What Oil Has to Do With It: How the Discovery of Oil Under California’s Tidelands Caused a Seventy-year Boundary Dispute

• Publication year: 2020
• Author: by Jessica C. Rader

WHAT OIL HAS TO DO WITH IT: HOW THE DISCOVERY OF OIL UNDER CALIFORNIA’S TIDELANDS CAUSED A SEVENTY-YEAR BOUNDARY DISPUTE

by Jessica C. Rader^*

After seventy years and seven trips to the United States Supreme Court, the location of the offshore boundary between California and the United States is finally known. In 2014, California and the United States submitted a joint request to the Supreme Court of the United States for the Court to permanently set the offshore boundary. On December 15, 2014, the Court granted the joint request and issued a consent decree that permanently fixes the boundary.¹ Today, it is unlikely that anyone realizes the discovery of offshore oil resulted in the offshore boundary's location being called into doubt. As described below, California's complex relationship with its own oil resources was the primary driver in the state's loss of control over its own offshore tidal and submerged lands to the federal government.²

I. PRE-1947: THE EVENTS LEADING TO THE STATES' LOSS OF OFFSHORE RESOURCES TO THE FEDERAL GOVERNMENT

A. CALIFORNIA'S FORAY INTO OIL LEASING

In 1921, the California Legislature enacted California's first statute authorizing state-issued oil and gas leases.³ This legislation created an oil development program under the jurisdiction of the state Surveyor General. The program only covered the development of oil underlying sovereign lands and involved the issuance of permits that would then ripen into 20-year leases upon evidence of valuable oil deposits within the permitted area. By 1927, the Surveyor General, W.S. Kingsbury, began to deny permits to permit applicants because of lack of compliance with noticing requirements. Unsurprisingly, numerous suits were filed against Surveyor General Kingsbury challenging the denials.⁴ Two of the suits were consolidated, and on December 31, 1928, the California Supreme Court issued its decision.⁵ The Court rejected Surveyor General Kingsbury's position that his office had the discretion to reject permits for violations that were not based on the statute and ordered him to issue permits.⁶

While Surveyor General Kingsbury began complying with the court order by issuing the permits, in 1929, the Legislature amended the 1921 Act to prohibit the Surveyor General from issuing new leases or permits.⁷ That same year, the Legislature abolished the Survey General's office and transferred the duties to the Governor's Department of Finance.⁸

The Legislature's termination of the leasing program did nothing to lessen the oil companies' interest in developing California's offshore oil resources. By 1933, operators in Huntington Beach were drilling on the beach, right up against the shoreline. Initially, the assumption was that whatever state oil the wells were producing was simply caused by the oil draining towards the private property as that oil was removed, and so, the Governor's Department of Finance negotiated a settlement to obtain some portion of the profits with one of the companies.⁹ But as the state investigated further, it discovered that rather than its oil simply being innocuously produced as a result of it draining under private property, it was likely being stolen; more than eighty wells appeared to have been deliberately drilled into the tidelands. The state began filing lawsuits against the owners of the trespass wells.¹⁰

Throughout the 1930s, the Legislature and the public repeatedly expressed their displeasure with offshore oil drilling and its attendant risks of oil spills.¹¹ The state had the opportunity to order the wells to be plugged and abandoned, thus sending a clear message that the state's offshore oil was not open for exploitation. But it turned out that the wells were good producers, with at least one well allegedly producing over 3,000 barrels per day.¹² If the state ordered the abandonment of those wells, the state would—during the Great Depression—abandon significant non-tax revenue.¹³ As desirable as that money might have been, because of the 1929 legislation prohibiting the state from issuing oil leases, the state could not enter into agreements to profit from these wells. This forced the state to choose between either allowing the continued loss of state oil and associated revenue or going to court to force the abandonment of more than eighty wells.

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The state chose to litigate. In order to prevail, the state would have had to prove that the wells were trespassing. Rather than pushing for judgments, the Department of Finance entered into settlement negotiations. Like the prior settlement, these proposed settlements allowed the wells to continue producing in exchange for paying the state a portion of the revenue. Given that the settlements were essentially leases—prohibited by the 1929 legislation—the settlements required legislative authorization. While it is no surprise that the settlements were subject to political opposition, the Governor vetoed legislation that would have allowed the settlements negotiated by his own Department of Finance.¹⁴ To avoid this happening again, the following year, there was a ballot initiative to allow the settlements and eliminate the need for the Legislature to approve each settlement. However, the initiative was defeated.¹⁵

It took two more years before a solution finally emerged. In March 1938, the Governor called a special session of the Legislature.¹⁶ First on the agenda was finding a way to issue oil leases.¹⁷ By the end of the month, the Legislature and the Governor had settled on creating a commission—the State Lands Commission—with the primary purpose of issuing oil and gas leases.¹⁸ The Commission's first meeting was that summer, and by the fall, the Commission was seeking operators for ten of the wells in Huntington Beach, which was of course the location of the trespass wells.¹⁹

While the Commission's authority has since expanded, the composition of the Commission—Lieutenant Governor, Controller, and Director of Finance—remains the same. The Commission is still in charge of California's oil and gas leasing program, though it has not issued a new oil and gas lease offshore since the 1969 Santa Barbara oil spill.²⁰ Oil spills resulting from the 2010 blowout of an offshore well drilled from the Deepwater Horizon platform and the 2015 break of the on-shore pipeline used to transport offshore oil that spilled oil into California's Refugio State Beach reminded Californians that offshore oil production still presents a risk. Therefore, it seems unlikely that the Commission will enter into a new lease anytime soon.²¹ And even if the Commission were inclined to issue a new offshore oil lease, the California Coastal Sanctuary Act of 1994 prohibits the Commission from issuing new leases except in the narrowest of circumstances.²²

B. HOW ONE WELL CHANGED CALIFORNIA'S HISTORY

In California, ownership of tide and submerged lands is described as either granted or ungranted.²³ Ungranted tidelands are those owned by the state, under the jurisdiction of the State Lands Commission,.²⁴ Granted tidelands are those where the state granted in trust those lands to a local municipality.²⁵ There are instances, particularly for oil and gas, where it matters if the lands in question are granted or ungranted.²⁶

During the 1920s and 30s, most of the attention was focused on how to better control the development of oil in the ungranted tidelands of Santa Barbara, Ventura, and Huntington Beach. However, crucial developments in Long Beach turned out to have significantly greater consequence.²⁷

In 1932, Ranger Petroleum Corporation drilled Well No. "Watson 2" into what it believed was the Torrance field.²⁸ Over the following four years, eighteen wells were drilled in the area adjacent to "Watson 2."²⁹ Based on production from those wells, the Conservation Committee of California Oil Producers designated the area as a new field—the Wilmington field.³⁰ But it was through the drilling of General Petroleum Company's Well "Terminal No. 1," that it was discovered that the Wilmington field extended out into the tide and submerged lands, which led to the drilling boom in the Wilmington field.³¹ The field, which is located both onshore and in the tide and submerged lands, has since been recognized as the third largest oil field in California and, since production began, has produced over 2.5 billion barrels of oil.³² The discovery of the Wilmington field, with its offshore reserves, triggered an oil rush that was big enough to draw the United States into the fray.³³

Unlike the offshore oil fields in Huntington Beach, the Wilmington field had been included in the state's grant of land to the City of Long Beach, meaning that it was under the city's—not the state's—control. Long Beach amended its charter in 1937 to give itself authority to issue oil leases in the Wilmington field.³⁴ The move was apparently controversial because the following year, Long Beach sued its own Port manager to force the issuance of oil and gas permits for the tidelands under the Port.³⁵ California intervened and asserted that it, not Long Beach or its Port manager, had the sole authority to allow oil and gas activity in the tidelands portion of the Wilmington field.³⁶

California's assertion was based on its interpretation of Long Beach's granting statute, through which the Legislature had granted, in trust, the tide and submerged lands containing the Wilmington field to Long Beach.³⁷ The Legislature first granted these lands to Long Beach in 1911.³⁸ The grant to Long Beach was made without a reservation to the state of the mineral rights. Nonetheless, in City of Long Beach v. Marshall, California argued that because the presence of valuable minerals was unknown at the time of the grant, the minerals did not pass to Long Beach.³⁹ The California Supreme Court rejected this argument, ruling that the grant included the previously unknown minerals and that Long Beach did indeed have the authority to authorize oil and gas development in the tide and...