Oil industry may hit paydirt.

Lifting ban on Alaskan oil exports would likely get Southland crude flowing

The notion that when you strike oil, you also strike it rich has been more myth than reality in California in recent years. In fact, more independent oil producers in California have been going bust than getting rich, due primarily to the slumping price of crude.

But the winds of fortune may be shifting for Los Angeles-area oil producers and scores of local suppliers of oil-drilling equipment and services.

The federal government is seriously considering lifting the ban on Alaskan oil exports, a move that would immediately improve the market for California-produced crude.

California producers have long complained that Alaskan oil flooding the California market is driving them out of business. Alaskan crude, since it cannot be exported, heads south to refineries in Washington state and California. The resulting glut of oil on the West Coast is keeping prices low and pushing smaller producers out of business, according to producers.

Oil industry sources asserted that, if the ban is lifted, hundreds of oil wells in California that now lie dormant will be brought back on line.

And California producers are not the only ones who stands to benefit if Alaskan crude starts getting exported.

If doing away with the ban can get some California wells producing again, there would likely be more work for the dozens of small companies in Los Angeles that are somehow affiliated with the production of crude oil. Specifically, there are scores of small companies based in Los Angeles that repair and service oil wells or manufacture parts that are used on the wells themselves. Most said that doing away with the Alaskan oil ban would not only be good for the producers, but also for the companies that work with the production companies.

The ripple effect of the downturn in California oil production has been felt by several related industries, explained Mark Brozek, sales manager for Keenan OTC, a Long Beach-based supplier of steel casing for oil wells. Keenan OTC distributes the steel piping that is inserted into oil wells and through which oil is pulled from the ground. "We have struggled like everyone else in this industry," Brozek said.

Others pointed out that many Los Angeles-area jobs have been lost in industries related to oil production in the past decade. BJ Services -- a Santa Fe Springs-based company which provides cementing, fracturing and acidizing services for oil wells -- has cut the number of people it employs in California almost in half since 1981, reported corporate accounts manager Kevin Williams. (Fracturing and acidizing are both procedures used to force wells to produce more oil.)

"We have about 18 people working in Los Angeles and, at one time, there were 65," he said.

BJ also cements new wells. But Williams pointed out that the cementing part of the business is dependent on new wells being drilled. And that business has not exactly gushing in recent years, either. In 1981 there were 150 drilling rigs, the mechanisms used to dig wells, in the state. Presently that number stands at 30.

Likewise, J. M. Dawson, vice president of Cavins Oil Wells Tools, said his company has laid off much of its staff and has closed several of its offices in California. The 66-year-old, Signal Hill-based company manufactures tools used by oil well servicing contractors to repair oil wells. Exact figures on the number of people laid off and the number of offices closed by Cavins were not immediately available.

All these oil-related service companies, and many others statewide, attribute the bulk of their troubles to the Alaskan crude oil that has been glutting the California market for years. That glut is being caused by the export ban on Alaskan crude.

Under the federal ban, oil producers in Alaska cannot export crude oil to foreign countries. This fact leaves them few options other than to ship their oil south to California, the largest oil market in the United States. Since the ban began, California has been glutted with Alaskan oil, thus depressing the per-barrel price of California crude. California crude oil prices are usually $5 to $6 per barrel lower than West Texas crude, the domestic benchmark against which other crudes are measured.

According to statistics provided by Purvin & Gertz Inc., an oil industry consulting firm, per barrel prices of California crude have dropped dramatically in recent years. Purvin & Gertz partner John Vautrain explained that each region of California fetches a different price for crude oil because of quality differences. However, Kern River crude is a commonly noted crude oil for price comparison purposes. In 1982, Kern River crude oil averaged $21.96 per barrel. In 1993, Kern River crude sold for an average of $11.42 per barrel. West Texas intermediate averaged $33.71 per barrel for 1982. In 1993, West Texas intermediate went for an average per barrel price of $18.41.

Both independent producers and major oil companies have stopped producing in California as a result of the depressed prices. California oil fields known to be capable of producing have been abandoned or, as in the case of much of Huntington Beach, homes have been built over them.

If California crude prices rise as a result of Alaskan oil being diverted to foreign markets instead of being shipped to California, oil industry sources reckon production may increase in California.

Michael Bair, vice president of the Signal Hill-based oil well service company Black Gold Pump & Supply, predicted that "hundreds of wells that are not operating" will be reopened if the ban is lifted. Black Gold does engineering and design work for wells, in addition to repairs on the pumps themselves.

Bair added that several California producers could be pumping much more oil than they presently do, but they curtail production activities because it is not very profitable. "Lifting costs here run real high," he said. "Lifting" refers to getting the oil out of the ground. Producers need electricity, water and chemicals to lift the substance out of the ground.

Dawson said ending the Alaskan oil export ban would present a "wonderful possibility for California." Alaskan oil "gluts Southern California at the expense of the producers here," he said. Lifting the Alaskan oil export ban promises to bring jobs to California and to provide increased state and local tax revenues, industry sources said. Some of the most optimistic sources predicted that exporting Alaskan crude would reduce the United States' trade deficit with Japan, the most likely importer of the North Slope crude.

Not everyone is thrilled about the ban being lifted, however. Independent refiners in the state have benefited from the low crude prices because crude is their primary raw material. That higher price of California crude would also likely to be passed on to consumers, who would pay more at the pump.

"There is tremendous correlation between West Coast crude prices and gas and diesel prices," said Bill Kiddo, vice president of Los Angeles-based US Oil. Refiners are already cash-strapped in California, he said.

"Margins are so tight that even the majors have to keep refining profitable," Kiddo said. The most likely way to achieve profitability, he said, would be to raise prices and charge more to the consumer.