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Oil Price Crisis Hits Home for Beverly Hills Schools

March 16, 1986|MATHIS CHAZANOV | Times Staff Writer

With the price of oil down from $31 a barrel last November to about $14 today, oilman Jim Gibbs says the latest joke in Texas is that there's bad news and there's good news. The bad news is that the price of oil is going down at the rate of $1 a day. The good news is that there are only 14 days left.

Jokes aside, Gibbs, executive vice president of the firm that operates an oil field on the campus of Beverly Hills High School, said the price for Beverly Hills crude is not about to reach zero.

But the crisis in the world oil market is having an impact, especially on the city's hard-pressed school system, and Gibbs' firm is rethinking a proposal for drilling 13 new holes at its enclave just off Olympic Boulevard.

"That price drop is causing one terrific uncertainty as to the present and future economics and cash flow," Gibbs said in a telephone interview from Houston on Thursday. "When the price drops, the price of production goes down, and a lot of projects become uneconomical."

Gibbs said the results of an OPEC meeting scheduled for today in Geneva are likely to influence his company's plans.

Some experts have suggested that decisive action by the oil cartel might shoot the price of oil back up to the $20 range if its fractious members agree to limit production.

But it has also been suggested that the oil producers will not be able to keep from scrambling for lower prices, which would give added momentum to the recent trend for less profitable operations to shut down. Texaco recently closed 1,500 wells in its huge Kern River field near Bakersfield.

Although Gibbs said it is unlikely that his firm, Wainoco, will cap its 17 existing wells in Beverly Hills, the margin of profit is dropping every day.

"We are not considering shutting in those wells at all at this point in time," he said. "The big question is when and by what margin do you continue development of the field, because the economics have changed dramatically."

In Beverly Hills, the city and the school district split oil revenues 50-50, an arrangement that has yielded each entity as much as $1.5 million a year in recent years and $1,085,000 in the 1984-85 fiscal year.

But the latest projections put oil revenue at less than $700,000 each, a sum that Donald J. Oblander, the city's finance director, described as "not a small amount but not the major component of the (city) budget." The city's general revenues totalled $45.9 million in the last fiscal year.

Because the district's budget, about $25 million, is smaller than the city's, the impact on the schools will be that much greater, according to Supt. Leon M. Lessinger, who said jokingly that he once considered joining OPEC but has since decided against it.

"We're concerned," he said. "The rumor on the world market was that the Saudis were going to take the price down to $4-$5 a barrel to wipe out the competition, and that means us."

With the district facing layoffs and other cutbacks because of a projected shortfall of nearly a million dollars in the coming academic year, a committee appointed by the school board came up with recommendations last week designed to eke out an extra $1 million or more in revenue from various sources.

"I do believe the district has to be extremely concerned with the potential elimination or any kind of change in the oil royalty, given the uncertainty in the oil market," said Ron Rosen, an attorney who chaired the committee.

The proposals included renegotiating the agreement with the city and the oil company to give the schools a greater share of oil revenue, Rosen said.

Although the city is renowned for high property values and an excellent educational system, Beverly Hills schools are in a financial pickle because of Proposition 13, which severely limited any increase in school taxes.

As a result the school district has found itself dependent on state funding, but court rulings designed to guarantee equal spending for students across California have provided fewer dollars per pupil than Beverly Hills is used to.

"We spend more per child because our community wants to be a lighthouse district," Lessinger said. "We spend over $1,000 per student more than the state average."

Inspired by the crisis, Lessinger has come up with what he sees as one way to cash in on the interest in oil.

Starting with a vision of tiny barrels filled with oil from Beverly Hills' own wells, he proposed development of a study plan for students from kindergarten through high school.

Supplying lecture notes, workbooks, a tiny derrick and a tiny barrel complete with a Beverly Hills logo, it would use petroleum as a common theme to teach geology, history, and engineering.

An earlier Beverly Hills program designed to teach job skills was snapped up by 300 districts around the country, he said. It returned the $5,000 the district spent to develop the program.

With inspired marketing, he said, the oil program could earn a profit.

It could also be used to teach economics.

"Look at what's happening to the price of oil," Lessinger said. "I'm one of the few superintendents who goes to the gas pumps and says, 'Isn't the price wonderful,' and on the other hand, I say, 'Oh my God, there goes the deficit.' "

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