Three oil companies operating in Long Beach have announced that they will no longer pay royalties to some 13,000 owners of mineral interests in properties on an oil field beneath most of the city's shoreline areas, including Downtown.
The mineral rights owners, most of them heirs and small investors, will be offered the choice of becoming full investors in the 47,000-barrel-a-day enterprise and assuming many of the risks of the oil market, or of abandoning their claims altogether.
Other oil companies could take over the 13,000 leases, but that appears unlikely in the current oil market, investors said.
For 29 years, property owners and those who own the mineral rights to the properties have received regular payments for allowing a group of "working-interest owners," including Chevron, Phillips Petroleum and ARCO oil companies, to extract oil and gas from the field.
But decreasing reserves in the oil field and fluctuations in the price of oil have made the operation less profitable for the three oil companies.
Chevron will pull out of the oil field altogether, said R. K. Spackman, the company's public affairs manager. ARCO, owner of THUMS Long Beach Co., which manages the oil field, will continue to be involved in oil production there. Phillips, which has small mineral rights stake of its own, will continue as an investor.
The royalty payments could stop by the end of the year, after mineral rights owners have been formally notified, Spackman said. Formal agreements signed by property owners in the mid-1960s included terms for suspending royalty payments.
Royalties paid to the 13,000 mineral-rights owners represent only a small portion of the profits from the field, which extends into Long Beach Harbor. The state receives the largest share of the profits. Last year, the state collected $18 million, or 87% of the profits. The city received $161,000, less than 1%.
The field is the so-called Long Beach unit of the East Wilmington Field, where oil was discovered in 1936. In 1965, the oil companies began pumping from a series of four oil islands in Long Beach Harbor. The Long Beach unit yielded as much as 150,000 barrels a day by the late 1960s. About 790 million barrels have been pumped from the field since it opened.
Most of the mineral rights owners in the field's so-called Townlot area--the portion on dry land--are small individual investors. They receive an average of about $350 a year, oil company representatives said.
If all became working-interest owners, they would have to absorb collectively about 8% of the $150 million a year required to operate the field, the representatives said. That represents an average annual payment of $92.
But that does not take into account the possibility of a downturn in the market, said Mel Wright, an oil industry consultant who is also a royalty-interest owner.
Wright and his wife, Jonine, receive royalty checks of about $50 a month because they own a share of the mineral rights to a property at 5th Place and Ocean Boulevard, which they inherited from Jonine Wright's grandfather.
"As long as THUMS keeps the costs down and the oil price stays up, you'll make money," Wright said. "But if oil goes back down and there are more drilling expenses, you lose money."
Oil from Long Beach was selling this week for $13.44 a barrel, oil company spokesmen said. Last December, one of the few months when the Long Beach operation went into the red, the price fell below $9, they said.