When the Texas oil company first announced it would restart three drilling rigs off the coast of Santa Barbara County, it boasted that the operation had “tremendous resource potential” and was “poised to generate cash flow.”
But now, less than two years later, mounting regulatory issues are raising questions about the project’s future.
Most recently, California’s attorney general filed a lawsuit against Houston-based Sable Offshore Corporation, accusing the company of repeatedly putting “profit over environmental protection.” The lawsuit accuses Sable of continually failing to comply with state laws and regulations aimed at protecting water resources.
The complaint alleges that Sable was “at best misinformed, incompetent and inaccurate” when it came to understanding and complying with the California Water Code. “At worst, Sable simply defrauded the Regional Water Commission in order to meet critical deadlines,” according to the complaint.
The lawsuit comes less than a month after the Santa Barbara County District Attorney’s Office accused the company of willfully violating state environmental laws during repair work on an oil pipeline that has been idle since a major spill in 2015.
The company also faces legal challenges from environmental groups and groups.
Some experts say the developments threaten the company’s ability to pursue increasingly expensive and complex projects.
Clark Williams Dery of the Institute for Energy Economics and Financial Analysis said there is still a way for Sable to get back on track and start selling oil, but the repetition creates what he calls a “cumulative risk” for investors who hold the key to restart funding.
“Sable is at risk of running out of cash and lenders will need to decide whether this is a good investment,” Williams Derry said. Continued pushback from the public, states and lawsuits makes that case increasingly difficult, he said.
But Sable said it remains steadfast in its goal of restarting the Santa Ynez unit, a complex of three offshore platforms, an onshore processing facility and a connecting pipeline. The facility was shut down by another company 10 years ago after a pipeline rupture near Refugio State Beach caused the state’s worst oil spill.
The company denies breaking the law and insists it complies with all necessary regulations. However, recently, company officials have been pushing forward with a new restart plan.
The new plan is a shift away from the use of controversial pipelines and what company officials call California’s “crumbling energy complex,” company officials said.
CEO Jim Flores said Sable is working with the Trump administration’s National Energy Control Council on a plan to transport crude oil from offshore wells using offshore storage and processing vessels instead of pipeline systems. The company reports that repairs to the pipeline are complete, but state regulators have not yet approved reopening the line.
“California needs to make a decision on the pipeline soon before Sable can sign the[offshore vessel]contract and go all-in on an offshore federal-only option,” Flores said in a statement.
The company acknowledges that transporting oil by ship rather than pipeline significantly lengthens schedules and increases costs. “The company’s viability is in serious doubt,” Sable said in a June Securities and Exchange Commission report.
But the company said it continues to seek approval from the Cal Fire Marshal’s Office to reopen the pipeline.
The state fire marshal said the plans are still under review, but that pipeline operations would only be approved “if all compliance and safety requirements are met, including approvals from other state, federal and local agencies.”
Deborah Sivas of Stanford Law School said it’s becoming increasingly difficult for Mr. Sable to find a path to success going forward.
“It’s pretty rare for a company to have all these agencies because they’re worried about the impact,” Sivas said of state regulators. “These agencies don’t take lawsuits and enforcement lightly. … And the public is strongly opposed to offshore drilling. So there are a lot of those reasons, and I think that’s going to be a big hurdle for that company.”
But even if Sable were able to pivot to federal-only oversight under a friendly Trump administration, Williams-Derry said there is no clear path forward.
“This is an environment where some of the most profitable oil companies in the United States have cut back on drilling this year because profits are too low,” Williams-Derry said. Sable currently has enough money in the bank to have “a little bit of breathing room,” he said, “…but you can imagine (investors) starting to run out of patience.”
A new lawsuit filed by California’s attorney general lists a year’s worth of instances in which Sable ignored or defied California water laws during its pipeline repair work. The attorney general’s office called Sable’s evasion of regulatory oversight “egregious” and justified “significant penalties.”
It was not immediately clear how much money would be charged, but violations of the California Water Code could result in civil liability of up to $5,000 for each day the violation occurs.
Despite repeated reminders and warnings from the California Regional Water Quality Control Board of the Central Coast Region, Sable failed to comply with water laws and prevented the board from “ensuring best management practices to avoid, minimize, or mitigate impacts to water quality,” the lawsuit states.
“No company should gain a business advantage by ignoring the law and harming the environment,” Central Coast Water Board Chair Jane Gray said in a statement. “Entities that discharge waste must obtain permits from the state to protect water quality, and Sable Offshore Corporation is no exception.”
The lawsuit comes months after the California Coastal Commission fined the company $18 million for complying with the state’s coastal law despite repeated warnings.
