Commission Wins Another Legal Victory Against a Former Oil and Gas Operator

Commissioners:
Eleni Kounalakis, Lieutenant Governor, Chair
Malia M. Cohen, California State Controller, Member
Joe Stephenshaw, Director of Department of Finance, Member

Media Contact:
Sheri Pemberton, Chief of External Affairs
916.477.0691 | Sheri.Pemberton@slc.ca.gov

For Immediate Release: December 14, 2023

The Commission prevails in its appellate defense against the Venoco Trustee

SACRAMENTO – A federal district court in Delaware has issued a decision reaffirming a bankruptcy court finding that the California State Lands Commission’s operation of the Ellwood Onshore Facility in Santa Barbara averted harm to the public and the environment and was a proper exercise of the Commission’s police powers.

“From day one, our priority has been to protect the health and safety of the public and our environment,” said Lieutenant Governor and Commission Chair Eleni Kounalakis. “We have never wavered from that. I am gratified to see the court once again affirm and validate the Commission’s actions to protect the people of California during an emergency created by the reckless actions of the former oil and gas operator.”

“The Commission is at the forefront of offshore oil and gas decommissioning and is spearheading the platform Holly project—which will decommission the last platform in state waters in the Santa Barbara Channel,” added State Controller and Commissioner Malia M. Cohen. “This court decision is a huge victory for California and critical for the work we have to do going forward.”

Venoco, a former oil and gas lessee off the shore of Santa Barbara County, surrendered its leases to the state in 2017 and declared bankruptcy in Delaware without undertaking its legal obligation to plug 32 wells or decommission Platform Holly and the associated facilities. To protect human health and safety, the California State Lands Commission, acting on behalf of the State of California, began operating the Ellwood Onshore Facility to abate a public health and safety risk owing to potentially lethal concentrations of hydrogen sulfide gas, and to address the risk of an oil release from the deserted platform.

In 2018, the Venoco Trustee sued the California State Lands Commission for the alleged taking of private property without just compensation and unlawful use of the Ellwood Onshore Facility. In 2022, the Bankruptcy Court issued its opinion in the matter (Eugene Davis v. State of California), finding entirely in the Commission’s favor. The Venoco Trustee had sought $161 million from the California State Lands Commission for the alleged property taking. The court disagreed, finding that Venoco created an emergency when it abandoned a facility that required constant monitoring to ensure public safety and that in assuming operation of the Ellwood Onshore Facility the Commission was acting to avert harm to the public and the environment.

The Venoco Trustee appealed the decision to the federal district court in Delaware, framing the appeal as a legal error by the bankruptcy court. The district court found that there was no legal error and that the question was whether an “emergency” existed sufficient to justify the Commission’s occupation of the Ellwood Onshore Facility. The district court concluded that “[i]n assuming operations of the EOF, the State Defendants acted to avert harm to both the public and the environment, a valid exercise of police power. The Trustee’s argument that there was no emergency presenting an imminent threat fails. The Bankruptcy Court’s finding that ‘Venoco created an emergency when it threatened to leave unmanned a facility that required constant monitoring to ensure public safety emergency’ is not clearly erroneous, and the record supports a finding that the emergency presented an imminent threat to the public and the environment.”

“After walking away and leaving an emergency for the Commission to address, the Venoco Trustee tried to extract hundreds of millions of dollars from the state,” said Joe Stephenshaw, Commissioner and Director of the Department of Finance. “The Commission has once again prevailed, protecting taxpayer dollars and validating the Commission’s actions to protect public health and safety.”

The federal district court opinion reaffirming the bankruptcy court decision is available here: Venoco Appellate Opinion.