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California enacted the State Lands Act in 1938, which established the State Lands Commission and assigned to it exclusive jurisdiction over all State-owned tide and submerged lands. In 1955, California enacted the Cunningham-Shell Act, which amended the 1938 State Lands Act and added more detail on leasing of submerged lands under the jurisdiction of the State Lands Commission. Both Acts are codified in Division 6 of the Public Resources Code.
The Cunningham-Shell Act represented a compromise between the competing interests: those for uninhibited offshore development and those for the preservation of aesthetic and property values in highly developed coastal areas. The State Lands Commission serves as the lessor and agency charged with much of the regulatory oversight of leasing, exploration, and development of the State Tidelands. The Commission assumes the primary or lead regulatory responsibility to ensure timely abandonment, conduct adequate environmental review, require appropriate mitigation, and ensure regulatory compliance. The Commission promulgates and enforces regulations in Title 2 of the California Code of Regulations.
Oil & Gas Lease Terms – Pre-1955
Oil and gas leases issued prior to the 1955 Cunningham-Shell Act did not contain detailed terms and conditions. The leases conveyed primary terms of five, ten or twenty years to the lessees. These terms could be and were extended one or more times by agreement of the lessee and the State. The lessee had 45 days to begin drilling the first well and was required to pursue the drilling program diligently thereafter.
Leases issued after enactment of the 1955 Cunningham-Shell Act were given a primary term of 20 years or for as long thereafter as gas or oil is produced in paying quantities. However, the lessee must initiate drilling of the first well within a three-year drilling term and continue drilling until the lease is fully developed. The three-year drilling term commences upon execution of the lease unless the lessee requires an additional, reasonable period of time to construct offshore islands or structures (such as fixed production platforms) necessary for drilling, including time to obtain necessary governmental approvals. The State may cancel the lease, after notice and demand for performance, if the lessee fails to exercise due diligence towards drilling for purposes of discovering oil or gas in payable quantities..
Once oil or gas is discovered in payable quantities on post-1955 leases, the Public Resources Code (§ 6827) requires the lessee to pursue development with reasonable diligence as follows:
The State may suspend the obligations imposed by lease provisions if the lessee is prevented from complying due to wars, strikes, riots, acute and unusual labor or material shortages, acts of God, laws, rules and regulations of any federal, state, county, or municipal jurisdiction, or other unusual conditions. The State Lands Commission imposed such suspensions following the 1969 oil spill from Unocal’s Platform A on the Outer Continental Shelf. In response to the spill, the State Lands Commission established a drilling moratorium to prevent a similar occurrence from oil drilling in the State Tidelands. The moratorium suspended the three-year drilling period for leases where oil or gas had not yet been discovered in paying quantities. The suspensions remain in effect until the moratorium is lifted. The moratorium, in turn, remains in effect until the lessee requests and receives permission from the Commission to begin drilling operations. As a result, three leases offshore Santa Barbara County are still subject to suspensions (lease nos. 2991, 3503, and 3004).
Commencing with the Cunningham-Shell Act of 1955, California has withheld several tidelands from oil and gas development. The 1955 Act protected an area of tidelands Offshore Santa Barbara County that stretch west from Summerland Bay to Coal Oil Point, and included waters offshore the unincorporated area of Montecito, the City of Santa Barbara, and University of California at Santa Barbara. It also protected the state tidelands around the islands of Anacapa, Santa Cruz, Santa Rosa, and San Miguel.
In 1994, State Senator Jack O’Connell authored the California Sanctuary Act that, with three exceptions, prohibits leasing of any State Tidelands for oil and gas development (California Public Resources Code §§ 6240 et. seq.). Oil and gas leases in effect as of January 1, 1995 are unaffected by this Act until such leases revert back to the State, at which time they become part of the California Coastal Sanctuary. The prohibition on oil and gas development in the Sanctuary includes three exceptions relevant to tidelands offshore Santa Barbara County:
The Sanctuary Act does not affect the authority of the State Lands Commission to provide necessary ingress, egress, or access to pipeline facilities and other utilities by the lease of rights-of-way or other means.