Oil and Gas

UPDATE 2-California kills offshore oil lease project

(Adds comment from PXP spokesman in paragraph 5)

LOS ANGELES, July 24 (Reuters) - The California state assembly killed a chance on Friday for the state’s first new offshore oil drilling lease since 1969, after the idea narrowly passed the senate earlier in the day.

The measure was defeated by a 43-30 vote in the assembly and was taken out of the budget bill approved on Friday that seeks to close a $26 billion budget deficit.

Plains Exploration & Production Co PXP.N had wanted to drill off an existing platform in federal waters into state waters. The project off Santa Barbara was to raise about $100 million annually for 15 years in oil royalty payments to the state.

But Californians have been touchy about offshore drilling since 1969 when a major oil spill off Santa Barbara helped galvanize the modern environmental movement in the United States.

A spokesman for Plains said the Houston-based company is disappointed and “will continue to monitor developments and evaluate its options.”

The bill was seen by its supporters as “essentially a one-off,” said H.D. Palmer, spokesman for the California Department of Finance.

“This does not open the door in any way, shape or form of any massive expansion of offshore drilling,” Palmer said before the bill died in the assembly.

California enacted a moratorium on offshore drilling leases in state waters in 1994. Supporters of the bill, including Governor Arnold Schwarzenegger, said the project would not have violated the moratorium.

Reporting by Bernie Woodall; Editing by Richard Chang