State attorneys are suing Carpinteria-based Signal Hill for breach of contract, following up on the State Lands Commission’s June decision to terminate the company’s oil and gas pipeline lease.
Signal Hill Service Inc., also known as Pacific Operators Offshore LLC, operates pipelines transporting water to and oil and gas from Platform Hogan on the federal Outer Continental Shelf offshore from Rincon Point.
Signal Hill had a 10-year lease starting March 1, 2013, and stopped paying its $57,575 annual rent after 2015 — owing the state about $287,000, the civil complaint alleges.
The State Lands Commission terminated the lease on June 28 and told Signal Hill to abandon and decommission the submerged pipelines in the leased area. However, the state believes that the company continued to operate and occupy the premises, according to the court case.
State attorneys are asking the court for the monetary damages and to issue an order ejecting Signal Hill from the lease area and to remove all improvements by Sept. 30.
No response to the complaint had been filed in court as of Monday.
The Lease No. PRC 3914.1 was first authorized to Phillips Petroleum Co. in 1968 for oil and gas pipelines, a water pipeline and an outfall pipeline. The lease was assigned to Signal Hill Service Inc. in 1997, according to the State Lands Commission staff report on the lease termination.
“On August 29, 2017, the Lessee notified staff that it could not pay the rent due to the depressed crude oil market,” the staff report read.
The company said it planned to abandon its nonproducing wells and would abandon its producing wells if the crude oil market didn’t improve, according to the staff report.
State Lands Commission staff sent rent invoices and past due notices to the company multiple times, and in 2018, “the lessee submitted a formal proposal to address the unpaid rent” by submitting payments “at a rate tied to the market price for oil,” according to the staff report.
The company was told to make a good faith effort to make payments to “demonstrate its intent to bring the lease into compliance,” but Signal Hill has made no payments since 2015, according to the State Lands Commission.
The unpaid amount was listed as $282,000 in June, with interest accruing daily, as shown by the $287,000 number cited in the mid-August court filing.
The State Lands Commission also terminated offshore oil and gas Lease Nos. PRC 3133.1, PRC 4000.1 and PRC 7911.1 in the Santa Barbara Channel at its June meeting, which were held by the Carone Petroleum Corp. and ExxonMobil Corp.
Carone Petroleum and Signal Hill “share a similar ownership group” and both failed “to bring their rent current or to provide sufficient bonding,” according to the State Lands Commission.
None of Carone Petroleum’s oil and gas leases had been in production since 1992, according to the State Lands Commission.
Platform Hogan and nearby Platform Houchin, which is also operated by Signal Hill/Pacific Operators Offshore LLC, started drilling in 1968. The oil and gas are sent to the La Conchita Oil and Gas Processing Facility in Ventura County.