Jul. 22--SACRAMENTO -- An agreement between Gov. Arnold Schwarzenegger and legislative leaders that will likely pave the way for the first offshore oil drilling project in California waters in 40 years could help open the spigot for tapping into 10.5 billion barrels of oil reserves off the state coast.

Or it could spell the beginning of the end for oil drilling off the Santa Barbara coast.

Those were among the opinions expressed by experts Tuesday in the wake of a budget agreement that resurrects the Plains Exploration and Production Co.'s proposal to drill new wells from an existing offshore platform that will tap into the state reserves along Santa Barbara County's Tranquillon Ridge.

The deal, sought by Schwarzenegger, would allow a three-member panel dominated by two of his appointees to reconsider the project, which was rejected earlier this year by the State Lands Commission.

The proposal calls for slant-drilling new wells from an existing platform in federal waters. The wells would tap into reserves that are beneath nearby waters that fall under the state's jurisdiction.

In exchange for a permit to proceed, the Texas-based oil company commonly known as PXP, will advance the state $100 million in royalty payments to help balance this year's state budget. Over the life of the project, it will generate an estimated $1.8 billion in royalties to the state.

Backers see means to an end

State environmental groups sounded the alarm at news of the agreement, but the umbrella group representing 20 Santa Barbara-based environmental organizations reasserted its view that the concessions offered by PXP will result in the termination of oil drilling off Santa Barbara by 2022.

"It has incredible benefits to California and Santa Barbara," said Linda Krop, lead counsel for the Santa Barbara-based Environmental Defense Center. "It's what (Rep.) Lois Capps has been saying and what we've been saying all along: It's all about getting rid of oil."

PXP negotiated concessions with the center that won the support of local environmentalists.

In a statement released Tuesday, the company reiterated its commitment to delivering "historic environmental benefits," which include an agreement to cease all of its existing offshore operations and to remove all onshore processing facilities at the end of the project "in approximately 15 years."

Without that existing infrastructure, Krop believes the threat of new drilling in the future will disappear.

"It will protect against new leasing in the future because the one place under threat is right here, where those platforms are," she said. "We have a threat here every day.