When a Texas oil company first announced controversial plans to reactivate three drilling rigs off the coast of Santa Barbara County, investor presentations boasted that the venture had “massive resource potential” and was “primed for cash flow generation.”
But now, less than two years later, mounting legal setbacks and regulatory issues are casting increasing doubt on the project’s future.
Most recently, the California attorney general filed suit against Houston-based Sable Offshore Corp., accusing it of repeatedly putting “profits over environmental protections.” The lawsuit, filed last week in Santa Barbara County Superor Court, accuses Sable of continually failing to follow state laws and regulations intended to protect water resources.
Sable, the lawsuit claims, “was at best misinformed, incompetent and incorrect” when it came to understanding and adhering to the California Water Code. “At worst, Sable was simply bamboozling the Regional Water Board to meet a critical deadline,” according to the lawsuit.
The action comes less than a month after the Santa Barbara County district attorney’s office filed criminal charges against the company, accusing it of knowingly violating state environmental laws while working on repairs to oil pipelines that have sat idle since a major spill in 2015.
The company also faces legal challenges from the California Coastal Commission, environmental groups and even its own investors.
These developments now threaten the company’s ability to push forward on what has become an increasingly expensive and complicated project, according to some experts.
Clark Williams-Derry, an analyst for the Institute for Energy Economics and Financial Analysis, said there are still ways Sable could get off the ground and begin oil sales, but the repeated setbacks have become what he called “cumulative risk” for investors, who are key to funding the restart.
“Sable is at risk of burning through its cash, and lenders are going to have to make a decision about whether or not this is a good investment,” Williams-Derry said. Ongoing pushback from the public, the state and in lawsuits makes that increasingly a hard argument to make, he said.
Sable, however, said it remains steadfast in its goal of reactivating the Santa Ynez Unit — a complex of three offshore platforms, onshore processing facilities and connecting pipelines. The unit was shuttered by a different company a decade ago after a corroded section of pipeline ruptured near Refugio State Beach, creating one of the state’s worst oil spills.
The company denies that it has broken any laws and insists that it has followed all necessary regulations. Recently, however, company officials have promoted a new restart plan that could avoid California oversight.
Company officials say the new plan would keep the project entirely within federal waters — pivoting away from using the contentious pipelines and from what company officials called California’s “crumbling energy complex.”
Jim Flores, the company’s chief executive, said Sable is working with the Trump administration’s National Energy Dominance Council on the plan to use an offshore storage and treatment vessel to transport crude from its offshore wells instead of the pipeline system. Although the company reports that pipeline repairs are complete, the lines have not yet been approved for restart by state regulators.
“California has to make a decision soon on the pipeline before Sable signs an agreement for the [offshore vessel] and goes all in on the offshore federal-only option,” Flores said in a statement.
The company acknowledges that transporting oil by ship instead of pipeline would dramatically extend the company’s timeline and increase its costs. In a June Securities and Exchange Commission report, Sable said there was “substantial doubt … about the company’s ability to continue,” given ongoing negative cash flow and stalled regulatory approvals.
However, the company says it continues to seek approvals to restart the pipelines from the California Office of the State Fire Marshal.
The state fire marshal has said the plans remain under review, but the office has made clear that the pipelines will be approved for operation only “once all compliance and safety requirements, including … approvals from other state, federal and local agencies, are met.”
Deborah Sivas, a professor of environmental law at Stanford’s Law School, said it’s getting harder to see a successful path forward for Sable.
“It’s pretty rare that an entity would have all these agencies lined up concerned about their impacts,” Sivas said of state regulators. “These agencies don’t very lightly go to litigation or enforcement actions. … and the public is strongly against offshore drilling. So those are a whole bunch of reasons that I think are going to be hard obstacles for that company.”
But even if Sable can pivot to federal-only oversight under a friendly Trump administration, Williams-Derry said there’s no clear-cut path.
“This is an environment where some of the best, most profitable oil companies in the U.S. have cut drilling this year because profits are too low,” Williams-Derry said. Sable has enough money in the bank right now to have a “little bit of running room,” he said, “…but you can imagine that [investors] are going to start running out of patience.”
The new lawsuit filed by the California attorney general lays out a year’s worth of instances in which Sable either ignored or defied the California Water Code during the firm’s pipeline repair work. The attorney general’s office called Sable’s evasion of regulatory oversight “egregious,” warranting “substantial penalties.”
It’s not immediately clear how much will be demanded, but violations of the California Water Code are subject to a civil liability of up to $5,000 for each day a violation occurs.
Despite repeated reminders and warnings from the California Regional Water Quality Control Board, Central Coast region, Sable did not comply with the water code, preventing the board “from assuring best management practices … to avoid, minimize and mitigate impacts to water quality,” the lawsuit said.
“No corporation should gain a business advantage by ignoring the law and harming the environment,” Jane Gray, chair of the Central Coast Water Board, said in a statement. “Entities that discharge waste are required to obtain permits from the state to protect water quality. Sable Offshore Corp. is no different.”
The case comes months after the California Coastal Commission similarly found that Sable failed to adhere to the state’s Coastal Act despite repeated warnings and fined the company $18 million.
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