STAFF REPORT

98
A

37

S

19

06/28/19
PRC 3133.1
PRC 4000.1
PRC 7911.1
S. Blackmon
J. Fabel

CONSIDER TERMINATION OF STATE OIL AND GAS LEASE NOS.
PRC 3133.1, PRC 4000.1, AND PRC 7911.1,
SANTA BARBARA COUNTY
LESSEES:
Carone Petroleum Corporation (PRC 4000.1 and PRC 7911.1)
ExxonMobil (PRC 3133.1)1
AREA, LAND TYPE, AND LOCATION:
State Oil and Gas Lease Nos. PRC 3133.1 (2,113 acres), PRC 4000.1 (204
acres), and PRC 7911.1 (1,541 acres) comprising tide and submerged lands
within the Carpinteria Oil Field, offshore Carpinteria, Santa Barbara County (see
Exhibit A).
SUMMARY:
Staff recommends the termination of State Oil and Gas Lease Nos. PRC 3133.1,
PRC 4000.1, and PRC 7911.1 (collectively, the Leases). The Leases have not
produced oil and gas in over 25 years. The last infrastructure capable of
producing oil or gas on these lands was decommissioned in 1996 by the Chevron
Corporation. Carone Petroleum Corporation (Carone) became the Lessee in
1996 under the condition that Carone would diligently develop the State’s
resources from wells drilled off Platform Hogan, located in federal waters. More
than 20 years have passed since Carone submitted its initial development
proposal. Over the past 5 years all discernible progress by Carone to seek
project approval has ceased. The Leases persist only so long as oil or gas is
produced in commercial quantities or so long as the Lessee works diligently
toward production. Failure to meet these requirements within any reasonable
timeframe is a violation of the conditions to Carone’s original assignment and
ends the primary and secondary terms of the leases. The absence of any
production over a quarter century and the failure to undertake meaningful work
towards production of oil and gas from the Leases provides the bases for the
Commission to end these entitlements, if they have not expired on their own
terms.
1

See, Other Pertinent Information, paragraph 1, below.

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 STAFF REPORT NO. 98 (CONT'D)
In addition to the failure to diligently produce the resources, Carone has failed to
pay annual rent since 2015 despite notice of that failure which allows for a 90day period to cure. Failure to pay rent is a fundamental requirement of the
Leases. Consequently, staff recommends terminating the Leases.
BACKGROUND:
Leasehold History
PRC 3133.1 was issued on May 28, 1964, to Humble Oil and Gas
Company (later known as ExxonMobil) (Item 2, May 28, 1964). PRC
4000.1 was issued on August 28, 1968, to Standard Oil Company of
California (later known as Chevron Corporation) and the Atlantic Richfield
Company (later known as ARCO). PRC 7911.1 was issued on November
1, 1996, to Carone and consisted of the southern portion of former Lease
No. PRC 3150, issued on July 28, 1964, to the Atlantic Richfield
Company. (Item 29, July 28, 1964).
Platforms Hope and Heidi, installed in State waters in 1964 were used to
produce oil and gas from the Leases and were operated by agreement
between Chevron, ARCO, and ExxonMobil. By 1992, declining oil
reserves and high operating costs caused production to cease on
platforms Hope and Heidi in June of that year. The platforms were
removed, along with two others located in State waters (the 4H Platforms)
by the summer of 1996. Removal of the platforms also involved plugging
all oil wells that produced from the Leases.
By October 1996, Carone obtained the original lessee’s interests through
private purchase agreement and the Commission approved assignment of
PRC 4000.1 and PRC 7911.1 (subdivided from PRC 3150.1) (Item 55,
October 28, 1996). After the assignment, Carone provided the
Commission with a $100,000 security to cover lease obligations ($50,000
for each lease). Of note, ExxonMobil sold its interest in PRC 3133.1 to
Carone through private purchase agreement, but the parties did not apply
to the Commission for assignment. Since 1996, effective operational
control over PRC 3133.1 and all lease-related interactions between staff
have been with Carone, although ExxonMobil remains the official lessee
of record. Carone agreed to apply for an assignment after the
Commission’s consideration of a future development plan. Carone
operates a federal OCS production platform called Platform Hogan, from
which it intended to directionally drill into reservoirs on state sovereign
lands within State Oil and Gas Leases PRC 4000.1, PRC 7911.1, and
PRC 3133. No surface infrastructure would have been placed on
sovereign lands as part of Carone’s proposed development plan.

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 STAFF REPORT NO. 98 (CONT'D)
Carone’s Development Plan
In addition to lease requirements obligating Carone to exercise reasonable
diligence in the development of these Leases, the assignment of PRC
4000.1 and PRC 7911.1 was subject to an agreement between Carone
and the Commission, through which the Commission imposed various
conditions on the assignment. Among those conditions is the requirement
that Carone “submit to the Commission within two years of the effective
date of the assignments of the leases [by November 1, 1998] a plan for
the development of both leases” and “begin drilling operations on both
leases within three years of the effective date of the assignments of the
leases [by November 1, 1999].” (See Exhibit B.)
After several extensions of these deadlines, Carone submitted a
development plan application on October 25, 1999. On November 23,
1999, staff found the application incomplete. Upon continued urging by
staff to provide the materials needed to complete the application, Carone
provided some but not all of the requested materials on or about October
23, 2000. That response was supplemented with more materials on
October 24, November 3, and November 21, 2000. On December 11,
2000, staff responded with a second incomplete letter stating that Carone
had still failed to provide a complete application. Carone finally provided
all materials required to make the application complete on or about
January 14, 2001.
The Commission, as the lead agency under the California Environmental
Quality Act (CEQA), determined that an Environmental Impact Report
(EIR) would be necessary to analyze the impacts of the proposed project.
A notice of preparation was issued on June 6, 2001. The scoping meeting,
bid review, and interviews of the prospective environmental consultants
occurred between June 6 and July 31, 2001. After the consultant was
selected, work began on the EIR on March 27, 2002.
On October 29, 2002, work on the EIR was suspended for 180 days in
order to allow Carone to perform and analyze results of an American
Petroleum Institute level 3 structural survey to determine if any major work
would be required to strengthen Platform Hogan, and if such work were
required, whether this work had to be considered in the EIR. Carone
requested an additional 120-day extension because the analysis of the
survey was not yet available. The analysis of the survey showed that
although some maintenance and repair work was required, no major
modifications of the platform would be needed. However, additional
seismic analysis was required by the State to a 1,000-year event using
new site-specific standards and also a structural requalification by the U.S.

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 STAFF REPORT NO. 98 (CONT'D)
Minerals Management Service (MMS).
Carone requested further suspensions of the EIR work on June 10, 2003,
and October 24, 2003, in order to finish the expensive maintenance and
repair work on its two federal platforms, Platforms Hogan and Houchin.
In February 2004, after continued requests by staff, Carone reaffirmed its
commitment to the development project and represented that it would
authorize resumption of work on the EIR no later than May 1, 2004, and if
it failed to do so, it would quitclaim the leases. On May 1, 2004, Carone
directed staff to resume work on the EIR. An administrative draft of the
EIR was completed for staff review in January 2005.
The federal review process, requiring, among other matters, an expanded
structural analysis of Platform Hogan and finalization of the State seismic
analysis, caused further delays and requests from Carone for suspension
of the EIR process. By March 2009, 8 years after the environmental
review process started, Carone had not sought resumption of the EIR
which had stalled at the administrative draft phase.
The Commission Considers Finding Carone in Default
On April 9, 2009, the Commission considered whether Carone was in
default of the Leases based on the unreasonable delay in prosecuting
development (Item 41, April 9, 2009, action deferred). After considering
the staff report and public testimony, the Commission continued the matter
to its June 1, 2009 meeting. The Commission instructed Carone to
complete the following before that meeting:
1) To complete the structural evaluation of Platform Hogan pursuant to
federal requirements regarding platform requalification with the use of
an independent third party, to report the results of the evaluation, and,
if incomplete, to have the third party testify to the Commission on June
1, 2009, as to why the report was not complete;
2) To file, in sufficient form and content, an application with the MMS for
approval of a Right of Use and Easement agreement to procure the
right to drill from platform Hogan into the State leases; and,
3) To execute and fully fund a reimbursement agreement in the amount of
$650,000 with the Commission to cover the costs of finishing the EIR
and processing and considering the application on file to develop the
Leases.

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 STAFF REPORT NO. 98 (CONT'D)
At the June 1, 2009 meeting, the Commission found that Carone had
made sufficient progress towards meeting the listed requirements and
postponed finding Carone in default (Item 66, June 1, 2009).
The EIR and Development Plan is Indefinitely Stalled
In 2011, Carone resubmitted approval for its development plan to the U.S.
Bureau of Ocean Energy Management (BOEM; successor agency to
MMS) to develop 25 wells from Platform Hogan and both BOEM and the
Commission agreed to develop the EIR into a joint EIR/Environmental
Impact Statement (EIS) to fulfill BOEM’s requirements under the National
Environmental Policy Act for its approval of the project. By August 2013,
work on the joint EIR/EIS was permanently halted when staff and
consultant costs exceeded the deposit held by the Commission to pay
such costs.
During meetings with staff in early 2015, Carone indicated that it could not
afford to restart the EIR/EIS process unless the price of oil on its other
operations increased. As of 2019, nearly 20 years after the project to drill
25 wells off Platform Hogan into the Leases was first proposed, staff does
not believe any further progress to achieve the approvals needed for the
project by either BOEM or the Commission can or will be made.
Carone Failed to Pay Rent
Carone failed to pay its annual rental payments for PRC 3133.1, PRC
7911.1, and PRC 4000.1, beginning on May 28, 2015, July 28, 2015, and
August 28, 2015, respectively. The 2016 annual rent due date for each
Lease also passed, without payment. On December 9, 2016, Commission
staff sent a letter of default to Carone indicating that $17,826.29 in rent,
penalties, and interest were owed; demanded immediate payment, and
indicated staff’s belief that the Leases had expired by the failure to
produce oil and gas (see Exhibit C).
The Leases provide a 90-day period to cure the material breaches.
Carone submitted a payment on April 14, 2017, for $14,560—126 days
after the notice of breach and $3,266.29 less than required. The
Commission held but did not deposit Carone’s check payment. No further
payments have been received by Carone.
In February 2018, staff met with Carone to discuss payment of its
outstanding rent and other issues, including a failure to maintain a
$50,000 bond on Right-of-Way Lease No. PRC 3914.1 that authorizes
infrastructure connecting Carone’s federal operations to shore. On
February 20, 2018, Carone sent a letter to staff proposing to cover its

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 STAFF REPORT NO. 98 (CONT'D)
payment shortfall on the Leases and PRC 3914.1 and its failure to
maintain bonding on PRC 3914.1 by making partial monthly payments and
transferring the bond held on PRC 3133.1 to the Right-of-Way Lease No.
PRC 3914.1 (see Exhibit D). Carone’s letter also stated that it has no
plans to complete the project EIR/EIS or drill into the Leases.
Staff acknowledges that Carone has invested a significant amount of
capital to develop portions of the joint EIR/EIS. The project proposed by
Carone was very complex and involved numerous challenges, from
engineering, safety, and regulatory aspects. Drilling 25 new, long-reach
wells from an aging Platform Hogan, installed in 1967, would have added
significant weight and stress to the platform requiring extensive structural
analysis before approvals could be granted, along with significant
structural modifications afterwards. The necessity for approval by both
federal and State agencies also increased the complexity and costs to
analyze the project. These challenges were exacerbated by the numerous
delays and work stoppages requested or required by Carone or by their
inability to financially support the project. The reimbursed staff costs paid
by Carone from 1999 through 2013 (for staff and consultant costs) are
about $750,000. The estimated remaining cost to complete the EIR/EIS,
as of 2014, was $324,622.
STAFF ANALYSIS AND RECOMMENDATION:
Authority:
Public Resources Code sections 6301, 6827, and 6829.
Public Trust and State’s Best Interests Analysis:
Lease compliance is essential to the Commission’s obligations to the
people of California and to ensure that lands subject to the Public Trust
are being used responsibly, equitably, and in the best interests of the
State. The recommended termination of State Oil and Gas Leases PRC
3133.1, PRC 4000.1, and PRC 7911.1, for Lessee’s failure to pay rent as
required by the Leases, is in the best interests of the State because the
very core of the Commission’s authority to lease sovereign lands obligates
the Commission to terminate when a Lessee breaches the material terms
of a lease. The termination of these Leases is an administrative action
that does not directly impact or interfere with Public Trust resources, uses,
and values. However, the effective management and enforcement of the
Commission’s leases serves the Public Trust by holding lessees
accountable for all aspects of the Lease, from payment of rent to
prevention of environmental harm that may result when a lessee fails to
fulfill their obligations under the lease and under the law of California.

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 STAFF REPORT NO. 98 (CONT'D)
Basis for Termination:
Despite the difficulties described above, staff believes that 20 years is
significantly more time than a responsible, diligent, and financially capable
operator would need to seek approval for any similar project. Since no
development project is anticipated, no oil and gas has been produced or is
capable of being produced, and annual rent has remained unpaid for
years, staff recommends terminating the Leases.
Carone has failed to diligently develop the State’s oil and gas resources,
as required by the Leases and the approval of assignment, and has failed
to pay annual rent since 2015. Under the terms of the Leases and the
common law the Leases are expired and Carone persists as a tenant at
sufferance. As such, the Leases may be terminated without further notice
by the Commission.
Failure to Produce Oil and Gas in Paying Quantities and Failure to Diligently
Pursue a Development Program
Due to the failure to produce any oil or gas for over 25 years, the primary
and secondary terms of the Leases, by operation of law, have expired. In
this circumstance, the Commission may end the Leases. Additionally,
development and eventual production was made an express requirement
of the original assignment to Carone. The failure of this condition is a
violation of the material terms of the assignment and a basis for
termination.
State oil and gas leases are distinguishable from traditional surface
leases. The traditional lease contemplates the use and preservation of the
property with compensation for such use, while a natural resources lease
contemplates the extraction of the valuable resources of the property with
compensation for that extraction. The purpose and intent of the leases are
to grant the lessee the exclusive right to develop minerals on sovereign
land in exchange for royalty payments. The terms of each lease reflect this
expectation; the lessee’s failure to produce means the State is no longer
receiving the benefit of the bargain. Each lease consists of a primary term
of years with which the lessees were given to commence drilling and a
secondary term which extends for so long as oil and gas is produced from
the leased lands in “paying quantity.” This secondary term (also known as
the habendum clause) has been interpreted by courts to persist so long as
there is sufficient oil and gas produced to yield a return in excess of
operating costs.2 The secondary term expires and terminates in the event
2

Renner v. Huntington-Hawthorne Oil & Gas Co. (1952) 39 Cal.2d 93, 98.

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 STAFF REPORT NO. 98 (CONT'D)
that the lease is no longer producing oil or gas in paying quantities. This
expiration occurs automatically as a matter of law and requires neither
notice nor a claim of forfeiture to the lessee.3
The Leases ceased commercial production in 1992 and all infrastructure
necessary to extract oil and gas was removed in 1996. Although the end
of oil production caused the Leases to expire, the Commission approved
the assignment to Carone in October 1996. A condition of assignment was
for Carone to commence drilling new wells from Platform Hogan by
November 1, 1999. Even if this assignment constituted an agreement by
the Commission to extend the term of the Leases, numerous deadlines
passed, conditions went unmet, and signs of progress stalled over the
following 20 years. By 2013, all work ceased on the EIR/EIS for the
development project and Carone’s February 2018 letter made clear it has
no intention or capacity to develop the Leases as is required, both by the
Commission’s 1996 approval of assignment and the Leases themselves.
Under these facts, the extension of the primary term to November 1, 1999,
passed without satisfying the drilling obligation and the failure to produce
any oil and gas has ensured that any extended term of the Leases has
expired.
Because the purpose of the Leases (i.e., the extraction of oil and gas)
ended in 1992 and never resumed, the term of the Leases expired by
operation of law. The Leases persist as a tenancy at sufferance that can
be ended by the Commission without further notice.
Failure to Pay Rent
The payment of rent, in full and on time, is a fundamental and statutory4
requirement of the Leases. The failure to pay rent is the failure of the
primary consideration given by Carone to the State to utilize the State’s
sovereign lands and, therefore, is a material breach of the Leases,
justifying termination.
As stated above, Carone failed to make annual rental payments required
by the Leases since 2015. The Commission sent a default letter and a
payment was received, but not deposited, well after the breach cure
period and for less than what was owed. Carone has not made any
subsequent payment; therefore, annual rental payments for 2017 through
2019 are also unpaid. Carone was noticed of the default on December 9,
2016, and had ample time to cure, which it failed to do. On this basis, the
Commission may terminate the Leases without further notice.
3
4

Valer Oil Co. v. Souza (1960) 182 Cal.App.2d 790, 798.
Pub. Resources Code, § 6827.

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 STAFF REPORT NO. 98 (CONT'D)
Effect of Terminating the Leases:
Under the California Coastal Sanctuary Act of 1994, once the Leases are
terminated, the lands currently under lease will become part of the
California Coastal Sanctuary. (Pub. Resources Code, § 6242.) Future oil
and gas extraction will not be permitted on the subject parcels without an
act by the California Legislature.
There are no known improvements on the leased lands that require
decommissioning and no wells that require plugging. Because no physical
changes will result from a termination of the Leases, termination would be
an administrative action with no added risk to public safety or the
environment.
OTHER PERTINENT INFORMATION:
1.
ExxonMobil sold Carone its commercial rights to operate PRC 3133.1 in
1996. ExxonMobil remains listed as the Commission’s lessee because an
application to assign PRC 3133.1 was never submitted. Under the Leases
and by statute all assignments affecting Commission-managed lands must
be approved by the Commission. However, in the intervening decades,
staff has informally dealt with Carone as the de facto lessee for purposes
of the development plan, and until 2015, accepted rental payments from
Carone for PRC 3133.1. Due to the lack of any remaining infrastructure on
the Leases and because ExxonMobil plugged its wells on PRC 3133.1 by
1996, no abandonment obligations or liability will accrue by the termination
of PRC 3133.1. Staff will seek to recover lost rent and penalty and
interest.
2.

Authorizing the termination of the Leases is not a project as defined by
CEQA because it is an administrative action that will not result in direct or
indirect physical changes in the environment.
Authority: Public Resources Code section 21065 and California Code of
Regulations, title 14, section 15378, subdivision (b)(5).

3.

This proposed termination of the Leases is consistent with Strategy 1.5 of
the Commission’s Strategic Plan to ensure the highest level of
environmental protection and public safety in the production and
transportation of oil and gas resources and Strategy 2.2 to ensure timely
receipt of revenues and royalties from the use and development of State
lands and minerals.

4.

Termination of the Leases is a discretionary action by the Commission.
Each time the Commission approves or rejects a use of sovereign land, it
exercises legislatively delegated authority and responsibility as trustee of
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 STAFF REPORT NO. 98 (CONT'D)
the State’s Public Trust lands as authorized by law. Upon expiration or
prior termination of the lease, the lessee also has no right to a new lease
or to renewal of any previous lease.
EXHIBITS:
A.
B.
C.
D.

Site and Location Map
Approval of Assignment of State Oil and Gas Lease Nos. PRC 4000.1 and
PRC 3150.1
Notice of Default, dated December 9, 2016
Letter from Carone, dated February 20, 2018

RECOMMENDED ACTION:
It is recommended that the Commission:
PUBLIC TRUST AND STATE’S BEST INTERESTS:
Find that the proposed termination will not substantially interfere with the
Public Trust needs and values at this location, at this time; is consistent
with the common law Public Trust Doctrine; and is in the State’s best
interests.
AUTHORIZATION:
1.
Find that Carone was provided with 90 calendar days to cure the
deficiencies noted in the December 9, 2016, Notice of Default, as
required under the Leases.
2.

Find that Carone, under State Oil and Gas Lease Nos. PRC
3133.1, PRC 4000.1, and PRC 7911.1, has not produced oil and
gas in paying quantities nor conducted activities sufficient to hold
those Leases and that the primary and secondary terms of those
Leases expired, by their terms, in August 2013, if not earlier.

3.

Find that, as a result of the defaults under the Leases described
above, both individually and collectively, State Oil and Gas Lease
Nos. PRC 3133.1, PRC 4000.1, and PRC 7911.1 are terminated.

4.

Direct staff to cooperate, as needed, with federal, state, and local
agencies in any activity necessary to enforce the termination of the
Leases.

5.

Authorize the Executive Officer or her designee to recover any
outstanding rental amounts owed by Carone, either by Carone
directly or through performance bonds held to ensure rental
payment obligations.

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 STAFF REPORT NO. 98 (CONT'D)
6.

Authorize the Executive Officer or her designee, in cooperation with
the Office of the Attorney General and, if reasonably necessary,
retain outside counsel, to take all steps reasonably necessary,
including litigation, to enforce the termination of State Oil and Gas
Lease Nos. PRC 3133.1, PRC 4000.1, and PRC 7911.1 against
Carone, and any agents, successors, or assigns; to access the
Leases to ensure the health and safety of the people of California
and the surrounding environment; to eject trespassers that occupy
the Leases; to remove improvements, if any, from State sovereign
land overlying the Leases; to restore the sovereign land at this
location to the satisfaction of the Commission; and to recover the
Commission’s damages and costs.

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 EXHIBIT A
Carone/Signal Hill State Leases

with Associated Federal OCS infrastructure
Santa
Barbara
County

Carpinteria

Ventura
County

PRC 3150

La Conchita

%
PRC 3133

ea
bs
u
S

e li
P ip

ne

PRC 7911

40 0

% Hogan

% Houchin

0

Pipeline Segments
PRC 3914
Grant

Federal

Boundaries

Granted Land
Leased Land

Submerged Lands Act

 Exhibit B

CALIFORNIA STATE LANDS COMMISSION
APPROVAL OF ASSIGNMENTS OF
STATE OIL AND GAS LEASES PRC 4000.1 AND PRC 3150.1
Chevron U.S.A. Inc. ("Chevron") is the holder of a 50% interest in State OH and
Gas Leases PRC 3150.1 and PRC 4000.1 covering tide and submerged lands offshore
Carpinteria in Santa Barbara County. Atlantic Richfield Company ("ARCO") is the
holder of the other 50% interest in State Oil and Gas Leases PRC 3150.1 and PRC
4000.1. Both Chevron and ARCO have assigned all of their interest in all of the lands
encompassing State Oil and Gas Lease PRC 4000.1 and all of their interest in a portion
of the lands encompassing State Oil and Gas Lease PRC 3150.1, which portion is
described in Exhibit "A" to this Approval of Assignments, to Carone Petroleum
Corporation ("Carone"). Chevron and ARCO are retaining their interests in the
remainder of State Oil and Gas Lease PRC 3150.1. These assignments are subject to
the approval of the California State Lands Commission ("Commission"). The
Commission is willing to approve these assignments provided that Carone agrees to
certain conditions. This Approval of Assignments provides for Commission's approval
and Carone's agreement to the conditions upon which that approval is given.
1.
The Commission, acting pursuant to Minute Item No. C55 adopted by it at
its meeting on October 28, 1996, approves the assignments to Carone of Chevron's
and ARCO's interests in all of the lands encompassing State Oil and Gas Lease PRC
4000.1 and in the portion of the lands described in Exhibit "A" of State Oil and Gas
Lease PRC 3150.1. These assignments will be effective November 1, 1996, in
accordance with section 6804 of the Public Resources Code.
2.
The portion of State Oil and Gas Lease PRC 3150.1 assigned by Chevron
and ARCO to Carone will be renamed for administrative purposes State Oil and Gas
Lease PRC 7911.1. The unassigned portion will continue to be referred to as State Oil
and Gas Lease PRC 3150.1.
3.
Chevron and ARCO will not be released from any obligation to the
Commission under State Oil and Gas Lease PRC 4000.1 and the assigned portion of
State Oil and Gas Lease PRC 3150.1 that has been incurred by them prior to the
effective date of the assignment of these leases, any conditions in any assignment
agreement between them and Carone or in any other agreement to the contrary
notwithstanding.
4.
The rental under State Oil and Gas Lease PRC 7911.1 will be $1,541 per
year, or $1.00 per acre for 1,541 acres, the number of acres in the portion of State Oil
and Gas Lease PRC 3150.1 assigned to Carone. The rental under State Oil and Gas
Lease PRC 4000.1 will continue to be $204 per year, or $1.00 per acre for 204 acres.
The rental for each lease will due do on or before the anniversary date of the lease.

 In accepting the assignment of these leases, Carone agrees to perform in
5.
the manner provided in the leases, all of the terms, covenants and conditions to be kept
and performed by Chevron and ARCO and to be bound by all of the terms, covenants
and conditions in the leases, as well as modifications of and collateral agreements
relating to the leases, to the same extent as Chevron and ARCO, anything in any other
agreement to the contrary notwithstanding.
6.
Carone will provide to the Commission a performance bond in the amount
of $50,000 for each lease or $100,000 blanket bond for both leases. Carone may
provide, in lieu of a bond, other security that is acceptable to the Commission, such as
a certificate of deposit.
7.
Carone will not use for any purpose the surface of the lands of the leases
to a depth of 500 feet below the ocean floor. All development of the leases by Carone
will be from platforms or other structures on federal lands adjacent to or in proximity to
the leases.
Carone will submit to the Commission within two years of the effective
8.
date of the assignments of the leases a plan for the development of both leases and will
begin drilling operations on both leases within three years of the effective date of the
assignments of the leases.

/6/3/

Dated:

, 1996.

CARONE PETROLEUM CORPORATION

BY

OV

Dated:

, 1996.

CALIFORNIA STATE LANDS COMMISSION

7
FILE COPY
APPETIED:
Section Head.
Legal y

v

11_
1/ 4-

p,

By
Paul B. Mount II, Chief,
Mineral Resources Management Division

 STATE OF CALIFORNIA

Mr. Robert Carone

CALIFORNIA STATE LANDS COMMISSION
100 Howe Avenue, Suite too?South
Sacramento, CA 95825-8202

Mr. Charles W. Cappel

Carone Petroleum Corporation
1145 Eugenia Place, Suite 200

Carpentaria, CA 93013

833/434

  

in? 

December 9, 2016

Via Certified Mail

SUBJECT: FINAL PAST DUE NOTICE URGENT

Dear Mr. Carone and Mr. Cappel:

EDMUND G. BROWN JR., Governor

JENNIFER LUCCHESI, Executive Officer

(916) 574-1800

Fax (916) 574?1810

California Relay Service TDD Phone 1-800-735-2929

from Voice Phone 1-800-735-2922

Contact Phone: (916) 574-0964
Contact Fax: (916) 574-1855

File Ref: PRC 3133
PRC 4000
PRC 7911

Our accounting records indicate that full payment for State oil and gas leases PRC
3133, PRC 4000, and PRC 7911 (Leases) have not been received for rental years 2015
and 2016. Our records also indicate that prior past due notices have been sent without
response; therefore, your default has been referred to the Commission?s Legal office.
Without immediate payment of the rent, including penalties and accrued interest, the
Leases may be subject to discontinuation.

The following balances are outstanding as of November 30, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rent PENALTY INTEREST Amount Due (Rent
Lease/Invoice# AMOUNT DUE DATE (18%Iyr) Penalty/Interest)
3133/36988 $5,535.00 5/28/15 $276.75 $1,506.73 $7,318.48
3133/39396 $5,535.00 5/28/16 $276.75 $507.70 $6,319.45
4000/37517 $204.00 8128/15 $10.20 $46.28 $260.48
4000/40021 $204.00 8/28/16 $10.20 $9.46 $223.66
7911/37329 $1,541.00 7/28/15 $77.05 $373.13 $1,991.18
7911/39757 $1,541.00 7/28/16 $77.05 $94.99 $1,713.04
Total $17,826.29

 

 

Carone Petroleum Corporation
December 9, 2016
Page 2

These calculations only reflect interest accrued as of November 30, 2016; additional
interest charges accrue daily. Please remit all past due amounts and reference the
lease numbers and invoice numbers on your payment and mail to:

California State Lands Commission
ATTN: Accounting
100 Howe Ave, Suite 100-South
Sacramento, CA 95825-8202

To pay by Visa, MasterCard, or Discover, please contact our payment desk at (916)
574-0397.

Further, our records indicate that oil and gas production was shut in on leases PRC
3133, PRC 4000, and PRC 7911 in 1992 and production in paying quantities has not
occurred since that time. We acknowledge that Carone has applied to the Commission
for a development project on the Leases; however, Carone has taken no actions to
continue its application since the Commission staff stopped work on an Environmental
Impact Report in early 2013 for lack of applicant funding. For these reasons, staff
believe that the primary and secondary terms of the Leases have expired and consider
the Leases to continue on a periodic tenancy basis.

The California State Lands Commission appreciates your prompt attention to this
matte-r. If you have any questions, feel free to contact me at (916) 574-0964 or at
ioseph.fabel@slc.ca.qov.

Sincerely,

 

cc: Mr. Steve Coombs
Pacific Operators Offshore LLC
PO. Box 5565
Oxnard, CA 93031

 

PACIFIC OPERATORS OFFSHORE, LLC

February 20, 2018

California State Lands Commission
Land Management Division

100 Howe Avenue, South 100-South
Sacramento CA 95825

Re: PRC 3914.1 - Signal Hill Service, Inc. ROW Lease from OCS Platform to Carpinteria

Dear Mr. Lucien,

First, on behalf of Paci?c Operators Offshore LLC we wish to thank you and the State
Lands participants on the call for working with us during these unprecedented dif?cult times. Not only
has the oil price collapse, but the Thomas Fire and resulting mudslides has created challenges that we
have never experienced. We are fortunate that State Lands, our trade and employees have worked with
us during this extended period.

As we discussed on the February 14th conference call, this is to memorialize Paci?c?s proposal for your
consideration and hopeful approval. This speci?cally is in regards to the subject pipeline as transverses
State Sovereign Waters. 

PRC-3133 Bond Requirement

POOLLC requests the Commission consider amending the existing Chevron State Lease bond
requirement. There is no permit for production, equipment or structures, nor any no plans to complete
the EIR or request a drilling permit. As such, there exists no reasonable justi?cation for the imposition
of a bond requirement at this time. Moreover; Paci?c requests that the Bond be transferred to the
pipeline lease where it is a requirement of the lease.. Elimination of the $50,000 bond on Chevron lease
will provide bonding for the pipeline lease and avoid the cancellation of the Chevron lease which, were
it to be cancelled outright, would prove highly unlikely to be ever revived.

Arrears Payment Plan
Paci?c proposes the following payment plan for the Commission?s consideration:

Six months at $3,000/month (March thru August 2018)

Six months at $5,000/month (September 2018 thru February 2019)
Six months at $8,000/month (March 2019 thru August 2019)
Commencing September 2019; $10,000 per month 1 arrears are current

1145 EUGENIA PLACE, SUITE 200 . CARPINTERIA, CALIFORNIA 93013 . 805 899-3144 - FAX 805 899-3166

Page 2 of 2
PRC 3914.1 - Signal Hill Service, Inc. ROW Lease from OCS Platform to Carpinteria

Penalties and Interest on Arrears
Paci?c requests that the Commission either waive or reduce the interest and penalties on existing
arrears. 

Sale of Equity
Upon the closing of the sale of equity and repayment of outstanding secured bank debt, the 
payment will increase to $10,000 per month

Lucien, we look forward to working with you and the staff and will support any efforts required that
may be needed for senior management and the Commission to approve our proposal.

 

Environm tal Coordinator