Oil Price Decline Hurts Tiny Town
.c The Associated Press
By MICHAEL WHITE
TAFT, Calif. (AP) -- At Howard Supply Co., dog food is selling better than the gaskets, couplers and well fittings that for decades helped keep crude flowing from the giant Midway-Sunset oil field nearby.
Since the store opened in 1944, Howard Supply has survived in this tiny central California town by selling heavy-duty hardware unique to the oil patch.
But after a historic slide in crude prices, oil producers large and small are shutting down wells and laying off employees. At Howard Supply, sales are down 80 percent, forcing store manager Hope Binkley to move the oil gear to a back room and experiment with new products, like pet food and veterinary supplies that might appeal to farmers.
''You have to find something,'' said Binkley, who has worked for oil-dependent businesses since 1976. ''I've seen a lot of ups and downs, and this is by far the worst.''
The price sag that has helped fuel the nation's long economic boom has turned into a big bust in Taft and other towns across America that depend on oil.
In recent weeks, large companies including Atlantic Richfield Co., Occidental Petroleum, Texaco Inc. and Conoco Inc. have announced plans to lay off thousands of employees and curtail drilling and exploration worldwide. Smaller drilling, marketing and service companies are doing likewise.
Last week Baker Hughes Inc. said the number of oil and gas rigs operating in the United States has fallen to its lowest level since it began tracking rig counts in 1944.
The downturn also has prompted mergers of big players. Exxon Corp. plans to acquire Mobil Corp. while Amoco Corp. has teamed up with British Petroleum Co. PLC. There have been rumors of a union between Chevron Corp. and Royal Dutch-Shell.
In Kern County, California's biggest oil producing region, about 1,000 of an estimated 12,000 oil workers have been laid off or will be in coming months, said Hal Bopp, deputy director in the Bakersfield office of the state Division of Oil and Gas.
Crude prices are at their lowest levels since the Depression. Light sweet crude traded at $12.28 per barrel on the New York Mercantile Exchange on Friday, but the price for the heavy crude pumped from most wells in Kern County is even lower, around $7 a barrel, $1 or more per barrel less than it costs to get it out of the ground.
''We're going broke,'' said James Hall, president of Drilling & Production Co., a small company that operates about 30 wells.
In March, Hall imposed a 20 percent pay cut on himself and his 10 employees to avoid layoffs. Even with the cuts, he's not sure he can survive another year at current price levels. Most of his employees are looking for new jobs outside the oil industry.
Foreman Darin Holden, 33, advised Hall this week that he would be gone by summer, when his wife is due to deliver the couple's third child. After the pay cut, Mrs. Holden went back to work, but even with the added income, they've exhausted their savings to pay their bills.
Other employees tell similar stories.
''Just to make everyday expenses you raid your retirement account, you raid the college funds you set up for your kids,'' said Mike Pilatti, 42, a father of three.
Conditions are especially tough for small, independent producers such as Drilling & Production that operate ''stripper'' wells, those that produce less than 10 barrels a day. Independents depend exclusively on crude prices for their profit margins. Big oil producers such as Chevron or Texaco can build profit into the retail sale of gasoline and other petroleum products.
Of Drilling & Production's 30 wells, about half are in operation, each yielding one to five barrels a day. On a recent afternoon, Holden was trying to figure out whether it was worth the cost of repairs needed to bring six more into production. With the producing wells already in the red at $7 a barrel, there seemed to be little point in spending thousands of dollars to bring more money losers on line.
Nationwide, such stripper wells yield about 1.2 million barrels a day, about 20 percent of U.S. production and roughly the equal to the amount imported from Saudi Arabia. Should stripper operators go out of business, the nation's dependence on foreign oil will rise and a skilled work force will be lost, independent operators say.
''Once you lose workers, they're not coming back,'' said Les Clark, vice president of the Independent Oil Producers' Agency, a marketer that represents about 40 California independents. ''They'll get solid jobs and stay away.''
Holden counts himself among those not likely to return. When recession hit the industry in 1986, he was the first let go from Drilling & Production's payroll. He stayed in the industry that time, working another job at nearly half his previous pay until being rehired in 1992. The personal price of that downturn included the breakup of his marriage.
''I was bankrupt and divorced all in the same week. I'm not going to relive that,'' said Holden, who later remarried. ''It'll be hard to leave here. I like the industry, but you have to look to the future, and right now I don't see any future.''
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