For small drillers, tax is fueling a world of worry

At the Petroleum Club, 12 stories above this fast-growing city, $10 buys the region’s oilmen the Driller Burger, billed as “one full pound of the best quality ground beef in existence.”

These days, it comes with a side of anxiety over Proposition 87, the measure on Tuesday’s ballot that would tax petroleum production in the state to fund alternative energy research.

This is the heart of California’s oil country. There’s a particular square-mile section of the nearby Midway-Sunset field where more than 600 pumping units draw crude from deep underground. Oil helps fuel the region’s economy, so it’s no surprise that the folks who make a living off black gold have little use for Proposition 87.

The Bakersfield City Council singled out the ballot measure as the only proposition worthy of official action. The council -- which counts two past presidents of the local Petroleum Club among its members -- voted unanimously to oppose the initiative, which aims to raise $4 billion over the next decade.

“Bakersfield depends on the oil industry and the agriculture,” said Don Arnot, a retired Chevron Corp. employee who volunteers at the West Kern Oil Museum in nearby Taft. “The biggest part is all done by the majors, but the other guys are still there plugging away, and they’re the ones who will be hurt” by Proposition 87.

Chris Hall, a third-generation driller, is one of those other guys. Hall is so worried that he has donated his time and at least $10,000 to defeat the measure. Other independent oil companies have joined him in writing checks to the No on 87 campaign.

“They’re concerned. Otherwise why would people pony up all this money to fight this thing?” said Hall, whose Drilling & Production Co. operates 60 wells in Kern County. “This affects their bottom line.”

Smaller producers with little out-of-state business said they would be hit harder than larger companies with more diversified operations. Chevron Corp. of San Ramon, Calif., has estimated that Proposition 87 would cost it $200 million a year before taxes.

Hall and others like him, however, are bit players in California’s oil business -- in production and in campaign contributions.

More than 60% of the state’s yearly oil output is controlled by three producers: Chevron, Occidental Petroleum Corp. and Aera Energy, a partnership of Royal Dutch Shell and Exxon Mobil Corp. They have provided much of the nearly $100 million raised by Proposition 87 opponents.

Backers of the initiative, including environmentalists and Hollywood producer Stephen L. Bing, accuse the major oil companies of trying to kill a government program that would boost alternatives to gasoline and reduce the state’s consumption of oil. They note that the tax varies with the price of oil and argue that producing oil in California is so profitable -- even with the tax -- that most companies wouldn’t scale back operations.

Such massive funding from Big Oil reflects the magnitude of California’s petroleum industry. Despite a steady depletion of its largest oil fields, California ranks as the fourth-largest U.S. oil producer, behind Alaska, Texas and Louisiana; unlike California, they all tax oil production.

From the beginning, California’s most prolific oil fields were concentrated in the San Joaquin Valley. Geology blessed the region with 18 oil fields that have produced more than 100 million barrels of oil each.

And there is a handful of 1-billion-barrel producers such as Midway-Sunset, Belridge South and Elk Hills, the former Naval Petroleum Reserve now in the hands of Occidental. Those three sites in Kern County rank among the nation’s top 10 fields in reserves and in yearly production.

California’s other major oil hot spot is urban Southern California, where crude was discovered more than a century ago. The oil reservoirs, in places such as Huntington Beach, Wilmington and Signal Hill still provide crude through bobbing pumpers sprinkled amid homes and businesses.

In 1985, state oil output, including state and federal waters, peaked at 423.9 million barrels.

Today’s production is far lower, largely because of normal depletion. Last year’s total of 255.8 million barrels was 4.4% lower than 2004, according to the state Department of Conservation.

California’s oil varies from light and sweet -- the most desirable -- to a heavy type that many liken to molasses. Most producers coax out the thick oil by injecting steam into the ground, which adds expense but has extended the life of many fields.

Wildcatters -- the risk-takers who helped fuel the state’s ascension in oil -- are long gone, said Fred Holmes, whose family-run Holmes Western Oil Co. operates several hundred wells west of Bakersfield. “Everybody knows where the oil is,” he said.

The price for California’s Buena Vista oil topped $68 a barrel this year, padding profits. Today, the price remains lofty at $58 a barrel, but producers who have seen booms and busts worry that the high prices won’t last. And a production tax won’t help, they say.

“As recently as 2000, we had everyone on a 20% pay cut,” said Hall, whose small company had eight employees at the time. He’s expanded since then, and plans to drill three new wells next year. Hall said he would trim that to two wells if the oil tax passes.

“There is still a lot of oil in the ground,” he said. “What it takes is the desire and the economics to go get it.”

elizabeth.douglass@latimes.com