Shares Fall 50% In Company Behind Historic California Oil Spill
Oct 4, 2021
As crews start cleaning the 3,000 barrels (about 130,000 gallons) of crude oil washing up on the beaches of Huntington Beach, the bullseye is now on Amplify Energy, which owns the offshore Beta oil field. Amplify says that the leaking has stopped, and the 17 mile pipeline secured. Yet to be revealed is what caused the spill. Shares in the company are down 50% today. Amplify has been active in the Beta field and this year has invested several million dollars in recent quarters there, rehabbing one well, and planning to re-drill two others. “The initial phase of the Beta field development program is currently underway,” the company said in its second-quarter results. Though its costs there offshore California are about twice the average in the rest of their portfolio, Amplify said that they expected “significant cash flow generation and long-term profitability” from Beta. Amplify needed the uplift, having lost $35 million in the second quarter on revenue of $80 million. The spill, however, makes it more likely that instead of redeveloping the Beta field, Amplify will end up shutting it down. If it can even afford the cleanup cost, that is. The last big oill spill in the region hit Santa Barbara in 2015 with 3,000 barrels that leaked from a field operated by Venoco with pipelines operated by Plains All-American. That spill, roughly the same size as Amplify’s mess, took years to clean, and sent Venoco into bankruptcy, where the liquidating trustee this year reached agreement on $852 million in settlements . HUNTINGTON BEACH, CA - OCTOBER 03: Workers with Patriot Environmental Services clean up oil that ... [+] flowed into the Talbert Marsh in Huntington Beach. Authorities said 126,000 gallons of oil leaked from the offshore oil rig Elly on Saturday. Photographed in Talbert Marsh on Sunday, Oct. 3, 2021 in Huntington Beach, CA. (Myung J. Chun / Los Angeles Times via Getty Images)
Los Angeles Times via Getty Images
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Amplify (market cap $100 million) does not have anywhere near deep enough pockets to pay such a hypothetical bill. Amplify was previously known as Memorial Production Partners LP until in 2017 it entered Chapter 11 bankruptcy restructuring with $1.3 billion in debt. It emerged a year later with $430 million in debt and a hodge podge of assets in Texas, Louisiana, the Rockies and offshore California. Amplify was never expected to amount to much in the first place. A decade ago the energy-focused, Dallas-based private equity shop NGP created Memorial Production Partners to essentially to a “bad bank” to acquire unloved assets from other NGP portfolio companies. That’s how Memorial/Amplify in 2012 came to acquire the Beta field from NGP-backed Rise Energy Partners for $271 million. Rise, launched specifically to buy assets from distressed companies, had bought its stake in Beta in the wake of the 2009 oil crash. But the Beta field is far older than that, having been discovered in 1976 by Royal Dutch Shell a nd initially developed in the 1980s, when production peaked around 25,000 barrels per day. Though the oil industry has grown increasingly rare in California, tens of billions of barrels have been pumped from the Los Angeles and San Joaquin basins. According to state records, the Huntington Beach field was once considered the 12th largest in the nation, having produced more than 1 billion barrels since discovery by Standard Oil company in 1920. Old stories describe coastal Orange County as covered in a forest of oil derricks that sprouted up nearly a century ago. It wasn’t long ago you could still see dozens of pumpjacks nodding alongside Highway 1. If Amplify proves unable to foot the bill for clean up, and the inevitable host of lawsuits that will follow, some of the legal responsibility for decommissioning the offshore assets could fall to Shell or other past owners in the chain of title. Some cold comfort for Huntington Beach residents: their beaches have suffered worse insults than this spill. In 1990 the American Trader oil tanker punctured its hull with its own anchor, releasing 10,000 barrels that came ashore at Huntington Beach, killing thousands of birds. Though this new Huntington Beach spill will likely join the top California oil spills of all time, it’s worth getting some perspective. In 1969 the worst spill coated Santa Barbara beaches with some 75,000 barrels of oil (roughly 3 million gallons) from a blown out well on a drilling platform operated by Union Oil. In 1988 about 10,000 barrels leaked from a giant storage tank at a Shell refinery into the San Francisco Bay. Shell paid $20 million toward restorations. And in 2007 a tanker crashed into the Bay Bridge, dumping 1,500 barrels of bunker fuel into the Bay. It will be nearly an intractable challenge to put an end to California oil spills once and for all — according to reports by the Woods Hole Oceanographic Institute , naturally occurring oil seeps in the waters off Santa Barbara have leaked more than 100 barrels a day for the last 100,000 years. The nation’s biggest ever oil spill occurred in 2010 when the Deepwater Horizon rig, drilling for BP, suffered a blowout on the Macondo well, which flowed for more than a month, dumping 4 million barrels into the Gulf of Mexico. The world currently consumes roughly 95 million barrels of oil every day. Amplify did not immediately respond to an email request for comment on the spill and cleanup efforts.