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HomeMy WebLinkAbout19 - 90-Day Review of Budget ChecklistAgenda Item No. 19 CITY OF NEWPORT BEACH OFFICE OF THE CITY MANAGER November 9, 1998 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Dennis Danner, Acting City Manager SUBJECT: 90 -DAY REVIEW OF BUDGET CHECKLIST DISCUSSION: The City's 1998 -99 fiscal year budget was adopted on June 22, 1998. At that time certain items were placed on a budget checklist to be reviewed after the beginning of the fiscal year. These items were reviewed and acted upon at the Council meeting of July 20, 1998. At that meeting, seven items were scheduled for further review on November 9, 1998. An eighth item, regarding the Environmental Nature Center was added at a later date by Mayor Edwards. These items include: GENERALFUND 1. Street Light Replacement Program (Noyes) In 1993 the Utilities Department prepared a program to replace old and out -dated series circuit street light systems. This program had a goal of allocating $750,000 per year for 15 years to replace the older portions of the City street light system. Actual allocations have averaged $295,000. Lido Island, Balboa Island and the Peninsula east of Island Avenue have been completed or are under construction. $250,000 has been proposed in FY 1998 -99. This will fund an area in Newport Heights and prepare the design for Newport Terrace. Since July, the Public Works Department Utilities Division has reassessed the 1993 Program to see if the total replacement of the series circuit systems was needed. It was found that significant portions of the systems designated for replacement still had serviceable life. For example, the 1993 Program proposed to replace about 2000 street light poles. The reevaluation estimates that approximately 500 will need to be replaced over the next 15 years. Attachment A describes a revised program that can be funded at $325,000 to $425,000 per year for the next 14 years. An average of $382,000 per year will complete the program. That the FY 1998 -99 budget provided $250,000 for the conversion of the Newport Heights system and the design of the Irvine Terrace system. It will be difficult to get the Irvine Terrace system ready for construction before July 1999. The table included in Attachment "A" shows the revised funding levels needed to complete the series circuit conversion in the next 14 years with an expenditure of $250,000 this fiscal year. 2. Irvine Avenue Median Landscape Improvements from 17" Street to University Drive (Glover) The limits of this multi - phased project are from 17"' Street to University Drive. The southerly section from 17"' Street to Dover Drive includes the large eucalyptus trees that are in need of irrigation (due to insect problems), hardscape and planting. From Dover Drive to Holiday Road, the median is planted with ice plant and should be re- designed to include irrigation, a more attractive plant material and hardscape. These two sections are shared with Costa Mesa and staff members from both cities have met and agreed that a design is appropriate this fiscal year to establish firm cost estimates that can be used for budget estimates in the future. From Holiday Road to Santiago Drive, medians do not exist, while in the northerly segment from Santiago Drive to University Drive, the medians contain grass, hardscape and an irrigation system. This is a high maintenance area because the turfgrass requires high amounts of water and lawn mowing. Low maintenance landscaping, hardscape and new irrigation are proposed. Portions of the northerly section are within the County of Orange. The estimated cost for the entire project from 17i6 Street to University Drive is $700,000. In order to evaluate the costs involved for each segment and discuss cost sharing with Costa Mesa, staff recommends that the City Council approve $15,000 to develop plans and estimates in FY 1998 -99. The results will then be reviewed by both the City and Costa Mesa to consider whether to budget for any improvements to the medians in future years. 3. Flags for the Coast Highway Bay Bridge and Arches Bridge (Glover) The placement of flags and /or banners on the Coast Highway Bay bridge and the "Arches" Newport Boulevard bridge requires an initial cost of $16,000 with an annual maintenance cost to replace the flags and/or banners estimated between $2,000 to $4,000, depending on the length of time they are displayed. In addition, there would be City staff time to place, maintain and remove the flags and banners. Private donations will fund the program. If the full $16,000 is not obtained this year, only a portion of the program will be implemented. 4. Environmental Nature Center (Edwards) The Environmental Nature Center is currently involved in a fund raising drive to purchase the former administrative facilities of the Newport-Mesa Unified School District. The selling price of this facility is $600,000. To date the Center has raised over $500,000 towards its goal. In addition, there will be a need to fund ongoing annual maintenance. Mayor Edwards has requested the City Council consider supporting the Center in any way deemed appropriate. GENERAL FUND (OFF STREET PARKING RESERVE) 5. Balboa Pier Parking Lot and Main Street Pedestrian Access (Noyes) In 1994 the City Council adopted the Central Balboa Specific Area Plan and codified it in Municipal Code Section 20.45. Included in this Plan was a Public Improvement Component which included the expansion of the Balboa Pier Parking Lot by an estimated 109 parking spaces and the modification of the exit point from Main Street to Washington Street. The expansion of the lot was proposed through the readjustment of the current spaces, landscaping, and circulation system. Since that time there have been other studies completed regarding the Peninsula's revitalization which, combined with funding considerations, have postponed the implementation of the Public Improvement Component. The City currently had a study in progress to evaluate and prepare a recommendation and preliminary plan for the expansion of the Balboa Pier Parking Lot. This study has a public outreach element that will allow public input to determine the desires of the community. In addition, a separate parking management plan for the Peninsula is being prepared. These studies should be completed in February or March. The City Council will receive these studies and plans and determine whether or not all or a portion of the plans will be implemented. It is recommended that the FY 1998 -99 budget allocation for the Balboa Pier Parking Lot be reduced from $400,000 to $40,000. This amount will allow for project plans to be prepared if the City Council decides to proceed with the project. Funds for construction can then be included in the FY 1999 -2000 budget. 6. Parking Meter Replacement Program (Hedges) This project provides for the annual replacement of approximately 325 of the City's parking meters. The meters are subject to corrosion due to their exposure to salt air and have an average operable life of 7 years. All work associated with this project will be performed by Public Works staff. Councilmember Hedges raised a question on the appropriateness of using the Off Street Parking Fund to replace parking meters. The Municipal Code, in Section 12.44.025, indicates that the fund can be used for the acquisition, development, and improvement of public off street parking facilities. Off street parking facilities are defined as public parking lots, garages, structures, buildings, and appurtenances. Parking meters have been considered appurtenances, or "accessories ", to the parking lots that allow for the collection of the revenue. Periodically they require replacement. Approximately 60% of the City's parking meters are installed in off - street parking lots. It is recommended that $39,000 (58.2 %) be funded from the Off - street Parking Reserve Fund with the remaining $28,000 coming from the General Fund. AQMD FUND 7. Eliminate AQMD Division (Hedges) The City receives approximately $75,000 per year of AB 2766 funds which are a portion of an air quality fee collected as part of vehicle registrations. The City has used $10,000 of this money to support its employee rideshare program and another $15,000 to pay dues to the Transportation Management Association, Centeride. The Police & Fire Department operations in Newport Center exceed the 250 employee threshold and remain under the AQMD mandate for ridesharing programs. Employees at all sites may participate and last quarter 107 employees took part. It is recommended that this $29,000 remain in the budget for this program. TIDELANDS FUND 8. Oil Field Improvement Program (Hedges) This is an annual program to provide funds to maintain, modify, and make improvements to the oil production facilities: 16 existing oil wells, oil pumping equipment, the production tank farm and storage facilities and the transmission lines for oil, waste water, and natural gas. It is estimated that this cost will be $30,000. The remaining $120,000 will be used to establish an oil well rehabilitation plan to increase the oil production. This plan will review options which will include using an outside production company, re- drilling wells and modifying the oil production methods. Outside geophysical and geological engineers specializing in oil production will be used. The City's oil production facilities are on easements over parcels of land owned by West Newport Oil and others. The City's rights to the easements were established by a court action in the early 1980's and we have not determined if the City has the right to sell or even lease these rights_ The City's oil wells are slant drilled out into the area under the ocean which is called the West Newport Offshore oil field. This field is under State tidelands and the City can not sell its rights to the oil under the public tidelands law. Attachment B describes the City's oil field operations and the options available for increasing production and revenues. It is recommended that the $150,000 provided in the budget be maintained and that an ad hoc committee be set -up to further evaluate the future of the City's oil operations. RECOMMENDATION: Review the Budget Checklist items and take appropriate action. SUMMARY OF BUDGET CHECKLIST ITEMS TO BE REVIEWED IN 90 DAYS Recommended In 1998 -99 Council staff Fund /Projects /Budgets Budget Requests Recommendation No. General Fund 1 Street Light Replacement Program (Noyes) $ 250,000 $ 250,000 $ 250,000 2 Irvine Ave. Median Landscape Improvements (Glover) $ - $ 100,000 $ 15,000 3 Flag Holders for Coast Highway and Arches Bridges (Glover) $ - $ 25,000 $ - 4 Environmental Nature Center $ - TBD $ - 6 Parking Meter Maintenance Program (Hedges) $ $ - $ 28,000 $ 250,000 $ 375,000 $ 293,000 General Fund (Off Street Parking Fund) 5 Balboa Pier Parking Lot and Main Street Ped. Access (Noyes) $ 400,000 $ - $ 40,000 6 Parking Meter Maintenance Program (Hedges) $ 67,000 $ - $ 39,000 $ 467,000 $ - $ 79,000 AQMD Fund 7 AQMD Division (Hedges) Tidelands Fund 8 Oil Field Improvement Program (Hedges) GRAND TOTAL ALL FUNDS (Excluding Enviornmental Nature Center) $ 29,000 $ - $ 29,000 $ 150,000 $ $ 150,000 $ 150,000 $ $ 150,000 $ 896,000 $ 375,000 $ 551,000 A $16,000 contribution will be solicited from local service organization to fund this program. CITY OF NEWPORT BEACH PUBLIC WORKS DEPARTMENT Memorandum October 29, 1998 TO: Dennis Danner Acting City Manager FROM: Don Webb Public Works Director SUBJECT: BUDGET CHECK LIST STREET LIGHT SERIES CONCUIT CONVERSION PROGRAM In 1993 the Utilities Department prepared a Master Plan Program for the conversion of the older series circuit portions of the City's street light system. This conversion would replace the series electrical circuits with the more modern and efficient multiple circuit. Also, incandescent lights would be converted to more energy efficient sodium vapor lights. The 1993 program established a $11,305,800 deficiency based on, in most instances, total replacement of the system. $750,000 per year for 15 years would have been required to complete this program. Starting in 1992, the Lido Isle and Peninsula Point lights were replaced, and since then the Balboa Island lighting system has been or is being replaced. Since 1992 $1,700,000 has been used for the conversion of series circuit street lights. These replacements have taken care of most of the oldest portions (pre 1940 portions) of the system. In August of 1998, as a part of the budget checklist review, the City Council questioned what the appropriate level of funding was to complete the conversion in a reasonable time frame. The Public Works Department has re- evaluated the 1993 program to see if the projected total replacement of the system was needed, and to see if a less expensive program could be developed. ATTACHMENT A SUBJECT: BUDGET CHECKLIST Page 2 The Utilities Division's Electrical Section performed a circuit by circuit field inspection of the series system to determine what portion of the poles and conduits did not need to be replaced during a conversion. The field inspection indicated that the majority of the poles and conduits remaining to be converted would not require replacement for another ten to twenty years. There may be isolated cases where sections of conduit and individual poles will require replacement, but these can be handled as the need arises. The revised estimate for completing the original 15 year program is now $5,400,000 as compared to the $10,200,000 that remains from the original program. Street light pole replacement has been reduced from about 2000 poles to 500 poles. The revised plan will now only replace about 63% of the underground conduits. All of the luminaires and conduit wiring have to be replaced to convert the existing out -dated high voltage series circuits to the new standard voltage multiple circuits. Table A shows a comparison of the difference in cost between the original street light conversion program and the new recommended program. The average annual funding requirement can be reduced to $380,000. The annual energy savings will be $50,000 when this program is complete. If the program is completed as shown, an accumulated energy savings of approximately $400,000 will be obtained. The Newport Heights street light system (Circuit 61) is next on the priority list for replacement at an estimated cost of $220,000 and can be completed within the currently recommended budget amount of $250,000. Next in line is the Irvine Terrace system (Circuits 170 and 171), which is estimated to cost $313,500. It is recommended that this system be designed with this years funding and be included in next year's Capital Improvement Program because it would be difficult to have this project ready to go to construction this fiscal year. The Staff recommendation for the Street Light Replacement Program is to fund $250,000 this fiscal year and to program from $325,000 to $450,000 per year in the future so that the average annual funding is $380,000 over the next 14 years. Respectfully submitted, (Dw Public Works Department Don Webb, Director Attachment $ )c �/ k n ) .o \k �§ §�� ) ƒ\ �V #R� #ERR 0:z�(�aCtC } Cl) § ------ ®--- ® - ® - - -® § oW oW £ @KKK @K @aa£ @a @£ 0 � F- 0 CL w } , »gzW ƒ)§§5 § �e�a©m;RRRma ■a§ 0Wiz-.o- * _j at w m�- §§ ®5242 /®`° " \ }A } S~ � % /k §K�� \$} ■} 2� �7E$- R@§§R2§ /§$K /(2 2wwa�ww����a� \2� mz2 �a=sm2R2a2� Ile CL °� w \_ - ®--- ®- ®- ® -- - - uC9 77��;22s /E§§§[(k§kCD ) to - 2������� »������g § B§` �S % j\� / ■22s4PS22n9 j O e� § FA `k�k _# - 3 _ _ { co � { 7 - Of M_ W w 0 Ic LO / ) .o \k �§ §�� ) ƒ\ MEMORANDUM DATE: October 15, 1998 TO: Don Webb Eldon Davidson FROM: Tim Deutsch SUBJECT: Oil & Gas Operation Study History & Background On November 1, 1943, the City of Newport Beach entered into an agreement with D.W. Elliot for the production of oil and gas from the City tidelands area in the West Newport Area. As a result of this agreement 16 oil wells were drilled between 1953 and 1958. When these 16 oil wells were originally drilled, production ranged between 50 and 235 barrels per well per day (bpd) or approximately 575,000 barrels per year (bpy) based on 300 days per year of operation. It is normal for oil production to significantly drop off after the first year of operation and continue to decline during the life of the well. Exhibit A shows the location of each of the City's wells in plan view. The City's oil wells are slant drilled out into the area under the ocean which is called the West Newport Offshore Oil Field. This field is under State tidelands and the City cannot sell its rights to oil under the Public Tidelands. As typically happens with any oil wells, the production declines and the majority of the wells need to be rehabilitated to increase production. The rehabilitation happened in the 1960's and early 1970's. No rehabilitation has occurred since 1971. The rehabilitation work included re- drilling wells and adding perforations to the wells. This rehabilitation increased production capacity, but was still less than its original capacity. Some rehabilitated wells yielded over 90% of the original capacity, while others yielded under 50 %, and a few under 20 %. From 1954 to 1981, several different oil companies operated the well field under contract by the City. The City ended up in litigation with the last operator, Armstrong Petroleum Corporation (Armstrong). Armstrong operated the oil fields from 1968 to 1981. At the end of their contract, the oil wells had an annual production of 60,000 bpy. The City received 12'/2 % of the oil revenues. The last full year of this contract generated $60,000 to the City (oil prices at $25.00 per barrel). The City became dissatisfied with Armstrong's operation of the oil field in the last two years of their contract and had to take them to court to retain operation and drilling rights of the oil fields. ATTACHMENT B Oil & Gas Operation Study Page 2 From 1981 to the present, the City has managed the oil field operations and contracted out the maintenance and repair of the facilities to Sampson Oil Company (Sampson). The first full year (1982 -83) of operations by the City yielded net revenue of $975,000 (oil prices at $23.66 per barrel). When the City took over the operation from Armstrong, the equipment and site were in poor condition and Sampson assisted the City in the upgrading of the facility to bring it to proper working order. In 1996, the City received an award for "Outstanding Lease Maintenance" from the California Department of Conservation, Division of Oil, Gas and Geothermal Energy. Under this type of contract, the City pays Sampson only for the maintenance cost and the City receives 100% of the net revenue. Under the pre -1981 contracts, the oil companies paid the City a royalty interest and retained the major portion of the revenue. Exhibit B shows the 20 -year history of oil prices, oil production and revenue Current Operations The Public Works Department currently manages the Oil Field Operation, with Sampson Oil Company providing the daily operation of the facility. Exhibit "C is a five -year balance sheet of the operation. In each of the past five years, the Oil Field operation has yielded average positive net revenue to the Tidelands Fund of $216,000 per year. Due to low well production and the drop in the price per barrel, the City needs to evaluate its operation, in an effort to maximize revenue, now and in the future. Over the past five years, the City has been averaging approximately 45,100 barrels of oil per year. The average price per barrel is $12.84, which takes into account the lowest oil prices in a decade. This equates to estimated oil revenue of $579,084. Combined with annual gas sales to Hoag Hospital, the City has averaged $624,084 per year. The current fiscal year has seen a dramatic drop in the price per barrel. It is forecasted that the price per barrel for this fiscal year will average about $9.75, which is a historically low oil price. With this in mind, the estimated oil and gas sales revenue for fiscal year 1998 -99, will be approximately $500,000. The 1998 -99 budget showed an estimated $745,000 in revenues, with $290,000 being transferred to the Tidelands Fund. The City has determined that its break -even point for maintenance and operation (no capital improvement) would be around $7.31 per barrel or a budget of $330,000. This leaves a revised estimated net revenue of $170,000 for 1998 -99. Due to the lower production of the well field and the drop in oil prices, the City recently retained a petroleum geologist to review the existing production (the 16 well production ranges from 2 bpd to 15 bpd), investigate rehabilitation options and provide alternatives to increase the revenue stream to the Tidelands Fund. Oil & Gas Operation Study Page 3 The study's scope of work was to provide an economic and technical feasibility evaluation of potential for the Newport Oil Field redevelopment. This report includes a study of each of the16 wells to determine which ones were candidates for recompletion, redrilling, horizontal drilling and water flooding. The table on the next page gives a financial summary of each. • Recompletion — This is a method by which the wells are perforated in additional oil sand areas. Eight wells were identified to be excellent candidates for recompletion. These eight wells have a potential of 190,000 bpy. Five of the remaining eight are still candidates for future recompletion. Recompletion of a well can cost between $60,000 to $120,000. • Redrilling — This is a method where the existing well head remains in the same location and the well is re- drilled to a different location in the same or alternate oil zones. Two of the wells identified, are ones that could be recompleted, but would be excellent candidates for redrilling. These two wells only produce 3.8 barrels per day. • Horizontal Drilling — This method is a relatively new technology that drills into an oil sand area and then drills horizontal to follow the sand layer. The wells identified for redrilling are also good candidates for horizontal drilling. • Water Flood — This method involves the injection of water, usually salt water, into a producing reservoir, which adds pressure to the oil zone to force oil to the producing well. Eventually water flooding would cut -off 50% of the gas production currently sold to Hoag Hospital. The table below is a comparison of the capital investment, potential net revenues and the risk level for each rehabilitation method over a 15 -year period. The net revenues are based on optimistic production of the rehabilitated wells. Capital Potential Revenue Potential Revenue Risk Method Investment ($15.06/barrel)- 5 yr. Avg. ($10.75/barrel)- Current Level Recompletion $800,000 $12,000,000 $5,200,000 Low (8 wells) ($100,000 per well) Redrilling $450,000 - $600,000 per well $3,300,000 $1,950,000 Medium (2 wells) Horizontal Drilling $2,100,000 $18,000,000 $11,450,000 High (3 wells) ($700,000 per well) Water Flood $2,500,000 $33,676,000 $16,500,000 Medium (3 of the 6 fault blocks) Oil & Gas Operation Study Page 4 The lowest risk and least cost per well is recompletion of the wells. While the other methods have higher risk, they also provide a greater return. The City could start with this method to generate sufficient reserves to fund the more expensive methods that yield a potentially higher production per well. If successful, the redevelopment of the oil fields may involve a mix of the four methods depending on what level of risk one is willing to take. Prior to going forward on any of these methods, some field- testing and analysis needs to be done in order to select the best method. Any significant increase in production of the oil field will require facility expansion with additional oil tanks and appurtenances. Future Operations The information provided in the report produced by a petroleum geologist indicates that the City has the potential to significantly increase its revenues. The City needs to decide which direction it intends to take. Many options are available to finance the rehabilitation of the oil field: • Investor Only Financing — City will seek an investor, the City would continue to manage and operate the facility and contract the rehabilitation work with the assistance of a petroleum consultant. Investor to annually receive a percent of revenue. Capital Investment Risk Taker— Investor Revenue Split — 20% Investor, 80% City (estimated) • Investor Financing & Operation (Lease) — Investor would fund improvements and operate facility. Capital Investment Risk Taker— Investor Revenue Split — 80% Operator, 20% City (estimated) • Bank or Credit Financing — City bonds or borrows to fund improvements and continues to manage and operate the facility. Capital Investment Risk Taker — City Revenue Split — 100% City • Pay -as- you -go — City utilizes additional revenue for improvements each year to do a mix of the options based on revenues. This option will depend on oil prices increasing above today's level. Capital Investment Risk Taker — City Revenue Split — 100% City Oil & Gas Operation Study Page 5 Multi -Phase Rehabilitation Program • Must be completed within a 3 -year window of opportunity due to the Banning Tract Commercial and Residential Development • Phase 1 — Testing and Analysis — This will include a Rehabilitation Program and a Facilities Development Plan prepared by a petroleum geologist at a cost under $30,000. This will also include one well recompletion, estimated to cost between $70,000 and $90,000. Revenue from this recompleted well is anticipated to be between $100,000 to $200,000 for the first year. The results of this first well will be utilized to develop the rehabilitation plan. Phase 2 — An Adhoc Committee will review the Rehabilitation Program and Financial Funding Alternatives. • Phase 3 — Implement action plan — Council to review recommendations from the Adhoc Committee and approve Rehabilitation Program. Recommendation The oil fields need rehabilitation to be financially beneficial to the City. Staff recommends the following: 1. That $150,000 be approved in the 1998 -99 Oil Field Improvement Program, for the testing and analysis and rehabilitation of one well. 2. Establish an Adhoc Committee to review the Rehabilitation Program and Financial Funding Alternatives. 8 � � 9 T -° N _____ a u 1 °.0 I .r1 U p4T 6 X ls.l g EI � m Ell o � �b `a z ; J 1111 1 � X W 6 _____ a u 1 °.0 I .r1 U p4T 6 X ls.l EI � Ell _____ a u 1 °.0 I .r1 U p4T 6 X ls.l sao.00 •1120.00 $20.00 $16.00 $10.00 $6.00 r yy g gg $g gg ts gg Oil Production - 16 Elliot Wells (barrels) 0 - Armstrong Operation I ❑ • City Operation) Price of 0 I per Barrel (January 1) OV,V VV .. 70,000 60,000 a 50,000 • r 40,000 s 30,000 20,000 10,000 0 L 11 U Total City 011 Revenue 0 • Armstrong Operation I City Operation) $1,600,000 $1,400,000 -` '• ° t -�� K1� x a SrT 6 .�• .dam � s +ro I x};rd - t � sit ,. , $1,200,000 $1,000,0 e0 r ' a $600,000 $400,000 • `�$tc.�w tea' �� 1.zi .3 wl. 5, $200,000 rti., `A1 •. EXHIBIT "B" i+ CD A c c� L Q. O O L m 4) r- @ CAY co L Q O O O C�), Lo 7 Q O 0 0 00 co N O O co ti M 69 69- ZT M M LO CO N 0 N M CO ti LO O d co d N 69 co � l� M N M ca .— M 00 @ Y V 00 d M U O CO M � U CA dt M •- Q O b9 b9 609 r- @ CAY co L Q O O O C�), Lo 7 Q O 0 0 00 co N O O co ti M 69 69- ZT M M LO CO N 0 N M CO ti LO O d co d N 69 Z CO C � co 7 U � Q O r CJ) C) O M 0 'ct b9 N CO .0 C= 7 U- (1) C co N 0 a) "o CD O a) > a E a> x o 0� W 5 m o o 1— 1— Z v a _H x W CO rM M 00 00 0 Y V V W 1_ U O CO M N Q Cn b9 b9 H9 Z CO C � co 7 U � Q O r CJ) C) O M 0 'ct b9 N CO .0 C= 7 U- (1) C co N 0 a) "o CD O a) > a E a> x o 0� W 5 m o o 1— 1— Z v a _H x W ST—TE OF CALIFORNIA —THE RESOURCES AGENCY PETE WILSON. Govemor DEPARTMENT OF CONSERVATION 5816 Corporate Avenue, Suite 200 Cypress. CA 90630 -4731 (714) 816 -6847 FAX (714) 816 -6853 October 30, 1998 Robert L. Wynn City of Newport Beach 3300 Newport Blvd. Newport Beach, CA 92663 Re: "Newport Beach" Lease West Newport Field 1998 Annual Lease and Tank Facility Inspection Dear Mr. Wynn: An inspection of the subject facility on October 29, 1998 revealed full compliance with Division of Oil, Gas, and Geothermal Resources environmental regulations. The careful and thorough manner in which you control your operations is appreciated. Thank you for your cooperation. Sincerely, -�Ja e�4� Robert H. Samuelian Environmental Engineer DIVISION OF OIL, GAS, AND GEOTHERMAL RESOURCES GM:RHS:ss City of Newport Com 1