Strong prices bring consolidation to local oil fields

Story By: JOHN COX, Californian staff writer jcox @
Images By: Alex Horvath / The Californian

Two forms of consolidation -- ownership and geographical -- are subtly transforming Kern County's oil field services industry, and that may be a healthy sign for a line of work that has been an important if unreliable source of local jobs.

With the money and confidence that come from oil prices that have settled relatively high after the wild fluctuations of 2008, some large companies are merging and looking at buying smaller, more specialized outfits. Effects of that industrywide trend are being felt locally.

At the same time, several companies have recently taken advantage of the Bakersfield area's low prices for industrial real estate and purchased large properties where they can concentrate their various local operations.

Recent activity could rebalance Kern's ever-shifting mix of local and national or multinational companies, and it revives talk of the advantages different kinds of businesses have in competing for oil field work ranging from tank cleaning and equipment upkeep to well drilling and hydraulic fracturing.

Robin Brassfield-Cooper, owner of Robin's Enviro Vac in Bakersfield, said she has received two purchase offers over the last four or five months. She turned them down because she said her primary interest is in keeping the oil field maintenance business going for her team of about 15 employees.

"I'm just into making a living and keep(ing) my men working," she said.

The two consolidation trends don't necessarily create a lot of new employment, though construction work is involved in developing some of the industrial land. It's also not a big net gain to the real estate market, since moving to a larger lot usually leaves vacancies elsewhere in town even as it reduces a company's overhead.

The ownership transactions and real estate deals nevertheless reflect a level of confidence that points to strength in Kern County's economy.

"The price (of oil) is up, and that creates activity and jobs," veteran Taft oilman Fred Holmes said.

Recent stability

Since August 2009, the monthly average price of heavy Kern County crude has dipped no lower than $61 a barrel, according to Berry Petroleum Co. That represents welcome stability after prices shot up to $120 a barrel in June 2008 and then sank to less than $30 a barrel six months later.

That level of volatility shook Kern County's oil industry. Oil field services companies went from competing to hire experienced workers to laying them off by the hundreds as oil producers drastically slowed investment in their operations.

Hiring has resumed among local oil field service companies, though people in the business here couch their employment observations -- as well as talk of industry mergers and acquisitions -- in terms of up and down cycles.

Consolidating ownership

Probably the most significant recent transaction in the oil field services industry was announced in August. Houston-based BJ Services Co. agreed to merge with Houston-based Baker Hughes Inc. in a deal valued at $5.5 billion. Both companies operated at the time in Kern County.

Houston-based Halliburton, another oil field services company operating in Kern, announced its purchase of two specialized service companies -- neither based in California -- in September. A Halliburton spokeswoman said the company's growth plan calls for still more mergers and acquisitions.

Holmes, an oil field operator who years ago sold his oil field services company to a national outfit, said he doubts that many more acquisitions are on the horizon locally. He said Kern's oil field services industry is already much more consolidated than it has been traditionally.

Others say it's a matter of time before local oil field workers strike out on their own with superior service and expertise. These kinds of businesses may eventually attract the attention of large competitors with deep pockets.

Bakersfield oil producer Chad Hathaway, who also runs a specialized well-drilling service, said he knows many companies started by former employees sure they could offer better service than large, multinational companies. He added that he doesn't like to see them sell out because he prefers to see small companies succeed.


Consolidating geographically

The geographical consolidation trend is considered a more novel phenomenon that favors larger companies with the resources to seize upon new opportunities in the real estate market.

Nabors Industries Ltd., a large oil field services company based in Bermuda, bought a 40-acre property on Lerdo Highway in September.

The primary reason for that purchase, local business development director Alan Pounds said, is to get the company out of some but not necessarily all of its various leases around Bakersfield.

"There's efficiencies gained when you don't have multiple sites," he said.

Among similar moves in Kern County: Baker Hughes recently bought a 38-acre site in Shafter, and Halliburton is building on a 137-acre site it purchased at least 10 years ago on 7th Standard Road. A handful of other companies have purchased and begun to consolidate their operations on industrial lots ranging in size from about four to 20 acres.

Halliburton's local district operations manager, Larry Wilger, said land prices and the push for greater efficiency factored into the decision to gather many of its operations onto a single property. But he said job satisfaction also played a role.

"When you have a nice facility, I mean, people want to work in a nice place," he said.

A balance of big and small

For all the recent deals being made by large providers of oil field services, Kern County maintains what people in the industry call a healthy combination of companies big and small, national and local.

The larger players have something of an advantage in that they typically have better access to bigger contracts, said Les Clark, executive vice president of Bakersfield's Independent Oil Producers Agency.

But oil producers tend to choose their service providers regardless of size, he said, adding that small operators, at least, may take into account a company's familiarity with the oil field at hand.

"You need that historical reference, if you will," Clark said.

Larger oil producers often follow set guidelines that may encourage inclusiveness but, ultimately, require that contractors have the necessary technological expertise, a clean safety record and reasonable prices.

Chevron spokeswoman Carla Musser said the company looks for diverse local service suppliers, from global companies to small, minority- and women-owned businesses.

Overall, she said, the company does not differentiate between large and small oil field service companies when it contracts out work locally.

"We believe we gain competitive advantage by promoting an inclusive business environment," she wrote in an e-mail.