Annual and program plans Briefing C109 Long Beach Unit April 2015 Annual and program plans Briefing Marina Voskanian, P.E. California State Lands Commission Mineral Resources Management Division

Tidelands Oil Production Wilmington Oil Field 2 Wilmington Oil Field discovered in 1932 Field is divided into two main parts: West Wilmington East Wilmington (Long Beach Unit) LBU development began in 1965 Currently: City of Long Beach, the Operator Thums Long Beach Company, a subsidiary of California Resources Corporation, the Contractor Productive Limit Banning POLA Oxy Belmont Thums Long Beach Co. Tidelands Oil Production Co. Long Beach Unit PRC 186-Belmont Tidelands

Chapter 138 Provided for the formation of the Long Beach Unit (LBU) City of Long Beach, trustee of the granted lands and the Unit Operator State retains a financial interest and reviews the Annual Plan and Program Plan

Optimized Waterflood Program Agreement 4 1991 - Chapter 941. Legislation authorizing profit sharing with City and Contractor 1992 - “Optimized Waterflood Program Agreement” (OWPA), implemented. Incremental Profit Sharing: 49% to Contactor 42.5% to the State 8.5% to the City

Long Beach Unit 5 Long Beach Tidelands

Long Beach Unit Statistics (2013/14) 6 Descriptions Long Beach Unit Total Active Number of Wells 1,486 Average Daily Oil Production (Barrels) 24,848 State Share of Net Profit ($Million) 292.4

Historical Revenue to State 7 Since its inception the LBU operations have yielded approximately $6 billion in net profits revenue to the State of California. LBU Revenue: (FY 2013/14) State: $ 292 Million CRC: $ 149 Million City: $ 22 Million

Long Beach Unit – Commission Actions 8 Every Other Year Review the 5-year Program Plan to ensure: It is consistent with good oil field practice It is consistent with the Unit & Unit Operating Agreements Does not involve significant safety or environmental risks Every Year Review the coming year plan and budget for consistency with the 5-year Program Plan Approve costs related to subsidence studies Every 6-months Receive update on subsidence surveys

Long Beach Unit Safety Audit 2012 – 2013 9 4 Islands + 3 Onshore Facilities Urban Setting & Major Commercial Port Safety Audits in 2002 & 2012 All Action Items resolved Safety Assessment of Management Programs also completed Safety Audit Report from 2012 available on website

Safety Audit Observations 10 Human and Organizational Factor Improvements Safety and environmental programs are well established Operating procedures & Operations Manual are followed Responsible operating practices are utilized Employees exhibit plant ownership, teamwork, and responsibility for the environment.

Safety Audit Comparison 2002 & 2012 11 Action Items in 2002: 198 Priority One Action Items 3197 Action Items identified All Action Items resolved Action Items in 2012-13: 2 Priority One Items (98% improvement) 1506 total Action Items (53% improvement) All Action Items quickly resolved

CSLC Staff Involvement in LBU 12 Participate in Monthly Engineering Committee Meetings Reservoir Management Consultation, With the City & CRC Analysis of Drilling Safeguards Involving Blowout Prevention Equipment Certification Oil Spill Prevention Exercises Onsite Inspector Presence in the Field Conduct Safety and Oil Spill Prevention Audit Subsidence Monitoring and Prevention Monitor Production and Financial Information Financial Audit

Long Beach Unit- Program Plan 2015 through 2020 13 Budgeted expenditure during 5 years estimated $1,769.5 million City projected Unit net income during 5 years at $304.1 million City’s projected oil price varying from $45 to $60 per Barrel Production forecasted varying from 21,900 to 18,700 BOPD

Long Beach Unit - Annual Plan July 1, 2015 through June 30, 2016 14 Budgeted expenditure estimated $325.2 million City projected Unit net income at $45.8 million City’s projected oil price of $45 per Barrel Production forecasted to average 21,856 BOPD

Staff Recommendation 15 Commission Staff has Reviewed Proposed Plans and Finds: Program & Annual Plan Expenditures meet objectives of LBU & OWPA Program Plan is Consistent with Good Oilfield Practice Program Plan is Consistent with OWPA, Unit Agreement, and Unit Operating Agreement  Annual Plan is Consistent with Program Plan Contractor adheres to industry codes, State oil and gas safety and environmental regulations Commission staff recommends the Commission accept the Long Beach Unit July 1, 2015 – June 30, 2020 Program Plan and July 1, 2015 – June 30, 2016 Annual Plan as submitted

Long Beach Unit Program Plan Review Process 17 Each Program Plan shall be submitted to SLC at least 100 days prior to expiration of the current Program Plan SLC has a period of 45 days following submission to complete its review of the Program Plan If SLC does not order any changes within 45 days, the Plan is deemed to be reviewed & accepted by SLC

Facility Safety Audit Analysis 18 On-site verification of Piping and Instrumentation Drawing (P&ID) accuracy Assess condition of platform or facility and adequacy of maintenance Check for compliance with other safety and environmental requirements Determine serviceability of Tanks and Pressure Vessels Check design of safety systems for compliance with MRMD regulations and other codes Use third party electrical contractor to validate design of electrical system and assess condition Verify oil spill prevention features and equipment are in use and check response equipment Evaluate Safety Management Practices Provide report, action item list, and monitor resolution of action items

LBU Safety Audit Activities 19 Key Safety Audit Activities: Comprehensive facility condition surveys at Islands White, Chaffee, Grissom, Freeman Pier J-2 Production Facility Broadway Mitchell Gas Processing Facility Onshore Well Areas and J-6 Tank Farm Design review and safety system analysis Compliance check – regulations / rules / standards Review modifications to the 50 year old facilities Human Factors Activities: Safety Management Programs and practices Assessment of Safety Culture

West Wilmington - Subsidence 1939: City’s Harbor Department created a petroleum division and drilled the first well under the tidelands. The Long Beach Oil Development Company (LBOD), a consortium of oil companies, was selected as the City's first oil contractor. As development progressed during the 1940s and 1950s, the ground surface in the harbor area began to subside. (two feet per year in 1951) The City and State joined to pass legislation that forced unitization of waterflooding operations to halt subsidence and to increase oil production.

LBU Financial Performance Largest Source of Income to CSLC 21 *Administrative Overhead Revenue to CRC and City of Long Beach not included

Field Development 22 Oil production peaked at 148,495 barrels per day in August 1969 before beginning a rapid decline. During 1982 to 1986, a redevelopment program was undertaken. In 1990, ARCO Long Beach, Inc. (ALBI: Contactor for the City), approached the City and State with a proposal to fund and implement a program to optimize waterflood operations in exchange for a share of the incremental tidelands revenue. .