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Oil Field Blues : Price Drop Deals Blow to Industry, Cities in L. B., Southeast Areas

May 04, 1986|SUE CORRALES | Community Correspondent

When senior reporter Bob Williams closed the Oil and Gas Journal's Long Beach office last month, it marked the first time in more than 45 years that the weekly magazine had been without a West Coast news office.

It also signaled yet another decline in the fortunes of the wide-ranging oil and gas industry in the Long Beach and Southeast areas, where the world drop in the price of oil has hit close to home.

"We can't afford an editorial position here anymore," Williams said shortly before he left. "Our advertising has been in decline. Many of our advertisers service and supply petroleum producers. Right now, they are just trying to stay afloat."

The journal's size has dropped with the price of oil. In 1981, Williams said, the magazine averaged between 400 and 500 pages, while today an average issue is close to 150 pages. Although an advertising office remains in Long Beach, from now on Williams will report the West Coast news from the journal's home offices in Tulsa, Okla.

'We're Consolidating'

"We're undergoing consolidation," Williams said. "Just like the industry."

For Williams, the new assignment is a promotion. But for hundreds of others whose jobs depend on the vitality of Southern California's oil industry, the drop in the price of oil has spelled bad news.

The cutbacks are rippling throughout the industry and throughout the area.

Oil producers in Long Beach, Signal Hill and Santa Fe Springs say they have reduced their staffs, closed wells and cut back on production. Major oil companies report across-the-board staffing cuts of 10% to 15%.

With oil field development at a near standstill, drilling companies have cut staff and reduced hours to the point that four of the 12 companies in Long Beach and Signal Hill weren't even answering their telephones on a recent weekday afternoon.

Service Firms Hurting

Local oil field service companies say they have been hurt because oil producers are delaying routine well maintenance and shutting down high-cost wells. The service companies in the area report 30% to 80% drops in business. Some service companies say they are staying in business by submitting bids that would have been unthinkably low a year ago, in order to get jobs that are only half or a third their usual size.

Area cities, which receive oil-related income, have also felt the pinch.

In a recent report to the Long Beach City Council, Tidelands Agency Manager Carolyn S. Sutter estimated drops in income of about $4.7 million to the Tidelands Agency, and $12.3 million to the city's general fund in fiscal year 1986-87, assuming a sale price of $13 for a 42-gallon barrel of oil.

Losses Detailed

Last year, the Tidelands Agency took in $9.8 million in oil-related income, while the city received $21 million from oil operations. The losses stem from reductions in tax revenue, interest income from tidelands oil well operations and income from city-owned oil property.

Assistant City Auditor Jay Hansen said the shrinkage in Long Beach's general fund, which was $230.2 million last year, will be partly offset by reductions in prices for gasoline and other oil-related products used by the city. Also, the city is buffered by a $50-million general fund reserve, he said.

Signal Hill City Manager Louis Shepard said he anticipates "significant losses" in "the hundreds of thousands of dollars" in barrel tax money and in the sale of water to oil producers.

$30,000 Drop Expected

Santa Fe Springs received $180,000 from its barrel tax and well permit fees in fiscal 1985-86, and is projecting a $30,000 decline in these revenues next year, said Susan Bergeron-Vance, assistant director of finance. The income from the wells represents less than 1% of the city's $16.6-million general fund.

Some observers say that even when the price goes back up, there is a special problem in this area because of the low quality of oil pumped and the low productivity of some wells. They say that if oil prices, which have fallen here to around $11 a barrel, depending on quality, stay depressed long enough, start-up costs could force the permanent closure of some wells.

Lowest Prices in World

Even before the bottom dropped out of the market, local independent oil producers were paid some of the lowest prices in the world, Williams said, because most of the oil is heavy and of a low quality. In the words of one local producer, "If you let this stuff sit long enough, you can pave roads with it."

"The oil fields in the L.A. Basin have been in a state of decline for some time," Williams said. "They weren't exactly booming before, so they don't have that far to fall."

At refineries, some local producers must compete with better quality oil from Alaska and with oil from the Navy's Elk Hills field, which is being piped here from Kern County, and is currently selling at below-market prices.

Prediction Impossible

In the mercurial world of oil pricing and production, no one can say how many local jobs may be lost as a result of the downward price spiral.

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