'W401 an•1 A`7.P 1-1 IS." Illm',Ik, "Wwo, on" al me tw. Of !"S SIIIp: IAJ , AWAlIVIIIAlv. ."WO, 1014 V, ❑c,4 IV Vvtw.­n.n,,'! t b U _ In "A" we;! eI llil .2w,itY (,a5jrj._j,• m.I all eqt;," w devvlopt•leint oyf ppic lag Lork; tire. %X� Ins IV �: u Fr�m AI;`.cI4,7e �ac.0 -he tai rhAt arvsr eveliatIons IIA :Ae W 1&00119 W. lot c plvvue 'fq .,,e amlcr•,e,a fo,. • o eads FYI" , twww w, Me CAVOI L•N BellY anl. m- State OVIg 1 If FAKC 1% We tlVej , Ilm, WzlplTilr If i,,. '"r,­1 n, •c I.." Gun: W, .1 m3A 'I time ft full te"e'd Im Me State O` caw,w me qua"w I K1_o M 4 6 10 15 16 19 22 21 23 25 25 23 23 EXHIBIT C Amounts Due City (est) 3,545 827 50.00 50.00 $0.00 $0.00 50.00 $0.00 283.514 38.750 5150.00 $60.00 $118.727.73 $15.00 $116,877.73 $237,830.47 521,255 120,464 $900.00 $210.00 S293.852.78 $5250 $294,752.78 $589,768.06 541,542 128.039 $1200.00 $27000 $312,777.40 S67.50 $313,977.40 $628,292.30 500,359 112,845 $1,500.00 $300.30 $547,540.88 575.00 $549.040.88 51.098,456.76 594.762 140.570 $2,250.00 545000 $308,887.39 5112.50 $311,1, 37.39 $622,837.28 580,151 156,077 $2,550.00 $510.00 $346,874.33 S12Z50 $349,424.33 $699,486.1? 590,276 157,664 $2,700.00 560000 5477.237.62 $150.00 $479,937.62 $960,625.24 524.847 154,459 53,300.00 5690.00 $389,977.62 $172.50 5393.277.62 $787,417.73 445,978 138.441 $3, i50.00 5660.00 $389,343.69 $165.00 S392,493.69 5785,812.38 426.004 133,895 53450.00 S69000 $365,048.94 $172.50 5368,498.94 S737,860.38 381,129 120.642 $3,750.00 $750.00 5205,281,71 $187.50 $209,031.71 $419,000.92 336,726 112,572 53,750.00 $720.00 $156,262.14 $180.00 $160,012.14 $320,924.29 206.807 69.178 53450.00 $690.00 $113420.63 5172.50 $116,870.63 $234,603.77 5,936,995 1,584,423 S32,100.00 $6,600.00 S4,025,232.88 $1,650.00 $4,057,332.88 $8,122,915.75 REIMSURSMENTS (5.10 150) $1,218,437.36 TOTAL AMOUNT DUE $9,341,353.11 C',ty'a fiscal year is July " For FY 2017 -18. amounts are for 8 months. July 1, 2017 to Feb 28, 2018