Kern County : Skidding Oil Prices Take Along Jobs

Don Jones has been an oil roughneck since he got here from Missouri in 1947, and he has seen the ups and downs. A derrick man on a drilling crew, he says his latest layoff has a different feel to it.

“I’ve been laid off plenty of times, and they always tell you there’ll be more work in a couple of weeks,” said Jones, 60, who was idled six weeks ago and is two payments behind on his pickup truck. “This time they say there’s nothing in sight.”

Bryce Davis, 21, a pipe racker on a drilling crew, was just called back to work from layoff, but his paycheck is 97 cents an hour smaller than it was before. Gary Drilling Co., his employer, cut wages for the first time in the firm’s 32-year history.

Lower Bids

A $14.28-an-hour wage is still pretty good, Davis figures, and the smaller payroll enables his boss to lower his bids and land drilling jobs for his roughnecks. Davis went back to work a few days after his wife, Jill, delivered their first child.

“I just say my prayers that it doesn’t get any worse,” Davis said.

In fact, the trouble is only beginning. As roughnecks, Jones and Davis are at the tail end of the oil economy, where the decline in oil prices is just now making itself felt. In California’s chief oil patch, 100 miles north of Los Angeles, it doesn’t feel so good.

“When the oil price drops, a lot of jaws drop around here,” said Trice Harvey, chairman of the Kern County Board of Supervisors.

Large Producer

If Kern County were a state, local people like to say, it would rank as the nation’s fourth-largest oil producer after Texas, Alaska and Louisiana. The 1970s and early ‘80s were boom times as oil prices surged. More important, the region has prospered from an influx of people fleeing the congestion and high land and housing costs of the coastal areas.

The area’s biggest bragging point is enunciated by James Radoumas, manager of the Kern County Board of Trade: “We like to think we can enjoy the Dodgers and the Rams and the other activities over the hill without having to put up with the day-to-day nuisance.”

Even after oil prices began a gradual slippage in 1981, Kern County and Bakersfield, the county seat, continued to grow at one of the fastest rates of any community in California. And last year, the county’s giant oil fields yielded a record 256 million barrels of crude oil--three-fifths of the state’s total.

To put that amount in perspective, the famous Lakeview gusher of 1910 near Taft, on the western edge of the county, would have had to spew forth oil at its peak rate, uncontrolled, for 24 hours a day until 1950 to yield 256 million barrels.

But with a turn of the spigot late last year, Saudi Arabia boosted its production and flooded the world with oil. The resulting slump in prices is good economic news for most people because it is expected to reduce inflation, spur economic growth and create jobs.

But it has shrunk the value of Kern County’s huge oil reserves by about 60% in less than three months--a dramatic reversal of fortunes in a community where oil accounts for half of tax revenues and where the other principal industry, farming, has been depressed for two years.

“I used to give speeches about how farming and oil support the Kern County economy,” said Sheryl Barbich, a vice president at Security Pacific National Bank here. “I didn’t envision the day when both would be in trouble.”

Ancillary Businesses

The plummeting prices have prompted oil producers, principally Shell, Chevron and Texaco but also including dozens of smaller, less resilient independent operators, to scale back or close down wells altogether and reduce or halt drilling. In turn, the many firms that drill holes, fix broken equipment and sell other services to the oil producers have seen their business rapidly dry up.

“We had three contracts canceled just last week,” said Gary Green, who runs Gary Drilling with his father and has had to lay off longtime workers. Four of the firm’s 14 rigs have been idled since December, Green said. It’s a rule of thumb in the oil business that each drilling rig supports 160 workers one way or another.

By the end of February, more than half of the 120 rigs in the county were idle.

“We can talk about economics all we want,” Green said. “We will survive here. But we are concerned about the employment.”

About 1,400 oil workers have applied for jobless benefits in the county since Feb. 17, when the state Employment Development Department began keeping track of the oil picture, and they are assumed to be the first wave. Nearly half of those applicants turned up last week, and even larger crowds jammed the lobbies of Bakersfield’s two unemployment offices in the last few days.

Professionals Hit

While the first wave of joblessness has hit the blue-collar workers for small oil service firms, more recent Kern County layoffs at such major oil firms as Tenneco have begun to eat into the professional ranks--as evidenced at this week’s meeting of the San Joaquin Valley chapter of the American Petroleum Institute.

“We always wear name tags with the names of our companies,” said Pierce O’Leary, president of the chapter. “Last night, a lot of guys had the word available under their names.”

It is a case of a community unable to control its own fortunes, in which the oil dictums of the Saudi sheiks can shut down a small library in, say, Pumpkin Center--the sort of option now faced by county officials.

Every $1 drop in the price of a barrel of oil, said Supervisor Harvey, costs the county about $5.4 million in tax revenue. By one optimistic calculation, the tax loss now stands at $30 million. “We’re back in a position like right after Proposition 13,” he said.

The biggest single blow so far was Texaco’s decision in February to close down about 1,500 small oil wells and dismiss the small contractors who maintained the sites. Hundreds of privately owned wells had already been shut down by then. Yet local oilmen and bankers say many small oil operators, not to mention grocers, real estate agents and others, have yet to realize what’s happening.

Not Breaking Even

“The kicker came in mid-January,” said Rodney Nahama, president of Nahama & Weagant Energy Co., which has closed 20 of its 22 oil wells. Nahama said the wells need $12 to $15 per barrel just to break even, but the company’s oil has been fetching only $9 to $12.

Though Nahama’s firm gets most of its revenues from natural gas, the oil closings prompted him to lay off 15% to 20% of his own work force and cancel a contract with a small pumping firm. But wells don’t have to be unprofitable for jobs to be lost.

O’Leary is Bakersfield sales manager for California Production Services, a 49-year-old family business that is the state’s biggest well-servicing company. A typical job for his firm, he said, would be to repair or replace a well’s “sucker rod,” which might fail as it moves up and down, activating the pump that creates a vacuum to suck the oil into the well bore.

“If it costs $15 a barrel to lift the oil and pay royalties on it and the price of oil is $15 a barrel, and it costs $2,000 to fix the well, it’s uneconomic to fix it,” O’Leary said. “Business volume is being rapidly reduced.”

“You don’t see panic,” O’Leary said. “But I’ll bet some people are thinking it.”

The oil people here fret about today and tomorrow.

Most of the marginal operators who jumped into the oil business when prices skyrocketed in the late 1970s have already disappeared, observers say, done in by the gradual price declines that began in 1981. It is part of a nationwide restructuring in which about one-fourth of all independent oil producers vanished.

Bigger Firms Affected

But the sudden recent price collapse is now affecting more substantial firms that, nonetheless, rely on the flow of cash from their oil production to pay the interest on their loans.

As a group, California’s independent producers were far more optimistic about oil prices than were the big, integrated oil companies, according to a survey done last year for a graduate thesis by Stephen Berg-Hansen, executive vice president of the California Independent Producers Assn.

Thus, while most forecasters saw oil prices declining gradually, many independents borrowed money to drill wells on the woefully bad hunch that oil prices would rise faster than inflation over the next five years, the survey found.

When they do their books for March, producer Nahama said, many will find themselves technically bankrupt.

“We believe that with the events of the last month, the lenders will have to bite the bullet and start calling in these notes,” said drilling contractor Green. “A lot of them will have to file for Chapter 11 (bankruptcy protection).”

There is a lot of support around here for a tax on imported oil, and there are complaints that crude oil pumped from U.S. government reserves at the Elk Hills field west of Bakersfield is worsening the oil glut in California.

Costly Side Effect

In the longer term, there is worry that the wells being closed will plug up and be uneconomic to redrill, that the ranks of the independents that account for most exploratory drilling will be dangerously thinned, that the employment base and infrastructure that support oil will be permanently eroded, and that U.S. oil production will fall precipitously.

At Gary Drilling, a good-sized family firm that drilled about 1,200 wells last year and stuffs religious pamphlets into its paycheck envelopes, they have to get their drilling pipe from overseas.

“The manufacturers of drilling equipment aren’t making it,” Gary Green said. “There are no domestic firms making drill pipe. And we are losing people to other industries. We are losing our employment base.”

That, as any U.S. oilman will lecture these days, sets the stage for a replay of the 1970s and a renewed dependence on foreign oil. And when prices surge again, Nahama said, “You’ll all be crying about ‘obscene profits’ in the oil industry. Remember those days?”

Indeed, people here are long-haul optimists. Although the latest price collapse has been steeper and quicker than others, oil towns have seen this sort of thing before.

While today’s laid-off oil workers line up at the unemployment office to collect $166 a week in jobless pay, their counterparts during the Great Depression were hired by the Smithsonian Institution to dig up Indian mounds near Taft for 50 cents an hour.

Huge Reserves

“We’ve seen oil production shut in many times, in the 1930s and in the 1950s,” said Bill Rintoul, a longtime local oil journalist and historian. He said there are still 2.6 billion barrels of oil underneath Kern County, or more than half of the oil left in California.

The local boosters continue their efforts to reduce the area’s dependence on oil and farming, a priority that is getting renewed attention.

Banker Barbich said interest among food processors and small manufacturers in relocating to the Bakersfield area “seems to be gathering steam,” and the influx of people to the state’s Central Valley is expected to continue.

Next month, a big new Frito-Lay plant is scheduled to open 17 miles west of here. About 400 jobs are to be filled there by summer. While it’s not an oil wage, Frito-Lay says the offer of $8.35 an hour to make potato chips, tortilla chips and corn chips was enough to attract 8,000 applicants over the last three months.

It is the sort of news that this community could use more of, because bad news keeps coming: The planting of cotton, the county’s No. 1 crop, will be down 30% this year. According to Supervisor Harvey: “That means 30% less people planting cotton. That’s a lot of cotton not to be planted.”

Concludes Nahama, who was interviewed on a recent evening at his office where satellite transmissions of the results of a new drilling project were being relayed even as the drillers worked in the field:

“The most optimistic thing about this is the pessimism, because it makes opportunities. What you do now is look for big fields, and economics that work at $11 a barrel.”