Employment in California's oil towns suffers as prices plunge

Several oil companies have initiated layoffs and canceled projects since crude prices began falling

Many Californians cheer the rapid fall of gasoline prices.

They’re taking extra vacations or padding their savings accounts. Businesses are cutting transportation and production costs, pocketing more profit in the process.

But for those who rely on the oil industry for a paycheck, the last few months have been nerve-wracking.

Oil companies have already cut nearly 22,000 jobs nationwide since the summer, when oil prices began plunging, according to outplacement firm Challenger, Gray & Christmas Inc. And if past price dives are any indication, more layoffs are coming.

“We’re kind of just holding our breath -- there’s going to be a major correction,” said Mark Evans, chair of the economics department at Cal State Bakersfield.

California produced 17.3 million barrels of crude oil last year -- the third-most in the nation, according to the U.S. Energy Information Administration. Petroleum powerhouse Bakersfield and the rest of Kern County dominate production in the state, followed by Los Angeles County.

A total of 188,500 people are directly employed by the state’s oil and gas industry, according to a report last year from the Los Angeles County Economic Development Corp.

In the six-county Southern California region, which doesn’t include Kern, the industry contributed nearly $10.6 billion in state and local tax revenue in 2012, according to the report, which was commissioned by the Western States Petroleum Assn.

But as prices continue to fall, activity is beginning to slow.

The number of active wells in California overall fell last year from the end of 2013, as it did in Kern and Los Angeles counties, according to the California Department of Conservation.

Canadian oil field services company Ensign Energy Services Inc. told the California Employment Development Department in December that it was considering laying off 700 employees in the state, according to a document posted on the agency’s website.

Houston oil field services company Baker Hughes said recently that it will lay off 7,000 employees. The company has roughly 700 employees in Kern County. Sources familiar with the situation said they expect the company to implement a “high number of layoffs” in Kern County in the coming days.

Houston firm Schlumberger, the world’s largest oil field services company, said this month that it has begun to lay off 9,000 employees. The company, which runs several offices in California, said the move “has become necessary in today’s lower commodity pricing environment and anticipated lower exploration and production spending in 2015.”

Oil field services giant Halliburton decided last month to cut its head count by 1,000 workers, although none are in California, where the company has roughly 600 employees. But the company said in a statement that it will “continue to monitor the business environment closely and will make adjustments to the cost structure of our business as needed.”

Jobs related to oil tend to pay well -- more than double the average annual wage for all private industries in California, according to the Los Angeles County Economic Development Corp. Unemployment for highly compensated workers could mean weaker auto sales and declining revenue at more upscale retailers, economists said.

Meanwhile, the industry’s middle-income workers might rush into similar occupations in construction or manufacturing if they lose their jobs, creating a supply glut of labor that could compel their new employers to lower wages, said Bakersfield economist Evans.

“Oil’s big enough here that the employment and income effect is going to dampen the momentum we would hope to get from the national recovery,” Evans said.

Industry veterans laid off or forced into other occupations or early retirement may not return to the petroleum business even if prices recover, experts said.

Terra Gaines is executive vice chair of American Petroleum Institute’s San Joaquin Valley chapter. She also owns an executive placement firm, and 95% of her business is linked to the oil industry, she said.

Layoffs started with entry-level workers and contract consultants.

“Now we’re moving into mid-level and executive level management being laid off,” she said. “These are people who are really experienced, who have been in the industry 20, 30 years and are at the top of the food chain.”

Once the market recovers, however, many will return as high-end consultants, she said.

But among the millions of workers supported by Southland employers, petroleum industry employees constitute just a tiny fraction.

“You’re going to lose jobs in the construction of derricks and oil drilling rigs and you’ll lose some in the potential expansions that would’ve happened with higher oil prices,” said Jerry Nickelsburg, a senior economist with the UCLA Anderson Forecast. “But these numbers are not going to be large relative to the size of the Southern California economy.”

If anything, the low oil prices could be a boon for the area, lowering businesses’ cost of production and operation and sparking more consumer spending, Nickelsburg said.

“That will stimulate demand for jobs in other sectors,” he said. “Lower oil prices are on net a positive for California.”

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