Santa Monica Oil Co. Settles Drilling Suit

Macpherson Oil dismisses 14-year-old lawsuit against city of Hermosa Beach. It will assign its lease and permits to drill there to another company for $30 million.

Santa Monica-based Macpherson Oil Co. has agreed to drop a long-fought, $750-million lawsuit against the city of Hermosa Beach over its right to drill at a public maintenance yard.

Under a settlement announced Friday, Macpherson Oil Co. will transfer its lease and permits for an oil project at the city maintenance yard to E & B Natural Resources Management Corp. for $30 million, subject to a Hermosa Beach voter-approved ballot measure, said Mayor Howard Fishman.

"Whichever course the voters choose, they can know that through this settlement, we have removed the cloud of crippling litigation that has been hanging over the city for the past 14 years," Fishman said in a conference call with reporters.

The ballot measure will ask Hermosa Beach voters to decide whether to repeal a ban on oil drilling that began in 1995. It was that same ban that set the Macpherson Oil lawsuit in motion.

Hermosa Beach voters in 1984 approved two ballot measures to allow oil drilling in the city’s maintenance yard site, at 6th Street and Valley Drive. The city then negotiated a lease with Macpherson Oil Co. in 1992, but three years later, Hermosa voters repealed the 1984 measure and reinstated a ban on oil drilling.

A court decision found the lease between Macpherson and Hermosa Beach was "breached" under the ban—that’s when the oil company sued, seeking about $750 million.

The settlement with Macpherson Oil, which the council has unanimously approved, grew out of discussions that Hermosa Beach City Councilmen Kit Bobko and Michael DiVirgilio had with the company.

In reaching a settlement, Bobko told Patch the City Council worked together as a team "every step of the way."

The agreement caps the city’s liability to $17.5 million, and "in the process, the residents get the choice," DiVirgilio said, whether to reduce that amount to $3.5 million by allowing oil drilling and bringing in E & B Natural Resources.

"At E & B’s expense, the city will conduct an extensive environmental review of the proposed [drilling] project and will place a measure on the ballot that will ask the city’s voters if they wish to repeal the existing ban on oil drilling in the city limits and enter into a development agreement for E & B to complete what it describes as a ‘state-of-the-art’ oil drilling project at the city’s maintenance yard," Fishman said.

For rights to the oil project, E & B Natural Resources will pay Macpherson $30 million.

"We look forward to the citizens of Hermosa Beach getting better acquainted with us in the coming year and have great hope that we can earn their support for this mutually beneficial relationship," Steve Layton, E & B Natural Resources Management Corp. president said in a statement.

If voters reject the ballot measure to allow oil drilling, the city would owe E & B Natural Resources the $17.5 million, Fishman said. If the measure is approved, the company would need to obtain its necessary permits and the city would owe $3.5 million.

A date for the vote has not yet been determined.

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