The Great L.A./Venice Oil Heist

0

By Patrick McCartney

Research by Arnold Springer, Charles Feick and Moe Stavnezer. (Originally published in the Feb. 1985 Beachhead)

The oil site the City of Los Angeles leased out in 1964 on the public beach in Venice has proven to be a sweet deal for the City.  Los Angeles has received close to $5 million in royalties and bonus money from the site currently operated by Damson Oil of Houston.

But, after a brief flurry of improvements in Venice 20 years ago, the City has short-changed Venice residents repeatedly since.  Close to $1 million intended for improvements in Venice have been diverted in the past, and another million dollars (and growing) is sitting in a special fund, available for other beach-related capital improvements.

In fact, hardly any money from the Beach Improvement Capital Fund has been spent in Venice in more than 10 years, since the bike path was built.  The reason for the inactivity in us of the funds depends, naturally, on whom you talk with.

One City Hall insider told me, “The principal reason the money hasn’t been spent is that Councilperson Pat Russell doesn’t want to see the money go to anything but the pavilion. It’s at a political standstill.”

Al Carmichael of the City’s Park and Recreation Department told me that Russell is “holding out.  She would like to tear down the pavilion and provide more parking.” While Pat Russell waits, Venice deteriorates.

However, according to Carmichael’s boss, Planning Director Joel Brightbart, the reason Venice has not benefited from the Beach Improvement Account is that “The Department hasn’t identified any projects to go forward with.”

Since the oil-and-gas lease the City sold to Socony-Mobil was on land owned by Los Angeles, the City bought the right to 16 and 2/3 percent royalties on every barrel of oil produced during the 35 years of the lease’s life.  In addition, Mobil paid the City a bonus of $1.63 million to drill from the one-acre site.

On top of that, the City obtained the rights to another eight percent of the money derived from sale of any gasoline distilled from the oil.  Of the City’s 14 leased oil sites, only Venice and Rancho Park are located on City property, entitling the City to an owner’s share of the revenues.

To understand how favorable this deal is to the City, you have to know that, for the oil sites in the City not on City property, the City is only entitled to a penny-and-a-half-per-barrel wellhead tax.

The Venice oil royalty alone is worth 10,000 times more than that to the City!

Because the oil pools tapped by Mobil were within the coastal zone, the State Lands Commission restricted the use of the funds to coastal-related expenditures.

The Commission reserved the right to approve of any expenditure more than $50,000 (raised to $250,000 in 1970).  When revenues from the Mobil lease were received by the City, they went into a special account—the Beach Improvement Capital Account.

Twenty years ago, in the days when Jack Kerouac was writing beat fiction in Venice and the beat café, the Gas House, was being leveled to bring Venice “up to code,” Mayor Sam Yorty noted the City’s responsibilities under the Tidelands Trust and restricted the $1.65-million-bonus to “development, maintenance and improvement of beaches.”

Yorty wrote the Parks and Recreation Department that “the City has a policy of investing such revenues in the properties from which the oil was extracted.”

That was good news for Venice, which in 1963 was in the trough of a long decline begun, not without some irony, by the discovery of the significant deposit of oil in the Venice-Marina area in 1929.  In a May, 1965 LAPD reporter, the local Division railed against bong players (noting favorably Santa Monica’s law banning bongo playing), and the beatnik coffee houses.  In language any Venice hand will recognize the police recommended “eliminating” the Seventh West Coffee House from the area, since it was a place “where youngsters mix with older people where there are perverts, homos, prostitutes, pushers, etc.”

By 1965, there were still 57 oil wells being privately operated in Venice, remnants of the 350-or-so wells sunk during the mad rush of the 1929 Venice oil boom.  In order to create the oil lease with Mobil, Los Angeles pulled back the variances which permitted the 57 wells to operate.  Another threat to the lease (on City land—remember the royalties!)  was the proposed drilling from the Oakwood area by Standard Oil.  Standard had agreed to a million-dollar-bonus and had drilled test cores, which were promising.

“We were afraid Standard would drain the resources from under the City property,” the City’s Jeff Druyun told me.

So the City muscles in on the Venice oil field.  The expected revenues fueled a series of master plans for the Los Angeles beaches of Venice, Dockweiler, Cabrillo, Will Rogers and other parts of the 30-square-mile of coast and tidelands that Los Angeles controls.

Anyway, from the first $1.65 million, Venice Beach was allocated $893,000, with the remainder going to other Los Angeles City beaches.  Out of that sum came many of the public facilities that are heavily used by the public—basketball and paddle tennis courts, restrooms, recreation center, landscaping and beach-cleaning equipment.

But before long, the first of several major transfers of monies intended for Venice occurred, when $304,000 of the Venice allocation was subtracted and given instead to the construction of the Cabrillo Fishing Pier in San Pedro.

Initially, Parks and Recreation was going to build an extension to the Venice Pier.  But the State Wildlife Foundation, which was to provide matching funds, insisted on a new pier in San Pedro.

A more serious diversion of funds occurred in 1974 with the destruction of Lick Pier—that portion of the P.O.P (Pacific Ocean Park) that straddled the Los Angeles boundary with Santa Monica.  Santa Monica had agreed to pay for 75 percent of the pier’s destruction, and Los Angeles agreed to pay the rest.

Meanwhile, the master plans for the Beach Improvement Capital Account had been divided into three parts—Phases one through three.  From the unfinished Phase One projects, the City transferred the entire available $376,000, more than $100,000 of which had been targeted for Venice improvements like restrooms on the peninsula and athletic and game areas of Rose Avenue.

The stage was set for the City’s oddest use of Venice Beach oil revenues.  The City had agreed with the State to build the Cabrillo Commerce and Marine Museum in San Pedro for a little more than $1 million.  Producing money from different accounts, the City turned to the Beach Capital Improvement Account, and raided the Lick Pier demolition budget for $277,479, as well as an identical $277,479 from the planned Phase Two and Phase Three improvements in Venice and elsewhere.

Gone was close to half-a-million dollars of planning facilities in Venice.  In addition to the restrooms and Rose Avenue games area already mentioned, the Parks and Recreation Department eliminated a proposed recreation center at Washington Street, a seniors’ card area at Rose, a tramway to shuttle tourists from parking areas along the Boardwalk, parking lot extensions and other projects.

Parks and Recreation had cut corners.  They technically required approval from the State Lands Commission for spending more than $250,000 on the Lick Pier demolition, but failed to do so.  Additionally, the City failed to inform the Lands Commission of the transfer of those funds until after the fact was accomplished.

Tell me if you follow the reasoning of Parks and Recreation’s William Fredrickson in his April 1974 letter to the Lands Commission: “To make not a strict but rather a loose interpretation of the entire transaction, it could reasonably be inferred that what was done was imply a supplemental allocation to the Marine Museum Project notwithstanding the various transfers and reallocations that the Department went through (for whatever accounting and technical reasons governed at that time).”  Say what?

All this history might be nothing more than sour grapes from someone who loves Venice, if it weren’t for the fact that 14 more years exist on the Venice Beach oil lease (now operated by Damson, after Mobil cut its losses from the disappointingly small field and sold the lease in 1977).  In fact, the City’s share of the revenue from the lease ($212,000 in 1982-83 and $224,000 in 1983-84) may soon increase if Damson is successful in its quest for permits to drill new wells.

Presently, $1,026,000 is held by the City in two parts of the Beach Capital Improvement Account.  Depending on who is right about why no plans exist for improvements in Venice, residents in Venice could see a new round of public facilities built, the destruction of the pavilion, or repairs and replacement for many of the public amenities such as resurfacing Speedway, new irrigation systems for the dieing parkway, or the like.  (I’m upset that the City could afford only $2,000 to trim the palm trees from Rose to Washington—the contractor only made it from Rose to Westminster, less that half the distance.  For the sake of a thousand bucks?)

One reason for the lack of current plans may be the division of responsibility for the beach.  Since 1977 the County has assumed maintenance duties at City beaches, with the exception of the pavilion area in Venice.  Perhaps that is why some staff in Parks and Recreation think that the Venice oil revenues are suppose to only go to the Pavilion.  They are mistaken.

According to Joel Brightbart, chief planner for the City’s Park and Recs, no regular communication is exchanged with the Country Department, which maintains Venice Beach.  With overlapping jurisdictions Parks and Recreation officials don’t hear about everything.  Neither have they received many complaints from the public about the disrepair of Venice facilities.

The County has plans to beef up the jetty protecting its lifeguard headquarters, to re-do its maintenance yard, and restore some of the parking destroyed in the 1983 winter storms.  But they are not in the business of providing facilities to the public, according to head planner Larry Turvis.

“We don’t envision the sandy beach to be used like inland areas.  We want to reserve it for sandy beach.”

What the City—or Pat Russell—intends for Venice remains to be seen.

Related Posts