Oil Price Rise a Mixed Blessing in Kern County

In Kern County, where oil pumps pop right out of the onion and potato fields that sweep the landscape, the recent oil shock appears a mixed blessing.

Cautiously, some oil producers are beginning to drill more wells. Experienced rig crews are suddenly at a premium. Dormant pumping units and wells are being repaired. The San Joaquin Valley’s tarry black ooze now commands about $22 a barrel--more than double the price before Iraqi troops rolled into Kuwait.

“A guy called today and wanted to know how we’re listed on the stock exchange,” laughed Doug Eberts, managing partner of Driltek, which provides drilling management services to oil companies. “We’re not.”

Four months into the 1990 oil shock, America’s oil producers have what may be a fleeting opportunity. Higher prices allow higher profits--but only if they last. Thus a scramble is on for fast, sure-bet projects. In one recent week, the number of drilling rigs active nationally leaped by 72, according to Baker Hughes Inc., a Houston toolmaker that monitors the activity.

“It’s been six or seven years since we had an increase that large,” said Isaac Kerridge, a Baker Hughes vice president and economist.

Yet here in California’s oil capital, the price shock has brought little joy. Most new drilling is on top of proven oil fields, not the risky, untested territory that is the province of “wildcatters.” Many firms still are hurting. Stable prices, it seems, are wished for almost as much as high prices. Few forecast a dramatic renaissance of the industry.

“Maybe better prices are here, but we’ve seen better prices come and go,” said Gary Green, whose father launched his firm, Gary Drilling, in 1954.

Earlier this year, they went again: Prices for the heavy local crude tumbled downhill, approaching single digits. As producers cut back, Gary Drilling laid off 140 workers. By midsummer, eight of its 16 rigs lay idle in the yard. Then Iraq triggered a dizzying rise in oil prices, transforming money-losing U.S. wells into profitable ones overnight.

All of a sudden, Gary Drilling’s services were sought after. Today, all 16 of its rigs are busy--at work for oil producers as far south as Los Angeles and north to Eureka--and the jobs have largely been refilled. An antiquated 17th rig is even being pulled out of mothballs.

“Before August, I would say virtually no exploratory wells were being drilled” in California, said Green, who learned the family business sweeping floors, painting and “scraping” as a child. “In October we probably drilled 15.”

On a windy day this month, one of Gary’s crews took a breather from the 3,200-foot well they were boring for a client who had mineral rights to property off California 58 outside Bakersfield.

“This year it’s going pretty strong,” said Mike Fulton, supervisor of the roughnecks, as rig workers are known. “Shoot, they couldn’t get enough rigs” to meet all the requests to drill new wells.

But Fulton, with long, brown hair and a muscular frame hardened by 14 years of labor in the oil fields, flicked a cigarette and declared that things aren’t like they used to be. “In 1979, I could get mad and quit a job, and that afternoon I’d have another job. Now you might leave a job and not have another one for months.”

He may be underestimating his market value. Today, seasoned rig hands are in demand once more, after a ferocious shakeout that racked the industry in the 1980s. Nationally, employment in oil production plunged by more than 200,000 jobs between 1985 and 1989, according to the California Independent Petroleum Assn. In California--the nation’s third-largest oil producer behind Texas and Alaska--it fell by 8,500.

Engineers, rig hands, geologists and entrepreneurs all bailed out of the unstable industry, many following a price collapse in 1986. An entire U.S. subculture was threatened with extinction as prices stayed low and foreign producers in the Middle East and elsewhere served America’s ravenous appetite for oil.

Nowhere has the pain been felt more keenly than in Kern County, the center of California oil production. Today, Gary Drilling is one of perhaps a dozen established drilling firms with a statewide reach that have survived; in the early 1980s there were twice as many, Green said.

“When the jobs evaporated, they didn’t have much choice but to go into another line of work,” Bill Rintoul, a local writer who specializes in oil, said of the many experienced oil workers who have found new jobs in construction and other fields. “And I don’t think they’re going to come back.”

For those that wish to capitalize on today’s oil prices, the decline in available talent can be a constraint: “The whole industry has pared down in size,” said Brian H. Sway, a vice president of Capitol Oil in Sacramento. “It’s taking longer to arrange for drilling rigs. You have to wait in line.”

Today’s flurry of activity doesn’t change the general view that U.S. oil production faces long-term decline. The greatest potential finds are thought to be in environmentally sensitive areas that may stay off-limits to oil rigs. Even for the short term, the price of oil may gyrate wildly, depending on what happens in the Persian Gulf, creating headaches for those in search of quick profits.

Still, the recent price rise has unleashed new incentives to drill, albeit selectively, as well as new cash to pay for it. Nationally, independent oil and gas producers have enjoyed an eight-fold increase in income between July and September from the previous year, according to a new analysis by the U.S. Department of Energy.

Larger energy corporations--some faced with whopping cost increases for their oil-refining operations--also are stepping up their drilling schedules.

Unocal, for instance, recently announced it would drill 93 more wells in the United States and Canada this year, instead of 1991, at a cost of $33 million. Chevron speeded up plans to drill 130 wells this year after the invasion of Kuwait.

Such announcements have a real effect: The Chevron drilling means $100 million in work for independent contractors in California, Louisiana, Colorado, Texas and Wyoming. In California, much of the effort will be to extract the heavy crude of Kern County, which becomes syrupy with a steam-injection technology.

“The prices are higher, the economics are better and we see a reason to go ahead more quickly than we would have otherwise,” explained Kenneth W. Haley, manager of energy forecasting for Chevron Corp. in San Francisco.

Often, smaller independent firms can shift plans more quickly than their large counterparts to exploit what may be a temporary price increase. Along an alfalfa field in Bakersfield, seven pumping units recently churned up and down, producing 190 barrels a day for Nahama & Weagant Energy Co.

“Since the price of crude went up we drilled two new wells and we’re now starting another one,” said Rodney Nahama, the president. But he isn’t betting that high prices will last: “If all of a sudden, Saddam Hussein is assassinated and Iraq leaves Kuwait, there’s nothing to say the price won’t go back to $9.”

Because of such anxieties, oil producers are selecting their projects with caution. In many cases, money is being spent to upgrade wells that lost money before the invasion of Kuwait, rather than to search for new finds. In the last two months, the number of active “workover” rigs used to fix oil wells has risen by 20%, in “a clear reflection of the higher oil price,” said Kerridge of Baker Hughes.

Tidelands Oil Production Co. is like many producers that have been helped by higher prices, but who question how long they will last. The Long Beach firm is spending more than $500,000 to replace 1 1/2 miles of pipeline, repairing dozens of wells it had allowed to go idle and carefully choosing a few proven areas to drill in.

Asked if he sees any new vitality in the oil industry, a Tidelands executive pointed to an unscientific indicator: “The grass is being cut and the wells are being painted. That’s a sign that people are starting to spend money on wells,” said William Terry Smith, general manager.

There is another sign of rising interest in the beleaguered industry: investors. Despite a sharp decline in bank financing for projects and a paring back of tax benefits in the 1980s, at least a few people again see California’s oil patch as a place to make money.

“All kinds of people have been calling up, wanting to know where can they buy some good oil-producing property,” said Gordon M. Schlitz, a petroleum engineering consultant. “I keep telling them now’s not the time to buy--because nobody wants to sell.”