Occidental Petroleum Corp. has had a major setback in its Elk Hills field, causing the value of its property there to drop by $2.5 billion, according to the Kern County Assessor-Recorder’s office.

The drop is being blamed on a "decline in reserves," said Assessor-Recorder Jim Fitch. He said his office began working with Oxy last year to reassess the oil company’s Kern holdings.

It wasn’t immediately clear what caused the decline and Oxy wouldn’t elaborate.

The Elk Hills property, including the much vaunted “Gunslinger” gas field, discovered in 2009, near Tupman, will likely be valued at about $6.7 billion for the 2012 tax year, Fitch said Friday. That number could change slightly as Oxy and the assessor hammer out details.

A drop like that will mean about a $27 million hit to tax revenue for the county and other agencies.

That money is divvied up between the county’s general fund and numerous special disticts, including schools. It’s unknown what this will mean for smaller districts such as the tiny 200-pupil Elk Hills School District.

Oxy wouldn’t comment. Spokeswoman Susie Geiger said the assessment “is still under review ... and subject of ongoing discussion... and, therefore, we have nothing to offer at this time.”

The valuation problem became apparent to the assessor-recorder’s office starting in July when Oxy sent in property statements that just didn’t make sense, Fitch said. The office rejected them and ultimately had several face-to-face meetings with Oxy representatives.

“They disclosed to us that there are some real problems out there that they’re forecasting,” Fitch said. “Their reserves are down and production is off.”

He couldn’t disclose more except to say that the decline in reserves involves a combination of oil and gas.

Fitch stressed that this tax adjustment is not an error on the part of the assessor’s office, as happened last year when a clerical glitch reduced Oxy’s tax bill by $1.26 billion. That error was quickly caught and the county got its full payment, Fitch said.

Oxy made headlines when it bought Elk Hills from the U.S. Government in 1997 for $3.7 billion, paying more than 50 percent above the asking price.

At the time Oxy chiefs vowed to triple natural gas production, which caused some raised eyebrows as Elk Hills is a "gas capped" field, meaning gas had settled at the top of the formation and pressurized the underlying oil, making it easier to extract. Taking gas off the top, some felt, would make getting the oil harder and possibly harm the formation.

In a 2006 interview with The Californian, John Allen, president and general manager of Oxy of Elk Hills, acknowledged the company's aggressive extraction of gas had depressurized the field somewhat.

But he said, increasing gas sales made more money in the short term so it was a tradeoff the company was willing to make.

Oxy had been sinking very deep wells, up to 18,000 feet, searching for new oil and gas fields.

In 2009, the company announced it had found such a new field near Tupman in the Monterey shale formation. Wells in Oxy's so-called Gunslinger field were averaging 10,000 to 12,000 feet.

That field alone was expected to begin producing up to 100,000 barrels of oil a day, according to a 2010 Forbes Magazine article.

Two years later, the entire Elk Hills holding was still only producing about 80,000 barrels a day according to production data on the Department of Oil Gas and Geothermal Resources website.

Local oil industry insiders anticipated such difficulties producing oil out of the Monterey shale.

The formation is "tight, " meaning it does not easily yield oil, and its geology varies significantly. Finding a good way to pull up crude in one area does not necessarily mean the same approach will work elsewhere, oil people told the Californian in 2012.