Council Agenda - City of Burbank

Tuesday, October 17, 2006

Agenda Item - 4A

City Attorney�s Office

City of Burbank

Dennis A. Barlow, City Attorney

Memorandum

DATE:	October 17, 2006
TO:	Honorable Mayor and Council Members
FROM:	Dennis A. Barlow, City Attorney by: Richard J. Morillo, Senior Assistant City Attorney
SUBJECT:	Errata to Resolution Authorizing Increase in Participation in SCPPA Natural Gas Project (Agenda Item No. 4A)
The staff report for this item refers to the Natural Gas Project Development Agreement (�Development Agreement�) that was approved by the City Council on June 29, 2004. The staff report also should have referred to the Natural Gas Project Gas Sales Agreement (Project A) between the City and the Southern California Public Power Authority (�Gas Sales Agreement�) that was approved by the Council on June 14, 2005, by adoption of Resolution No. 27,002. The latter action authorized the execution and delivery of the Gas Sales Agreement and set Burbank�s Maximum Production Capacity at 1,000 mmBtu/day (the equivalent of 1,000 Dth/day), the same amount authorized in the earlier Development Agreement. The Gas Sales Agreement superseded and replaced the Development Agreement as the operative agreement governing Burbank�s participation in this SCPPA project and is the one that would have to be amended should the Council authorize an increase in Burbank�s participation share from 1,000 Dth/day to 3,000 Dth/day as recommended by staff. The proposed resolution distributed today for this item includes a reference to the Gas Sales Agreement in the recitals and would give the General Manager of BWP authority to execute an amendment to it to implement the proposed increase in Burbank�s participation share. The resolution�s title differs slightly from the title that is part of the recommended motion in the staff report, and so should the Council wish to approve this item the appropriate action would be a motion to adopt the Resolution entitled �A RESOLUTION OF THE COUNCIL OF THE CITY OF BURBANK AUTHORIZING AN INCREASE IN THE CITY OF BURBANK�S PARTICIPATION IN THE SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY�S NATURAL GAS PROJECT.� cc: Mary Alvord, City Manager Michael S. Flad, Assistant City Manager Ronald E. Davis, General Manager--BWP

Burbank Water and Power

MEMORANDUM

DATE:	October 17, 2006
TO:	Mary J. Alvord, City Manager
FROM:	Ronald E. Davis, General Manager, BWP
SUBJECT:	AUTHORIZING AN INCREASE IN THE CITY OF BURBANK�S PARTICIPATION IN THE NATURAL GAS PROJECT DEVELOPMENT AGREEMENT BY AND AMONG THE CITY OF BURBANK, VARIOUS OTHER PUBLIC AGENCIES, AND THE SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY.

PURPOSE

Staff recommends the City Council adopt the proposed Resolution which authorizes the General Manager of Burbank Water and Power to increase the quantity of gas that can be purchased under the authority granted in Resolution 26,754, passed on June 29, 2004 from 1,000 Dth/Day to 3,000 Dth/Day.

BACKGROUND

On June 29, 2004, Council approved Resolution 26,754 authorizing BWP to purchase up to 1,000 Dth/Day from the Southern California Public Power Authority (SCPPA) from natural gas reserves.

Since then, SCPPA has undertaken one transaction for property located in the Pindale region of Wyoming. BWP has been receiving gas from this field for over a year. The cost of gas from this source is very attractively priced and estimated to be in the $5.00 to $6.00 per Dth range. This price is twenty-five percent (25%) or more less than current and forward prices for natural gas.

An interesting feature of gas fields is that the more densely wells are drilled in them, the more gas that can be produced from a field. When the Pindale property was acquired in July 2005, it was estimated that the proven reserves based on 20 acre well spacing were 113.9 billion cubic feet (BCF). This past fiscal year, SCPPA received six BCF of gas. During the past year, several operators in the area have received authority for 10 acre spacing. We expect to receive similar authority for our property. A recently completed reserve assessment done for SCPPA based on 10 acre spacing indicates proven reserves of 135.3 BCF. So, despite having produced six BCF of gas during the past year, the proven reserves have increased nearly 20%. At this time it is estimated that this property is about seventy-five percent (75%) developed.

DISCUSSION

Over the past several months SCPPA has been working on acquiring another property. This property is located in Texas in the Barnett Shale Formation. Based on proven reserves at this time, the project economics for this property are about the same as those for Pinedale when we had it under consideration. However, the formation is in the early stages of development and is only about twenty-five percent (25%) has been exploited at this time. Thus, this property has enormous potential to produce gas. In fact, it is conceivable that we could produce gas from it for ten years and with denser drilling over time have more proven reserves than now.

Burbank, Glendale, Pasadena, Colton, and Anaheim get their gas through SCPPA�s interest in the various properties. There are two other partners who have separate interests. They are the Turlock Irrigation District and the Los Angeles Department of Water and Power (LADWP). SCPPA and Turlock are in a position to close the transaction, however, LADWP still needs to obtain Board and Council approval.

The seller has for some time indicated a need to close the deal by the end of October 2006. However, LADWP just advised SCPPA that they cannot get authority to undertake the acquisition within that timeframe. Hence, SCPPA and Turlock have proposed that they proceed with the acquisition without LADWP�s participation.

Burbank has existing authority to acquire up to 1,000 Dth/Day from SCPPA. However, this transaction would bring Burbank�s share above 1,000 Dth/Day. Therefore, we are requesting that the existing authority to purchase natural gas from SCPPA be increased to an average of 3,000 Dth/Day over the expected life of the resources. The prices for this additional purchase is also expected to be under the current market price for natural gas. This represents less than a third of BWP�s daily needs.

LADWP�s inability to go forward with the acquisition is not based on the merits of the proposition. They are simply unable to get the appropriate governance in place in time.

CONCLUSION

Staff finds that it is in the best interests of Burbank to increase the quantity of natural gas that can be acquired through the SCPPA Reserve Development Agreement to an average of 3,000 Dth/Day over the expected life of the resources.

RECOMMENDATION

If the Council concurs, the appropriate action would be a motion to adopt the Resolution entitled �A RESOLUTION OF THE COUNCIL OF THE CITY OF BURBANK AUTHORIZING AN INCREASE IN THE CITY OF BURBANK�S PARTICIPATION IN THE NATURAL GAS PROJECT DEVELOPMENT AGREEMENT BY AND AMONG THE CITY OF BURBANK, VARIOUS OTHER PUBLIC AGENCIES, AND THE SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY.�.

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Scppa-nat gas reserves.doc