California believes Venoco Inc. has been underpaying royalties owed to the state for more than a decade — to the tune of $9.5 million — while Venoco officials say they have overpaid $3 million in transactions all related to the oil company’s leases off Goleta’s shore.
The dispute — which took the form of a lawsuit against Venoco filed in Superior Court on November 16 — bubbled to the surface after the State Lands Commission started an audit in 2003 of the royalties that came from two oil and gas leases going back to 1997. The two sides don’t see eye-to-eye in three different, discrete computations: the market price of oil used to calculate royalties, what transportation costs Venoco can deduct, and what operating and capital investment costs can be deducted. “We have been working with the State Lands Commission for the past year in an attempt to resolve our differing interpretations of the royalty obligations contained in the oil and gas leases at South Ellwood,” said Michael Edwards, Venoco vice president of corporate and investor relations, in response to an inquiry about the litigation.
The state first entered into leases covering roughly 7,600 acres of offshore land, including a large portion of the South Ellwood Offshore Field, back in the 1960s. Venoco gained an interest in the leases in 1997, and in connection with those leases, it operates Platform Holly two miles offshore from Goleta.