For about 3 1/2 years, crude oil prices generally hovered over $100 per barrel, fostering high gasoline prices at the pump for drivers – and spurring oil production in the western reaches of the San Joaquin Valley, including oilfields in Fresno County.
But since June 2014, oil prices have tumbled and are now less than $30 per barrel. That has fueled a drop in gas prices, which is good for motorists, but it’s also taking a toll on Fresno County’s oil-producing industry. While tiny compared to petroleum giant Kern County – where the oil industry represented about 27 percent of the county’s economy – the oilfields in Coalinga and other parts of Fresno County still managed to generate about $778 million in direct and indirect economic benefits, as well as nearly $412 million in various taxes in 2013 (the most recent year with available data). That’s about 1.2 percent of the county’s economy.
In neighboring Kings County, which has oilfields near the Kettleman Hills, the petroleum industry’s effects including taxes amounted to about $187 million in 2013, or about 1 percent of the county’s economic activity.
Specific numbers about the economic impact of falling oil prices are difficult to come by, but the anecdotal effects are being felt in Fresno County. County Assessor Paul Dictos said that three years ago, when oil prices were riding high, the assessed value of the county’s oilfields amounted to about $1.1 billion for property tax purposes. By last year, as crude oil was tanking on the world’s commodity markets, the assessed value had slid to about $700 million.
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$1.1 billionAssessed value of Fresno County oilfields, 2012
$700 millionAssessed value of oilfields, 2015
$300 millionPotential assessed value of oilfields, 2016
“This year, depending on what the price is as of Jan. 31, it could fall to $300 million,” Dictos said. “It’s a big, big drop. But Fresno County is lucky that we are not so heavy in oil and gas. … It’s a boon for drivers, but it’s a big disaster for the owners of the oil wells and equipment.”
In the context of a county property tax roll in excess of $70 billion, Fresno County’s decline in the property tax value of oilfields is not serious, Dictos added. “We have increases in other real estate. … We’ll be fine.” Dictos added that Kern County, which rises and falls on the oil industry, is in a much more difficult situation than Fresno.
The Bakersfield City Council last summer adopted a budget that sliced $3.6 million based on falling sales taxes on goods and services, including those used by the oil industry. This week, the city considered dipping into reserves and lopping off some capital improvement projects to maintain basic city services.
Rock Zierman, CEO of the California Independent Petroleum Association, said oilfield operators pay property taxes based on the estimated value of the underground oil reserve. “The local jurisdiction benefits by all of those taxes we pay on the reserves,” he said. “When oil prices go down, there’s a reassessment of what the value is of that crude in the ground.” That, in turn, results in lower property tax payments.
But there’s more to the oil price slump than lower taxes. “In general, we’re seeing a lot of layoffs in the extraction business,” Zierman said. “To grow, we have to drill new wells, and that was the first sector that was hit really hard.” That, in turn, was felt by contractors and service companies, “whether drilling, cement, trucking, pipe suppliers,” he added. “All those folks have seen a lot of cutbacks.”
At the Coalinga shop of worldwide well-service firm John Crane Production Solutions, crews work for Aera Energy LLC – a partnership between affiliates of Shell and ExxonMobil – to swap out well equipment and keep it maintained. “We used to have four rigs at all times,” said 22-year oil industry veteran Bill Allison, who works in Crane’s Coalinga shop. But this week, “we dropped down to two rigs, so there’s eight more families that just lost jobs.”
“What used to happen is that when contractors won a job and there was a change, the new contractor would take the same employees to keep everything local,” Allison added. “Now they’re not doing that as much; they’re trying to keep employees who are hired in Kern County and having them drive up here to do the work instead of keeping employees that live in Coalinga.” Allison estimated that about 80 percent of the oilfield workers in Coalinga are from outside the immediate area.
Oil prices are so low, he said, that companies aren’t drilling or pumping. “It takes money to take care of these oilfields and leases,” Allison said. “It takes electricity to run the motors and keep the pumps going.” But if it costs more to operate the well than the oil is worth, “they’ll shut it down.”
Zierman said crude oil prices are in the dumps as a result of simple supply and demand. China’s softening economy has dampened that nation’s ravenous appetite for oil, and sanctions have recently been lifted on oil exports from Iran. At the same time, “we have been successful in the U.S. in ramping up domestic production of both oil and gas. … We’re sort of a victim of our own success.”
About 38 percent of the oil used in California is produced within the state. Another 12 to 14 percent comes from Alaska. The rest comes from foreign countries, chiefly the Middle East, Canada and South America, Zierman said.
Eventually – but nobody can predict with certainty when, Zierman said – reduced production should rebalance with demand and stabilize oil prices. “We saw the same thing happen in 2008 and 2009, when oil went below $30, but that only lasted a year,” he said. “We’re already more than a year in, so whether or when it bounces back, we just don’t know. But at some point, supply and demand works.”
Economic impacts of oil, gas industry
The oil and gas industry contributed an estimated $203.7 billion to California’s economy, plus an additional $33 billion in federal, state and local taxes, in 2013.
Pct. of total economy
Total tax revenues
Source: Los Angeles County Economic Development Corp. Institute for Applied Economics