Oil Field Blues : Price Drop Deals Blow to Industry, Cities in L. B., Southeast Areas
When senior reporter Bob Williams closed the Oil and Gas Journal’s Long Beach office last month, it marked the first time in more than 45 years that the weekly magazine had been without a West Coast news office.
It also signaled yet another decline in the fortunes of the wide-ranging oil and gas industry in the Long Beach and Southeast areas, where the world drop in the price of oil has hit close to home.
“We can’t afford an editorial position here anymore,” Williams said shortly before he left. “Our advertising has been in decline. Many of our advertisers service and supply petroleum producers. Right now, they are just trying to stay afloat.”
The journal’s size has dropped with the price of oil. In 1981, Williams said, the magazine averaged between 400 and 500 pages, while today an average issue is close to 150 pages. Although an advertising office remains in Long Beach, from now on Williams will report the West Coast news from the journal’s home offices in Tulsa, Okla.
‘We’re Consolidating’
“We’re undergoing consolidation,” Williams said. “Just like the industry.”
For Williams, the new assignment is a promotion. But for hundreds of others whose jobs depend on the vitality of Southern California’s oil industry, the drop in the price of oil has spelled bad news.
The cutbacks are rippling throughout the industry and throughout the area.
Oil producers in Long Beach, Signal Hill and Santa Fe Springs say they have reduced their staffs, closed wells and cut back on production. Major oil companies report across-the-board staffing cuts of 10% to 15%.
With oil field development at a near standstill, drilling companies have cut staff and reduced hours to the point that four of the 12 companies in Long Beach and Signal Hill weren’t even answering their telephones on a recent weekday afternoon.
Service Firms Hurting
Local oil field service companies say they have been hurt because oil producers are delaying routine well maintenance and shutting down high-cost wells. The service companies in the area report 30% to 80% drops in business. Some service companies say they are staying in business by submitting bids that would have been unthinkably low a year ago, in order to get jobs that are only half or a third their usual size.
Area cities, which receive oil-related income, have also felt the pinch.
In a recent report to the Long Beach City Council, Tidelands Agency Manager Carolyn S. Sutter estimated drops in income of about $4.7 million to the Tidelands Agency, and $12.3 million to the city’s general fund in fiscal year 1986-87, assuming a sale price of $13 for a 42-gallon barrel of oil.
Losses Detailed
Last year, the Tidelands Agency took in $9.8 million in oil-related income, while the city received $21 million from oil operations. The losses stem from reductions in tax revenue, interest income from tidelands oil well operations and income from city-owned oil property.
Assistant City Auditor Jay Hansen said the shrinkage in Long Beach’s general fund, which was $230.2 million last year, will be partly offset by reductions in prices for gasoline and other oil-related products used by the city. Also, the city is buffered by a $50-million general fund reserve, he said.
Signal Hill City Manager Louis Shepard said he anticipates “significant losses” in “the hundreds of thousands of dollars” in barrel tax money and in the sale of water to oil producers.
$30,000 Drop Expected
Santa Fe Springs received $180,000 from its barrel tax and well permit fees in fiscal 1985-86, and is projecting a $30,000 decline in these revenues next year, said Susan Bergeron-Vance, assistant director of finance. The income from the wells represents less than 1% of the city’s $16.6-million general fund.
Some observers say that even when the price goes back up, there is a special problem in this area because of the low quality of oil pumped and the low productivity of some wells. They say that if oil prices, which have fallen here to around $11 a barrel, depending on quality, stay depressed long enough, start-up costs could force the permanent closure of some wells.
Lowest Prices in World
Even before the bottom dropped out of the market, local independent oil producers were paid some of the lowest prices in the world, Williams said, because most of the oil is heavy and of a low quality. In the words of one local producer, “If you let this stuff sit long enough, you can pave roads with it.”
“The oil fields in the L.A. Basin have been in a state of decline for some time,” Williams said. “They weren’t exactly booming before, so they don’t have that far to fall.”
At refineries, some local producers must compete with better quality oil from Alaska and with oil from the Navy’s Elk Hills field, which is being piped here from Kern County, and is currently selling at below-market prices.
Prediction Impossible
In the mercurial world of oil pricing and production, no one can say how many local jobs may be lost as a result of the downward price spiral.
Officials from the California Employment Development Department report that, countywide, 11,300 workers are employed in businesses related to oil and natural-gas production. In 1985, 52% of the county’s oil production was concentrated in the Wilmington oil field--the cigar-shaped area of 13,400 acres that extends northwest from Seal Beach across Long Beach, Wilmington and Torrance, and into Redondo Beach.
The seven largest oil-related companies in Long Beach employed 1,975 people in January, 1985, according to the Long Beach Directory of Major Employers. More than 500 of them work for THUMS Long Beach Co., the largest producer in the Wilmington field.
Drilling Cut Back
With per-barrel production costs of less than $7, THUMS Long Beach Co. has trimmed field-service contract work only slightly, and anticipates no well shutdowns, said Steve Marsh, company spokesman. Drilling will continue, Marsh said, albeit at a reduced rate.
Other companies are not so fortunate.
Steve Berg-Hansen, executive vice president of the California Independent Producer’s Assn., said his organization estimated that, statewide, 5,000 wells were shut down in January and February as a result of the drop in oil prices. “Hard numbers don’t exist,” he said, “but it’s edging up toward 10,000 (wells) rapidly.”
“I guarantee you there will be big changes there (in the Wilmington oil field) if we don’t have a movement in price soon,” he said. “Those decisions are still being made.”
Production Cut in Half
In Santa Fe Springs, Mobil Oil Co., the city’s largest producer, has cut production in half. As of Jan. 1, Mobil was operating 100 wells in the Santa Fe Springs field and pumping 2,400 barrels of oil a day. A company spokeswoman said that Mobil production in the field has dropped to 1,270 barrels a day, only 43 Mobil wells are operating and more shutdowns are likely.
In January, Mobil had contracts with 15 companies to service its Santa Fe Springs oil wells. Today there are none, said Merrily Smith, the Mobil spokeswoman.
“Mobil is looking to cut back any expense and cost which is not adding favorably to the bottom line,” she said. “Where possible, we are using in-house staff for servicing. But if it costs more to service a well than it’s worth, we’re just shutting it.”
4-Day Week Possible
Officials from Long Beach Oil Development Co., which like THUMS pumps oil on behalf of the City of Long Beach and the state, say they have stopped using contractors to operate their well maintenance rigs, shut down about 25 of their 550 wells and warned their 250 employees that if the price of oil continues to drop, they may be working only four days a week, with a commensurate pay cut.
“If the price of oil drops to around $9 a barrel that will certainly be an option,” said Harry J. Krebs, manager of operations. “It’s that or start laying people off.”
Based on last year’s operating costs, Long Beach Oil Development is “probably losing money,” Krebs said. Right now, the company’s oil is selling for “around $10 a barrel,” he said.
45 Wells Closed Down
Xtra Energy Corp., headquartered in Signal Hill, closed down 45 producing wells in the Wilmington oil field on April 3, when oil prices fell to $9.45 a barrel, said Parker Kemp, production manager. The price would have to go up to $21 a barrel for the company to begin breaking even and resume operation, Kemp said. He has already received orders to cut back the work force, and will begin with some of the five contractors who work on Xtra’s wells.
Xtra Energy has unusually high production costs, Kemp said, because it uses an innovative oil recovery system which involves injecting carbon dioxide into the oil field. The system is expected to eventually yield oil that would otherwise be unrecoverable, Kemp said.
50 Workers Laid Off
Atlantic Richfield Co., with transportation division headquarters in Long Beach, reports reducing its local payroll by about 50, to 450, in 1985 by attrition as a result of across-the-board, companywide cutbacks.
Champlin Petroleum Co., which has local administrative offices in Long Beach, a refinery in Wilmington and wells that extract 12,000 barrels of oil a day from the Wilmington field, laid off 10% of its 350-member local work force “about a month ago,” a company spokesman said. It also cut its field service contract work force from about 55 workers to 15.
No Champlin wells have been shut in Wilmington, company spokesman John Keffer said.
Service Work Delayed
A spokesman for Chevron USA Inc., which owns 95 of the 169 oil wells that were operating in the Montebello oil field at the beginning of this year and 50 in the Wilmington field, said Chevron has not shut down any wells in either field. But field service work is being postponed wherever possible, and the company is considering a worldwide staffing reduction of 10% to 15%, said Tom Walker, public affairs manager.
Independent producers are also cutting back. Richard Young, president of the 30-member Signal Hill-Long Beach Area Independent Producers Assn., said that gross profits of most local independent producers have turned into losses since January.
Of about 200 wells operated by association members, nearly 25 have been shut as a result of the drop in oil prices, he said.
Worker Ranks Cut
“I know that in our group, all of us have laid off one or more employees,” Young said. Young, who operates 13 wells in the Long Beach-Signal Hill field, and 28 in other parts of California, has laid off two of his six employees and shut down four wells in the field.
“I have some now that I know that I am losing on, but if I shut down more, I’ll have to lay off key people,” he said.
Craig Barto, vice president of Signal Hill Petroleum, said his firm used to have 54 wells pumping oil out of the Signal Hill-Long Beach oil field and a staff of 20. He is down to 45 wells, about 15 employees, and holds open the possibility of more closures and layoffs.
“If a well goes down for maintenance and it looks like we might have to spend $5,000 to get it going, it will just be left idle,” he said.
Some Wells May Remain Idle
And just how many Signal Hill Petroleum wells will ever restart is anybody’s guess. Prohibitive start-up costs could keep some wells shut down for good, Barto said.
After prices stabilize, Barto said, Signal Hill Petroleum will weigh the price of oil against the price of real estate, factor in start-up costs and decide whether to restart the wells or shut them down permanently.
Pool Well Servicing, which employs 300 people in the Long Beach area, is also suffering. Pool plans to lay off about 30% of its 150-employee drilling department in the next several weeks, now that THUMS, a major account, has announced plans to cut back drilling 30%.
