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 repa...
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