REQUEST FOR CITY COUNCIL ACTION
SUBMITTED TO: Honorable Mayor and City Council Members
SUBMITTED BY: Eric G. Parra, Interim City Manager
VIA: Scott M. Haberle, Fire Chief
PREPARED BY: Janice Van Mullem, Fire Marshal
Bonnie To, Principal Management Analyst
Subject:
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Approve and authorize execution of three (3) contracts: Oil Well Abandonment, Civic Center Lease Closure, and Miley Keck Tank Farm Lease Closure and approve an appropriation of $1,236,763 in HB Recovery Funds for the Project
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Statement of Issue:
The City’s oil production wells, located at the Civic Center, are not economically viable due to aging infrastructure, cost of maintenance and compliance, and expected loss in revenue. A presentation to City Council during a study session was provided on March 21, 2023 (attached) where the Fire Department was given direction to proceed with abandonment.
The decision to proceed to well abandonment and lease restoration was based on several factors:
1. Production. Civic Center wells have averaged production of 16.4 barrels of oil per day from January 2010 through June 2017. At that time, pressure support was provided from another nearby production unit (Springfield), allowing the relatively high level of production. After the pressure support ended, Civic Center lease averaged 5.5 barrels per day.
2. Profit and Loss. The City performed a 3rd party economic analysis which concluded that the Civic Center will not be profitable considering oil production, fixed costs, maintenance required, and the expected price of oil. The lease has shown negative profits since at least 2015 (general fund). The breakeven oil price for the Civic Center lease is $214 a barrel (current market price is $80 per barrel, and the City receives at least 10% less than market price).
3. Aging Infrastructure. The Civic Center wells and associated equipment are aging and need significant investment to maintain. There are significant known repair costs totaling roughly $750k.
4. Tank farm lease expiration 2024. The tank farm is leased, and the lease will expire on Sept 30, 2024. The abandonment is timed to coincide with the lease expiration. Lease costs will continue until abandonment is complete.
The Fire Department, as the oil well managers, prepared three bids for service to abandon the three wells, remove the equipment and piping, and restore the well site at Civic Center and the Miley Keck Tank Farm (MKTF) to California Department of Conservation, Geologic Energy Management (CalGEM) standards.
Vendors submitted their RFP submissions and costs, and based on the RFP evaluation criteria the following firms were selected. The Fire Department requests City Council to provide funding and approve selected contractors for the three bids. In order to account for unanticipated costs, the Fire Department would like to incorporate 15% contingency for the projects as shown in the following table:
There may be additional contingency funding needed in the future depending on the progress of the work for the three projects.
Financial Impact:
City Council previously approved budget related to oil wells. These budgeted funds have accumulated from unused Equipment Replacement Funds for well repair and Capital Improvement Program (CIP) Infrastructure Funds for oil well abandonment. The following table shows the remaining balance available to be used toward the project:
The total project cost is estimated at $1,949,268, which includes a 15% contingency. Staff is requesting an appropriation of $1,236,763 in HB Recovery Funds to Business Unit 31465001 to cover the remaining cost of the project.
Recommended Action:
recommendation
A) Approve and authorize the Mayor and City Clerk to execute a $1,099,770 “Agreement between the City of Huntington Beach and Excalibur Well Services Corp. for Oil Well Abandonment;” and,
B) Approve and authorize the Mayor and City Clerk to execute a $405,514 “Service Agreement between the City of Huntington Beach and O.C. Vacuum, Inc. for Civic Center Lease Closure;” and,
C) Approve and authorize the Mayor and City Clerk to execute a $189,932 “Service Agreement between the City of Huntington Beach and American Integrated Services, Inc. for Miley Keck Tank Farm Lease Closure”.
D) Authorize the appropriation and transfer of $1,236,763 in HB Recovery Reserves to Business Unit 31465001 (Oil Well Abandonment) to fund the unbudgeted portion of the project.
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Alternative Action(s):
Do not approve the agreement(s); and/or
Request staff to obtain additional bids through the RFP process; and/or
Request staff to re-evaluate bids based on additional criteria; and/or
Request staff to evaluate cost and liability of idling the wells to CalGEM standards.
Analysis:
Three RFPs were posted through Planet Bids on August 2, 2023. A mandatory pre-bid meeting occurred on August 16, 2023. Bids were due to the City by September 15, 2023. Additional negotiation for best and final were conducted for the oil well abandonment project. Bids were received on September 16, 2023.
The bids were evaluated and scores were based on multiple factors including:
• Compliance with RFP requirements - 5%
• Firm qualifications - 25%
• Experience and License requirements - 25%
• Understanding of project - 20%
• Cost/price - 15%
• References - 10%
The bids were evaluated and scored independently by the three evaluators, and the results tallied by Contracting staff in Finance. For the Oil Well Abandonment Project, due to the high dollar amount and the technical complexity of the job, the evaluation also included a reference check and a 30-minute Teams interview to ask each bidder additional questions to help determine the best bid for the City. The bidders were also asked additional clarifying questions and asked to provide a “best and final” cost proposal.
Both contractors were highly rated, the ultimate decision was based on the large cost differential between the two firms.
Oil Well Abandonment
Scope of this work includes abandonment of three wells at the Civic Center. The bids assumed that the three wells would be abandoned without a time gap. Well abandonment includes obtaining CalGEM permits for abandonment and all work to sufficiently abandon wells to CalGEM standards. Due to the complexity of well abandonment and the known issues down hole with Civic Center #3, this project is bid as time and materials.
Civic Center Lease Closure
Scope of this work includes removing all above ground equipment, removing any pipelines under Civic Center property, and inerting and capping the pipeline between Civic Center and MKTF. It will also include repaving at Civic Center 2, repaving any pipeline trenches, and providing clean dirt to grade at Civic Center 1 and 3 to allow for later phase improvements. This project is fixed price bid.
Miley Keck Tank Farm Closure
Scope of this work includes removing all above ground equipment, removing the secondary containment wall, removing underground pipeline under pavement, removing gravel and dirt inside the containment wall to hard-pan. The area of secondary containment will be left as exposed clean dirt and any trenches will be refilled with clean dirt to slab grade. This project is fixed price bid.
Bid Selection
After taking into consideration the evaluation criteria, the following firms with their associated costs were selected. In order to account for contingency, the Fire Department would like to incorporate 15% contingency for the projects as shown in the following table:
Environmental Status:
The requested action to approve a contract award for well abandonment and lease restoration is not subject to the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. Furthermore, since the proposed well abandonment and lease restoration activities are considered ministerial, the project for which the contract is being awarded, is statutorily exempt from CEQA in accordance with Section 15268 of the CEQA Guidelines. The awarded contractor will obtain permits from the California Geologic Energy Management Division (Cal-GEM) consistent with applicable requirements.
Strategic Plan Goal:
Goal 2 - Fiscal Stability, Strategy A - Consider new revenue sources and opportunities to support the City's priority initiatives and projects.
By reducing loses to General Fund due to aging oil production infrastructure, increased operational costs, and decreased production.
Attachment(s):
1. Service Agreement between the City of Huntington Beach and Excalibur Well Services Corp. for Oil Well Abandonment
2. Service Agreement between the City of Huntington Beach and O.C. Vacuum, Inc. for Civic Center Lease Closure
3. Service Agreement between the City of Huntington Beach and American Integrated Services, Inc. for Miley Keck Tank Farm Lease Closure
4. Presentation to Council-May 16, 2023
5. Presentation to Council-February 20, 2024