PLACENTIA : Council Proposes 25% Oil Tax Increase

The City Council has proposed a 25% tax hike on the city’s dwindling oil production, generating fears among oil companies that the new rate will lead to similar increases in other cities.

The proposed tax increase on oil pumped from Placentia’s 399 wells would add $70,500 to city coffers each year, officials said.

The proposal, prepared by Placentia’s Finance Department, would raise annual taxes from $350 to $437.50 per well and from 12 cents to 16 cents per barrel. Taxes on gas production would rise from 1 cent to 1.25 cents per cubic foot.

Oil producers, who say revenue from Orange County wells had been declining until the onset of the Persian Gulf crisis, say they fear the tax increase will hit hard if oil prices decline again.

“You could very easily have a domino effect on other cities,” Peter H. Finie, tax-issues coordinator for the Western States Petroleum Assn., said Friday. “It can get out of control.”

The council is expected to take up the proposal at its meeting Tuesday. Several oil companies are expected to request a 30-day postponement of the council’s vote to prepare a presentation on the effect of the taxes.

In a report to the City Council, Finance Director Frank B. Dunnavant argues that taxes haven’t been raised since 1983, when the per-barrel tax was raised from from 9 cents to the current 12 cents. Meanwhile, he added, the cost of operating has risen more than 40% in the same period.

Dunnavant also noted that the city’s per-barrel tax income on 399 wells has fallen from $175,421 in 1985-86 to $130,405 in 1989-90, due either to a decline in production levels or a decrease in the amount of oil extracted from the fields.

City officials say that the tax increase would bring them in line with tax rates of nearby cities. The per-barrel tax ranges from 3.5 cents in Yorba Linda to 20 cents in Inglewood. But Ed Malmgreen, environmental affairs manager for the California Independent Petroleum Assn., said the average per-barrel tax rate is less than 12 cents.

Malmgreen added that over the past five years, oil production in the city has been in a slump, and some companies found it difficult to break even. In 1985, he estimated, oil companies collected $24 per barrel on fields in Placentia and Yorba Linda. That fell to $9 per barrel in 1986, he said. Only recently, with the Persian Gulf crisis, have prices rebounded.