Most drivers in California have cheered the long run of low oil prices and the effect it has in driving down the price at the pump. But for Kern County the low prices are bad news for the county and the industry that thrives there. The low price has created what some call a ‘fiscal emergency’.
Kern County is routinely one of the top oil producing counties in the country, with an industry more than 100 years old.
But that production has made the county massively dependent on the industry and the global price of oil.
In a dusty oil field outside Bakersfield, a large black pump jack turns and slowly pumps the oil out of the ground.
This field is being worked by Chad Hathaway and his small oil company Hathaway LLC.
“And sometimes we will put weights on, and then we will basically counter-balance the weight of the string with that so it us more of a smooth deal,” Hathaway explains.
"Our community is under a fiscal emergency right now because of the price of oil and the county is so dependent on oil and gas production," Chad Hathaway, Oil Producer
Hathaway says to handle the collapse in prices, he has been trying squeeze every ounce of electrical efficiency out of the pumps by carefully balancing the gears and massive weights that drive the machine.
“That’s actually pretty well balanced right now. But it could always be better. It is efficiency. What we are trying to do is use the least amount of electricity to get the most fluid out of the ground,” Hathaway said.
Hathaway says prices have stressed the industry, with his pumps running at a rate that has is just barely allowing him to stay profitable.
Global oil prices have tumbled dramatically over the past year, bottoming out at around $50 a barrel which was half what they were last year.
In response, companies are retrenching, laying workers off and subsequently, support industries like electrical and parts suppliers are suffering.
Economists in the county are predicting an increase in unemployment at a time when most economies are improving.
Hathaway says he has had to turn off less profitable wells, lay-off one employee and not replaced two other employees that left.
“Our community is under a fiscal emergency right now because of the price of oil and the county is so dependent on oil and gas production. Our tax base, the top fifteen payers are oil and gas companies,” Hathaway said.
"And we have gone through booms and busts in the past. This is a particularly severe one" Jordan Kaufman, Kern County Tax Collector
The reason the whole community is in a fiscal emergency is due to the county’s reliance on tax revenue from oil and gas reserves.
So while other towns and counties are celebrating recovering budgets, Kern County had to implement mid-year cuts and is looking at rolling back spending by 2-to-3 percent in the next fiscal year, as well as spinning off things like the library system to a private firm to squeeze even more savings.
Kern County Tax Collector Jordan Kaufman says 30-percent of all tax revenues are tied to the price of oil, leading to a $60 million fall in tax collection, about 8-percent of the entire budget.
“Such a large part of our assessed evaluation is from oil and gas. And we have gone through booms and busts in the past. This is a particularly severe one,” Kaufman said.
And while prices are beginning to climb back, it is not likely to kick the industry back into high gear in the short run says Dayanand Saini, who is an oil industry expert at California State University Bakersfield.
“Sometimes those projects take years to come online. And if you have that kind of hard hit, even though oil prices rebound in a month or so, it take will take the industry a few years to recover,” said.
Saini also points out that Kern County is battling against producers worldwide who sometimes have much better oil and lower production costs, as well as a sharp increase in American production.
The U.S. is now the world’s leading producer of oil and gas.
Hathaway says he is well aware of the challenges facing his company, especially from the increase in supply, but that the oil industry has weathered price fluctuations before.
“The industry goes up and down. We are kind of used to this. And we kind of just hunker down and batten down the hatches. That is just kind of our culture,” Hathaway said.
Hathaway says there is a small silver lining for producer him, it gives them a competitive advantage over more expensive pumping techniques like fracking in North Dakota and oil sands in Canada.
But that’s doesn’t get Chad Hathaway down.
He has confidence that the price will climb once again.
“I don’t think anybody would be in this business if we didn’t think the price was going to come back up again. I feel very confident that is going to happen. I just don’t know to what extent. Nobody has a crystal ball to tell when that is going to happen. But what I do know is we depend on oil and gas,” Hathaway said.
Over the past month, the price of a barrel of oil has climbed to 10-bucks to around $60 a barrel.
But even that is about half of what it cost a year ago.
It is expected to climb more as the summer driving months hit, but big increases in global supply will continue to put a strain on central valley producers large and small.
