HomeMy WebLinkAboutCivic Center Oil Well #3 Repair - Appropriation of $187,350tep�IDFDlt�2/Page 1 of 2
Meeting Date: 2/19/2013
CITY OF HUNTINGTON BEACH
REQUEST FOR CITY COUNCIL ACTION
MEETING DATE: 2/19/2013
SUBMITTED TO: Honorable Mayor and City Council Members
SUBMITTED BY: Fred A. Wilson, City Manager
PREPARED BY: Patrick McIntosh, Fire Chief
SUBJECT: Approval of Appropriation for Repair of Civic Center Oil Well #3
Statement of Issue: An additional appropriation from the General Fund Equipment Replacement
budget for repairs to Civic Center Oil Well #3 is requested.
Financial Impact: An appropriation of $187,350 from the General Fund Equipment Replacement
budget to the Equipment Replacement— Fire business unit (10040209.83000) for the repair of Civic
Center Oil Well #3 is requested.
Recommended Action:
Approve appropriation of $187,350 from the General Fund Equipment Replacement budget to the
Equipment Replacement - Fire business unit (10040209.83000) for the Repair of Civic Center Oil
Well #3.
Alternative Action(s): Do not appropriate the funds and suspend oil production from Civic Center
Oil Well #3.
Analysis: On September 17, 2012, Civic Center Oil Well #3 was taken out of service due to a
failure of the well pumping system, causing the pump to become wedged at the base of the well.
At the November 5, 2012 City Council meeting, an allocation of $296,639 was requested from the
General Fund Equipment Replacement budget to initiate the necessary well repairs. This amount,
along with $27,845 available in the Equipment Replacement — Fire business unit (10040209.83000)
at that time provided $324,484 for the repairs. The repairs commenced following City Council
approval of the allocation.
Since that time, Fire Department staff has worked very closely with the City's contract Oil Pumper in
an attempt to extract the pump from the well; examine it; evaluate well casings, tubing and rods;
remove debris; and make any required repairs. Unfortunately, these efforts have not been
successful and the pump remains wedged approximately 4,000 feet below grade surface. In
addition, unanticipated repairs due to casing holes were required and incurred added expenditures,
exhausting the available funding.
Facing these challenges in completing the repairs, City staff initially stopped work and considered
the monthly loss of approximately $26,000 in General Fund revenue associated with the sale of oil
produced by this specific well. After further review with the City's consulting Petroleum Geologist, it
was determined it would be most prudent to resume repairs with City Administration concurring.
HB -139- Item 8. - I
Dept. ID FD13 002 Page 2 of 2
Meeting Date: 2/19/2013
This decision was also based on the additional cost that would have been incurred by ceasing
repairs and dismantling the repair rigging, only to have to return it at a later date.
The additional repairs could cost up to $187,350. This amount is based on an estimate of $170,322
from the City's contract Oil Pumper, plus a 10% contingency. The recommended repairs entail
lining several bad casing sections and extracting the wedged pump. This funding would allow Civic
Center Oil Well #3 to be placed back into production. As experienced with previous oil production
repairs, all costs are an estimate as it is extremely difficult to determine the exact cost of repairs
when dealing with work occurring thousands of feet below surface grade.
Civic Center Oil Well #3 is the most productive of the three city -owned wells. Over the past two
years, it has provided approximately $315,000 annually in General Fund revenue from sale of the
crude oil it produces. The return on investment, based on gross sales, for the additional cost of
repairing this well would be between one and a half and two years.
Should the City Council decide not to repair Civic Center Oil Well #3, State law would require that
abandonment procedures be pursued. This would incur expenditures of approximately $178,000
and would remove this revenue source from the City of Huntington Beach.
An additional appropriation of $187,350 from the General Fund Equipment Replacement budget is
requested to repair Civic Center Oil Well #3.
Environmental Status: None.
Strategic Plan Goal: Improve the City's infrastructure.
Attachment(s):
Item 8. - 2 HB -140-
� CITY OF HUNTINGTON BEACH
INTER -DEPARTMENT COMMUNICATION
To: Honorable Mayor Boardman and City Council Members
From: Patrick E. McIntosh, Fire Cljie
Date: February 14, 2013
SUBJECT: Supplemental Communication
City Council Agenda February 19, 2013 — Agenda Item 8 — Approval
of Appropriation for Repair of Civic Center Oil Well #3
The RCA for this agenda item includes the following Recommended Action. -
Approve appropriation of $187,350 from the General Fund Equipment
Replacement budget to the Equipment Replacement — Fire business unit
(10040209,83000) for the Repair of Civic Center Oil Well #3.
The same item is referenced in the agenda for the meeting as requesting funding from
the General Fund Equipment Replacement Reserves. To clarify, the RCA reads
correctly that the funding is being requested from the General Fund Equipment
Replacement Budget. No funding is being requested from the reserves.
PEM/Ine
SUPPLEMENTAL
COMMUNICATION
Agenda Item No.
\\Nas1\User_Dirs\Files01\Justenk\Council Members -Supplemental Communication -February 19, 2013 Agenda. Docx