The new contender in the decades-long battle to tap the millions of barrels of black gold off the Hermosa Beach shoreline is Steve Layton, a Kansas oil man with a slight accent and big ambitions for the small city.
If Layton's plan to access the vast sea of medium-grade crude from a maintenance yard several blocks from the ocean is supported by voters, his energy firm could be under a geyser of profits for years.
And the city of Hermosa Beach, its tiny two-campus school district - and even residents - could all be in on the action.
"The amount of revenue could be very significant," Layton, 54, said during an interview at his company's Pier Avenue offices. "Just maybe, at the end of the day, the economic benefits of this project will be enough for people to believe it's in the best interest of the community to move forward."
The merits of drilling for oil in Hermosa Beach have been debated for years. Ultimately, the fate of Layton's proposed project will be decided by the city's residents. The vote to overturn the city's current ban on drilling will likely occur in early 2014, Layton said.
As the vote nears, his firm, E&B Natural Resources, is quickly building a presence in the small beach town, renting prime real estate on the city's main drag and hiring a team of local residents to promote the project. Meanwhile, concerns about Layton's oil drilling past and questions about his financial influence on potential voters
In March, Layton and E&B Natural Resources Inc. stepped in to help settle a lawsuit between Hermosa Beach and the Santa Monica-based Macpherson Oil Co., which had sought for years to tap oil reserves off the city's coastline from the city maintenance yard at the corner of Sixth Street and Valley Drive.
Alleging the City Council illegally broke a contract that would have allowed the company to drill from 30 wells, Macpherson sued Hermosa Beach in 1998, three years after voters adopted a ban on drilling. The company's claim for damages grew to more than $750 million. City leaders have said that an unfavorable ruling would have sent tiny Hermosa Beach spiraling into bankruptcy.
Under the settlement terms, Hermosa would be obligated to pay E&B Natural Resources $17.5 million if the oil ballot measure is voted down.
"The city is in no way committed or obligated to support the project," Layton said. "All we want is a fair chance for the question to be put before voters."
A drilling application from E&B Natural Resources is expected to be submitted this month to city officials, and will be reviewed to ensure the proposed project meets standards set by the California Environmental Quality Act.
Early plans for the project call for up to 30 wells to be constructed on the small parcel of land, drilling for oil and natural gas. An 87-foot well will rise above the maintenance yard until permanent drilling bores are finished. Construction could stretch 55 months.
There will be no offshore oil platforms, and the technique of hydraulic fracking - using pressurized liquid to extract natural gas - won't be used. Modern monitoring wells will detect potential problems before accidents occur, Layton said.
"With the help of technology, we've entered a new arena of safety," he said.
But as more details about the project seep out, opposition builds. Top concerns include the possibility of groundwater contamination and air pollution. And more recently, questions have surfaced about the oil company's financial influence, and how money could be used to sway potential voters. High-ranking E&B officials have started attending local fundraisers.
Layton has met with city officials and residents to discuss the project - and potential royalties that could come from it.
"They're going to pay everyone off," former Councilman Michael Keegan said. "They've already started to. (Layton) is going into people's living rooms and telling them there is gold in the hills."
The settlement calls for the city and Hermosa schools to be entitled to royalties generated by the drilling project. The school district could make 20 cents off every barrel of oil produced, and the city could receive 15 percent of profits generated from the project. Potential royalties to the city could exceed $100 million, Layton said.
Among the dozen South Bay residents working as consultants for E&B Natural Resources is Joyce Fahey, a former Manhattan Beach councilwoman and top-ranking executive for an oil and gas firm.
And Gary Brutsch, a former Hermosa Beach councilman and treasurer who has written letters to local weekly newspapers touting the end of the Macpherson lawsuit, brokered a deal for the company's new Pier Avenue office space and Layton's Monterey Boulevard duplex. The property was purchased in May for $1.8 million, property records show.
Brustch declined to say how much commission he earned from the two deals.
"I cannot be bought," said Brutsch, who had a chance encounter with Don Macpherson, president of Macpherson Oil, on a flight to Hawaii in late 2011 that rekindled negotiations between the oil company and the city, eventually leading to the settlement. "I get paid for my professional expertise. I've earned that. I'm a stand-up kind of guy."
But a vocal group of residents is demanding more transparency.
"If anybody in the city is getting paid or benefiting in some degree from this, it should be fully disclosed," said Jeff Cohn, a Hermosa Beach resident who lives near the drilling site and has consistently spoken out against the settlement. "Who has their hand out?"
E&B Natural Resources made a recent contribution to the Hermosa Beach Firefighter Foundation's Casino Night Fundraiser, Tiffany Rau, a E&B spokesperson said.
"E&B is and will continue to be supportive of the community but doesn't want to be perceived as trying to buy votes, or making a big splash, and therefore we are being slow and cautious in our participation," Rau wrote in an email.
Rau did not disclose another rumored personal donation from Layton to the Hermosa Beach Historical Society. Rick Koenig, the society's president, confirmed the donation but declined to disclose the amount.
And revelations about Layton's past have sparked renewed debate about the merits of drilling for oil, especially in a dense suburban community. In September 1998, a predawn blowout of a well owned by Equinox Oil, a firm Layton founded and operated, led to the discharge of nearly 1,500 barrels of crude oil into waters near the Louisiana coast.
A geyser of oil and sand erupted 300 feet into the sky for 11 hours, and several thousand acres of coastal waters were coated in slicks. About 1,233 acres of wetlands were exposed to oil, according to case documents from the state of Louisiana and the National Oceanic Atmospheric Administration.
Less than a year later, Equinox Oil filed for Chapter 11 bankruptcy stemming from losses associated with the spill and the resulting cleanup effort, court documents show.
Equinox paid $1.2 million to clean up the accident, according to federal reports.
Layton described the spill - and its aftermath - as the greatest challenge of his professional career.
"Our obligation was to clean up all of that spill," Layton said. "That was a considerable financial burden. At times like that, you can't be worried about how much it's going to cost you. You just have to do that right thing."
Several Hermosa residents have pointed to the Louisiana oil spill and warned that a similar accident could have a far more dramatic and far-reaching effect in the densely populated coastal city.
"The closeness of the proposed project to homes concerns me from a safety standpoint," said resident Hany Fangary, an environmental lawyer. "And if their track record is getting into an accident that caused a significant environmental and financial impact and they closed up shop and went bankrupt, it leaves Hermosa with the thought that we may be next. It's clearly a concern."
Layton denied filing bankruptcy to get out of cleaning up the spill. Instead, he said, Equinox suffered financially because of the considerable resources it put into the cleanup.
And despite the opposition, the Hermosa Beach project is set move forward.
Although it's too soon to determine the amount of royalties that could be extracted from oil drilling, Layton said as much as 200 million barrels of oil could potentially be tapped.
If the drilling measure passes, the project must receive approvals from the California Coastal Commission, the State Lands Commission, the South Coast Air Quality Management District and the California Division of Oil, Gas and Geothermal Resources. And the project will be subject to extensive public scrutiny and review, Layton said.
"We're going to move forward and make this project the best that it can be," Layton said. "Just because somebody has the belief that the project isn't in the best interest of Hermosa Beach doesn't mean we're not going to talk to them and listen."
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