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Oil producers brace for sustained slowdown as outlook dims

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Kern County's South Belridge Oil Field is among the most productive in California.

Despite receiving a privileged designation from the state during the coronavirus pandemic, Kern County oil producers are hunkering down as dismal market conditions make it unlikely that investment and hiring in local oil fields will return anytime soon.

A small bump in barrel prices Tuesday and statewide data showing oil rig activity has not slowed all this month belie what industry people say is a very negative outlook for the county's signature industry.

Local oil executives who have suffered through steep price drops in the past say this time is different in that a Russian-Saudi price war has coincided with an epic downturn in the world economy, making it unknowable when a recovery might arrive.

Work carries on in the local oil patch nonetheless, thanks to an exemption in Gov. Gavin Newsom's stay-at-home order last week allowing energy production and other "critical infrastructure" activities to continue.

While countless jobs have been lost in recent weeks, and additional cutbacks seem likely, industry leaders voiced optimism Tuesday that the industry will persevere and the economic vitality it represents locally will eventually return.

"We know how important what we do is to the state and especially to Kern County. We’re going to be here when this is over with,” said Steve Layton, president of E&B Natural Resources, a medium-size oil company based in Bakersfield.

In offices of Bakersfield oilman Chad Hathaway, who said his business has slowed to "a crawl" during about the last two weeks, one of the remaining employees has taken to posting famous quotes from football icon Lou Holtz. One reads, "I’ve never known anyone to achieve anything without overcoming adversity."

Hathaway and others, including publicly traded oil producer California Resources Corp., expressed hope political leaders will do something to stem the flow of discounted, foreign oil to California refiners, which has put pressure on in-state production.

"We hope that state and federal leaders from both parties will come together to address this threat to California’s energy supply," Santa Clarita-based CRC said by email. reported that the U.S. oil benchmark, West Texas Intermediate, rose nearly 3 percent Tuesday to close at $24.60, which is still near 20-year lows and well below many domestic producers' operating costs. The international standard Brent Crude increased by about 1.4 percent to reach $30.16.

Gasoline prices, meanwhile, continue to fall. The Automobile Club of Southern California said a gallon of regular unleaded averaged $3.24 on Tuesday, 3 cents lower than Monday's average and more than 8 percent less than the average from a month prior.

Oilfield service company Baker Hughes reported 12 oil rigs remained active in California as of Friday, which was unchanged since before prices plummeted by about 25 percent starting about March 9.

Permit applications to state oil regulators were similarly unresponsive in the immediate aftermath of the drop in barrel prices.

State records show that, for the weekend ending March 4, there were 133 applications for new drilling in the region that includes Kern County, an increase of 80 percent from the week before. More recent data were not available Tuesday.

But industry insiders say those figures obscure the widespread job cuts and halt in investment that immediately followed the price downturn.

Oil major Royal Dutch Shell said Tuesday it would slash its capital spending by about 20 percent, or $5 billion, while also selling $10 billion in assets and trimming its operation costs by at least $3 billion.

Chevron Corp. said simply that it is looking to make adjustments that would bring its business in line with the new supply-and-demand environment.

In an emailed statement, the company noted it is better positioned than most to endure current low prices. It added that its thoughts are with people affected by the new coronavirus and the impact it is having on local businesses and Kern's economy.

Rock Zierman, CEO of the California Independent Petroleum Association trade group, said Kern County oil production will become uneconomical and wells will be shut in. He added his voice to the chorus of critics dismayed by Saudi and Russian price "manipulation."

He also pushed back against state regulatory changes that had slowed local oilfield activity even before this month's price drop.

"The state arbitrarily refusing to review permits will only make these problems worse and, in turn, hurt California consumers because our state is so dependent on Saudi oil for our vast energy needs," he wrote in an email.

Follow John Cox on Twitter: @TheThirdGraf.

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