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Venoco Files Second Chapter 11 Bankruptcy; California Offshore to Be Sold, Shut

For the second time in the past 13 months, Denver-based Venoco LLC and its affiliates in the exploration and production (E&P) sector in California on Monday filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Delaware. It marks the end of an era for part of California's contentious offshore drilling history, which helped define the U.S. environmental movement of the past 50 years.

The company's assets are expected to be sold or wound down through the bankruptcy process as opposed to last year's restructuring, a California-based spokesperson said. In addition, state officials said Venoco's offshore leases in the South Ellwood Fields and an onshore processing plant west of Santa Barbara, CA, will revert back to the state's coastal sanctuary after the E&P company quitclaimed them.

Last year, the company joined more than 40 energy firms in filing forvoluntary Chapter 11 protection tied to oil prices tumbling since mid-2014. The filing was made in the same U.S. Bankruptcy Court, District of Delaware. Last July the court approved a restructuring plan for Venoco, which later proved inadequate in resolving the company's financial woes.

Venoco executives attributed the latest Chapter 11 filing to the ongoing closure of Plains All American Pipeline's Line 901 since itsMay 2015 leak, which fouled coastal areas for miles along Southern California beaches and angered residents and elected officials throughout the state. Since that time Venoco has been unable to pipe oil from its Platform Holly off the coast near the University of California, Santa Barbara campus.

Venoco COO Mike Wracher said the aftermath of the pipeline leak adversely "impacted the company's financial strength" after trying to address the challenges through what he called "market-based and regulatory solutions" last year. More than half of Venoco's production has been shut for two years because of the pipeline shutdown.

Even in Chapter 11, Venoco will continue its legal claims against Plains All American Pipeline, company officials indicated. Those claims will continue regardless of what happens in the bankruptcy case.

Noting that its quitclaim initiates the state's decommissioning process for platforms in state waters, Venoco officials and the State Lands Commission have executed an agreement under which the company will maintain the South Ellwood Field assets until the state designates another operator to manage the assets.

For the working assets in federal waters, Venoco indicated it plans to continue production there until its sells the assets under the bankruptcy court-supervised process.

For longstanding opponents of oil/gas drilling off the California coast, the news of Venoco's quitclaim to the state was hailed. the Environmental Defense Center had been fighting Venoco's efforts to expand its operations from Platform Holly.

Under California law, the Coastal Sanctuary Act prohibits any new leases for offshore oil/gas production, so Venoco's offshore leases go into the coastal sanctuary.

Earlier this year, Venoco reportedly was still planning to drill for oil off of Santa Barbara's coast for the next 25 years. Until last week, the company had an active application before the State Lands Commission to expand its production in state waters.

"Venoco now is working with regulators and stakeholders to ensure the safe transition or wind-down of its assets," the company spokesperson said. "As the company pursues the sale/disposition of its assets, it expects to conduct business as usual and expects day-to-day relationships with employees, vendors and customers to continue."

Eventually, all of the Venoco employees will lose their jobs as part of the "sale and wind-down" of assets, the spokesperson said. Prior operators and the state will handle the decommissioning process for Platform Holly and related infrastructure in state waters.

In regard to production ceasing in state waters, the Venoco spokesperson acknowledged the "ending production may correspondingly increase natural seeps of methane and oil into the marine environment, and the remaining stakeholders will be considering these potential risks in evaluating how best to move forward."

Offshore is the main emphasis for Venoco as its onshore production at an urban wellsite located adjacent to Beverly Hills High School stopped production at the end of last year with the termination of leases. "Venoco is meeting with the city of Beverly Hills and the high school district this week to address a long-term plan for the safe transition of responsibilities at the site," the company's spokesperson said.

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