Kern County’s ‘King Oil’ Put in Tatters by Falling Prices

‘Oil used to be king here.’--Russell Cameron

The wealth of crude oil beneath this semi-desert has been the king of Kern County’s economy since the 1920s, but plunging prices last year left the monarchy in tatters.

Despite OPEC’s production agreement on Dec. 19 to at least temporarily drive up worldwide petroleum prices, industry experts cautioned not to expect improvements right away to depressed local economies with big stakes in the oil business.

The crisis in the largest oil-producing county in the contiguous 48 states has thrown 7,000 oil industry workers out of their jobs. At one point, there were 500 layoffs a week in the fields, which are approaching a historical production mark of 10 billion barrels.

“Oil used to be king here,” said roughneck Russell Cameron, 29, of Maricopa, who lost his job on a drilling rig in July.

“Now the industry’s like a decrepit monarch who wants his glory days back again.”

The fall in California’s heavy crude prices from $25 a barrel in January to as low as $7 last summer brought about the demise of “King Oil,” the name given to the petroleum industry in Kern County, which produces more oil than every state except Alaska, Texas and Louisiana.

OPEC Plan Tenuous

Although experts said the plan by the Organization of Petroleum Exporting Countries to cut production an average 7.25% could invigorate the depressed worldwide oil industry, analysts warn that the deal could collapse because of continuing discord in the 13-nation cartel.

So for now, thousands of wells remain shut in, and drilling equipment continues to be sold for parts.

By August, the state’s monthly oil production had fallen 100,000 barrels from January, a 9% decline, according to the latest figures available from the Conservation Committee of California Oil Producers. The largest reductions in production came in the three largest Kern County fields--Kern River, Kern Front and Mount Poso.

The average monthly number of oil and natural gas wells being shut in--temporarily closed--has increased 20% since January, the committee said.

Total oil field assessments in 1986 fell 13% from 1985’s value of $17.1 million, after increasing 39% since 1982, according to County Assessor James Maple.

“The perception among members of the industry is we’ve seen the bottom, but also that we’re going to have a period of instability for a long, long time,” said Steve Berg-Hansen, president of California Independent Producers Assn.

“We’re not on a doomsday scenario, but no one is confident about investing in the foreseeable future,” he added.

Small- to medium-size independent drilling and service companies have been hardest hit. There is little impetus to explore for new reserves, and many marginal wells--the lifeblood of thousands of mom-and-pop firms--are being shut down because they are too costly in the face of depressed prices.

“There’s almost no way to summarize the effects on the drillers,” said Tex Cleveland of Cleveland Oil Co. “Almost all drillers are bankrupt in essence because none are getting in enough money.”

In 1981, about 130 rigs were digging for Kern County crude. But by the end of last summer, barely 30 were in use. About 10 to 20 of the unused rigs are selling at auctions each month with most buyers cannibalizing them for spare parts.

The number of Kern exploratory wells has fallen from 144 in 1981 to 51 in 1986, according to the California Division of Oil and Gas.

Unemployment countywide has hovered at about 12%. The nation-state economy of California has helped avert higher joblessness by adding positions in retail and service sectors.

But in some of Kern’s smaller towns, where the economies are almost entirely dependent on oil and agriculture, unemployment may be as high as 20%, residents say.

Andy Anderson of Taft was forced to lay off 90% of his 90 workers at Westside Oilfield Construction in the spring.

Business plunged 25% almost overnight at nearby Lamplight Liquor, which now cashes more unemployment checks than payroll checks.

“There is less profit in the industry now than there was in 1955, inflation considered,” lamented Berg-Hansen.

The crisis in California parallels those in other oil-producing states.

But in many ways California’s problem is more pronounced because the state’s heavy crude is a high-cost, low-price product. It can be 100 times thicker than motor oil, and costly extraction methods are needed to get it to flow through a pipeline.

Berg-Hansen describes some underground reserves as akin to honey in a refrigerated jar.

Because of that, marginally producing wells--called strippers in roughneck lingo--may be the biggest casualty of the oil-price slump.

“From a national security viewpoint, those wells are a national treasure that is being lost,” said drilling consultant Tom Andrews.

There are thousands of these wells scattered like giant blades of grass across the semi-arid southern interior of California. Fifty-four percent of the state’s wells produce fewer than 10 barrels a day; 25%, fewer than three.

Kern County accounts for 60% of the 270 million barrels produced in San Joaquin Valley fields in an average year.

The valley’s total production throughout its history passed 9.5 billion barrels last year, which is by far more oil than Alaska’s comparatively new Prudhoe Bay has produced to date, said oil industry researcher Bill Rintoul. He added that only Prudhoe Bay produces more on a yearly basis than Kern County.

Proven oil reserves are calculated at 6 billion barrels in the valley, 20% of the nation’s recoverable onshore reserves.

Financial institutions were eager to lend when oil reserve appraisals were skyrocketing, but now they are reluctant.

As a result, small- and medium-size oil firms are being swallowed by larger companies.

“We’re losing two very important generations of workers,” Berg-Hansen said. “The older, more experienced are being lost because of early retirement programs, and many of the younger people aren’t coming into the industry because there’s no jobs.

“That’s the resource imperiled the most.”