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Oil Price Slump Has Wide Impact on California

June 25, 1986

LOS ANGELES (AP) _ Until last year, G. Carroll Hill and her husband, Richard, had a successful business managing a small fleet of crew and supply boats servicing oil rigs in the Santa Barbara Channel.

Today, their 100 employees, mostly boat operators, have been laid off, and the Hills are launching a new business inspecting life rafts.

Mrs. Hill sees little hope of salvaging the oil-rig service business.

″We were just a mom-and-pop operation,″ she said bitterly. ″If you look at the projections, even the most optimistic ones say it will be a year or two before the (oil) industry begins to turn around. It’s just beyond us to be able to wait it out.″

The Hills’ plight is typical of the hard times sweeping the oil industry in California, which ranks fourth among oil-producing states, after Texas, Alaska and Louisiana, according to the Western Oil and Gas Association.

The price of crude oil has plunged since November, when it was near $32 a barrel. In April, it dropped briefly below $10 a barrel, rebounded for a while to $17 and recently has settled around $13.50.

The Ventura-Santa Barbara coastal area along with inland Kern County and the Long Beach-Wilmington area produce about 85 percent of Californian oil, and all areas have been hurt.

Offshore, oil exploration is at a standstill. Drilling at sea is much more expensive than drilling on land, and companies aren’t willing to sink much money into it until crude prices recover.

Statistics on California’s oil industry don’t make the problem seem that severe in the context of the state’s entire economy, which has more than 12 million people holding jobs. But the figures can be deceiving.

In May, the number of Californians employed in fuel mining was 37,500, down 11 percent from the May 1985 level of 41,900. But that only counts those directly employed in finding and producing oil.

It excludes people like the Hills, their 100 employees and the scores of similar companies that are foundering or have gone under.

The big California-based oil companies - Atlantic Richfield, Chevron, Occidental and Unocal - have made huge cuts in budgets and personnel because of low crude prices.

San Francisco-based Chevron was the most recent, announcing June 12 it will retire 4,500 workers, voluntarily or otherwise, by the end of this year. About one fourth of those will be in California.

Atlantic Richfield has cut its exploration budget this year by 54 percent to $1.45 billion. At the end of 1984, it had 38,000 workers; since then, 6,000 have taken early retirement and 1,900 more have been or are being furloughed. The company has also decided to sell many of its 1,000 oil properties, mainly in the midcontinent and Rocky Mountain states, and to eliminate about 2,000 of 7,000 jobs there.

Occidental has cut its exploration budget twice. It is now $950 million for this year, or 36.7 percent less than the $1.5 billion initally budgeted. It has said it expects layoffs to peak by year’s end at 3,500.

Unocal, parent of Union Oil Co. of California, has cut its exploration budget by 35 percent to $1.2 billion this year. It has eliminated about 1,000 jobs through early retirements.

Also going through travails are companies such as Smith International, a Newport Beach-based supplier of drill bits and other oil field equipment and services, and Irvine-based Fluor Corp., the giant construction and natural resources concern that has depended on the oil industry for much of its work.

Smith International piled up losses of $435.6 million from 1983 through 1985. It has laid off about 2,000 workers, more than half its workforce. Fluor lost $633.8 million in 1985. In 1984, it earned only $1 million. It has consolidated and slimmed down operations.

Small independent oil producers also are suffering.

In recent months, 10,000 of the state’s 47,000 oil wells have been shut down because it wasn’t economical to operate them with crude oil fetching such a low price.

And, said Ed Malmgreen of the California Independent Producers Association, many more are likely to stop pumping in the coming months as small operators run out of cash.

The 10,000 closed wells are so-called ″stripper wells″ that produce 10 barrels of oil a day or less; together they accounted for about 100,000 barrels of oil a day, just under 9 percent of the state’s total.

Meanwhile, ″Exploratory drilling in the Outer Continental Shelf has come to a screeching halt,″ said Maurie Adams of the Minerals Management Service of the U.S. Interior Department, which is in charge of leasing offshore tracts to oil producers.

Adams said seven drilling ships sank 19 wells in 1984. Last year, the number declined to six wells drilled by four ships. In the first quarter of this year, all activity ceased, and since then only one well has been drilled and a second one started in the Santa Maria Basin north of Point Conception.

The next federal lease sale of offshore tracts is tentatively scheduled for 1988 - about the earliest that analysts expect oil prices to begin recovering.

Adams declined to speculate whether producers would be willing to gamble large sums to lease and develop the tracts without clear indications that oil prices were heading back up.

One industry commonly credited with profiting from low oil prices is tourism, with more people expected to take advantage of cheap gasoline by driving on their vacations in the United States. California officials project a surge in travel to their state, but some doubt the boom will significantly affect the state’s oil industry.

Respected oil industry marketing analyst Dan Lundberg projects that California gasoline sales will increase 2.4 percent this year.

End Adv for Wed AMs, June 25

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