SAN FRANCISCO – Little is going right for California's oil industry.
Turns out the state's shale formation holds less promise than producers expected. Aging conventional wells are drying up. And a rebound in output that cost drillers as much as $3 billion annually to create has been overshadowed by shale oil that were gushing from wells in North Dakota and Texas.
Then, of course, came the collapse in oil prices — a seven-month, 57 percent drop that was exacerbated by OPEC's refusal to cut output in order to squeeze the U.S. shale drillers. No state is feeling that pressure more than California. Drillers there have idled more rigs — on a proportional basis — than those in any other part of the country.
"We spent a lot of money to go out and drill and use new technologies just to stop production from depleting in our mature fields," Rock Zierman, chief executive of trade group California Independent Petroleum Association, said by phone. "It took us a lot of capital to basically run in place and now we're looking at crude prices under $40 a barrel."
While U.S. benchmark West Texas Intermediate oil has fallen by more than half since June, California's heavy Kern River crude has lost 65 percent of its value. The spot price of that oil slid to $34.87 a barrel on Jan. 22, below Gulf Coast crudes, below Bakken in North Dakota and under Alaska North Slope oil.
Falling prices haven't been all bad for California. Drivers are benefiting. Gasoline is under $2.50 a gallon for the first time since 2009 in a state that's usually home to some of the most expensive fuel in the country.
Within the past four weeks, drillers idled half of their rigs in the state, dragging the total down to the lowest since 2009. Oil output, which had been creeping up since 2011, is now little changed and a slide will probably follow.
In December, drilling contractor Ensign Energy Services Inc. told California regulators that it planned to dismiss as many as 700 workers. California Resources Corp., the Occidental Petroleum Corp. spinoff that became the state's largest independent oil and gas producer, idled rigs and let go of contractors. Its cash operating costs are around $20 a barrel, said Todd Stevens, the Los Angeles company's chief executive.
"We'll live within our means and our cash flow," he said. "We're just trying to be a prudent operator."