California board urges no new oil drilling offshore

LOS ANGELES (Reuters) - The California State Lands Commission on Monday voted 2-0 to urge the state legislature to reject Governor Arnold Schwarzenegger's proposal to allow the state's first offshore oil drilling lease since 1969.

Schwarzenegger's Department of Finance is expected to introduce a bill to the legislature in the next few weeks to allow the lease for Plains Exploration & Production (PXP), an independent oil and natural gas producer based in Houston.

This would reverse a Lands Commission vote in late January to reject essentially the same proposal for the PXP project.

Lieutenant Governor John Garamendi, commission chairman, called the Schwarzenegger proposal a "naked power grab."

The Plains proposal would also call for the end of production at four platforms off Santa Barbara in state waters in 14 years as well as the elimination of two onshore oil processing plants. Oil platforms in federal waters would not be affected.

The governor's office said the Plains lease would not violate a 1994 state ban on new drilling into offshore California land because the drilling would be from an existing platform in federal waters off Santa Barbara.

In January 1969, a major oil spill off Santa Barbara helped galvanize the modern environmental movement.

H.D. Palmer, deputy director of the California Department of Finance, said the proposal is for the single Plains project and is not, as environmentalists have claimed, an invitation to oil companies to drill in state waters.

"This is a very narrowly crafted proposal for this one project and this one project only," said Palmer.

Palmer said the department needs to fill a $24.3 billion budget gap for 2009-2010 and that the Plains proposal would be "environmentally responsible."

Schwarzenegger, in a revised state budget proposal in mid-May, asked that a drilling project off Santa Barbara by Plains be allowed as a way to boost state revenue in the face of a fiscal crisis.

The governor's office in May said that allowing the project would bring $100 million in revenue in 2009-2010 and $1.8 billion over the next 14 years.

Plains Vice President Steve Rusch said slant drilling would allow production under state waters from its Irene Platform in federal waters. Plains expects to extract about 105 million barrels of oil equivalent (boe) in the 14 years that would be allowed if the proposal is passed.

At a public hearing in Santa Monica on Monday, environmentalists and public officials said the move by Schwarzenegger was an end-run around the Lands Commission.

"The people of California did not elect him emperor," said Penny Elia of the Sierra Club. "There is a system of checks and balances and they must remain."

The lone supporter of the Plains project in January was Tom Sheehy, deputy director of the state's department of finance. Sheehy left Monday's meeting before the vote after learning of a death in his family.

(Editing by Peter Henderson and Christian Wiessner)