Despite Chevron's announcement this week that it would reassign or lay off roughly 300 employees in the coming months, energy insiders say they do not expect, even amid waning petroleum prices, further cuts in the Kern County oil patch.
Chevron, among the county’s largest oil producers, reported Wednesday it would be slashing 26 percent of its Central California workforce after conducting a months-long review of its West Coast operations — a review it calls the Transformation Project.
The news came roughly one year after Aera Energy, Kern County's other major oil producer, reported it would cut 167 positions as part of a restructuring to make the company “stronger, leaner and more competitive,” according to a news release issued at the time. That news also came after a year-long assessment of its operations.
The company called its operational review Next Aera.
Those moves are part of a larger trend in the oil industry that finds larger corporations adjusting to a new normal. They face a reality dictated by economic shockwaves that linger from mid-2014: low oil prices, tougher regulations and diminished global demand.
Kern County Chief Administrative Officer Ryan Alsop told his colleagues in an email Thursday that Chevron’s announcement was “a startling reminder that we live and work in a county that is reliant and drastically impacted by the price of oil.”
Gas and oil production in Kern County has decreased almost 64 percent since 1997, according to DrillingEdge.com, which compiles statewide industry data. Meanwhile, the price of crude oil has fluctuated in recent years, dropping from a peak of more than $115 per barrel in 2012 to less than $30 in when the market bottomed out in 2016.
And in an April 2017 report, the state Employment Development Department projected a 10 percent decrease in oil and gas extraction jobs in the Bakersfield metropolitan area between 2014 and 2024.
None of that, however, paints a doomsday scenario for the oil industry in Kern County, industry leaders insist.
With almost 80 percent of the state’s active wells located here, Kern County still produces more than 70 percent of the state’s oil and natural gas, according to the Kern Economic Development Corporation. Kern remains the second most prolific oil-producing county in the nation.
“Bigger companies adjust to downturns differently than smaller companies,” Chad Hathaway, founder of Hathaway LLC, an independent Kern County-based oil company, said of Chevron’s layoff announcement. “They can’t make decisions as rapidly as a smaller company. When you hear the word ‘transformation’ I wouldn’t get too alarmed. They’re realizing ‘We’re going to have to transform this company to survive in California.’”
He pointed to tightened oil regulations as a detriment to the industry.
Just 14 new wells were being drilled in California Thursday, according to Baker Hughes, which tracks such developments. The number of new wells is a measuring stick that reflects the industry's pulse.
Nine of those new rigs are in Kern County.
Historically, those figures have been much higher, Hathaway said.
“That tells me there’s a correlation to the regulatory environment in California,” said Hathaway, who added that even with prices where they’re at, he would drill new wells tomorrow if he could. But the state permitting process has held some of his rigs at bay for three or four years, he said.
It’s all red tape, Hathaway said. He can get a permit to drill the well, he said, but in some cases, not for the water disposal well, or to inject steam.
“There’s one cog in every wheel,” Hathaway said.
Les Clark, executive vice president of the Independent Oil Producers Association, said he doesn’t expect any other companies to make cuts in reaction to Chevron's move or in reaction to an unpredictable market.
“I haven’t heard any rumors in the oil patch,” Clark said. “Everybody has their own checkbook. The little guy has his, and Chevron has theirs. Everybody reacts to it different.”
Like Hathaway, Clark blames regulation for the ongoing industry retreat. Clark, who represents roughly 50 members that produce anywhere from 2 or 3 barrels a day to 2,000, said he’s seen at least a couple of companies that have fled the business, victims of diminished profit margins and increasing regulation.
“There’s only so much you can handle before it costs more than what you’re making off a barrel of oil,” Clark said. “Those regulations are the deciding factor for some of the smaller guys.”