By: Harry Saltzgaver – Grunion Gazette – The company that operates Long Beach’s oil islands has filed bankruptcy in the face of extremely low oil prices and overwhelming debt — through the city shouldn’t be impacted, officials said.
Of bigger concern to the city, officials said, is the same one forcing its oil islands contractor, California Resources Corporation, into bankruptcy: oil prices, which have dropped because of the coronavirus pandemic, subsequent business shutdowns and the resulting economic recession.
“Everything continues to operate the same as before the bankruptcy filing for our operations here in Long Beach,” Robert Dowell, director of Long Beach’s Energy Resources Department, said via email recently. “Their filing for bankruptcy will have no impact on the (fiscal year 2021) budget. The price of oil has the biggest impact on the budget and CRC has no control over that.”
California Resources Corporation, an oil and natural gas exploration and production company, contracts with Long Beach to pump oil offshore. The palm-tree laden, pristine-looking islands that dot Long Beach’s coastline are actually oil production sites the city owns and CRC operates. The city and the state split the revenue from that oil, with CRC taking a percentage for doing the work.
But CRC announced last month that it had filed for Chapter 11 bankruptcy. Chapter 11 bankruptcy means the company is looking to restructure its debt rather than folding completely. Under CRC’s restructuring plan, which it submitted to a bankruptcy court in Texas, the company would eliminate more than $5 billion in debt and get $1.1 billion in financing — allowing operations to continue until the bankruptcy process is done.
CRC, according to a recent company statement, has been hit with dual issues: Oversupply in the oil market and the coronavirus pandemic, which tamped down on travel — via car and plane — for months.
“Today’s unprecedented market conditions, including oversupply and reduced demand due to COVID-19, require that we further reduce our debt through a Chapter 11 process,” Todd A. Stevens, CRC’s president and CEO, said in a written statement. “CRC will emerge from Chapter 11 as a strong, healthy company committed to providing Californians with safe, affordable, reliable and locally produced energy, good-paying jobs and millions of dollars in annual government revenues for vital public services for many years to come.”
Because CRC will be able to continue operations during bankruptcy, Long Beach shouldn’t see much of an impact.
Oil prices, however, remain a concern.
The pandemic, and the cascade of closures and restrictions that followed, wreaked havoc on the oil market, causing demand and prices to plummet. At one point, the price actually was at a negative value.
And while oil prices have rebounded in recent months — hovering from $40 to $50 a barrel — they are still lower than before the pandemic.
Long Beach’s crude comes from the Wilmington Oil Field, which stretches from inland into the ocean. Most of the oil from onshore comes from privately-owned companies, so the city makes money on those operations primarily through fees and taxes, though Long Beach does own some of the rights on the land.
Oil production brings in tens of millions of dollars in revenue annually. And each year, a portion of net revenues — gross revenue minus expenses — gets transferred into either the city’s General Fund or Tidelands Fund.
The net revenue available for transfer from onshore sites — called Uplands — gets put into the city’s General Fund, the largest chunk of Long Beach’s money, which pays for police, fire, parks, and public works services. In the fiscal year 2019, The General Fund received $10.6 million from Uplands.
The net revenue from offshore oil production, meanwhile, goes into the city’s Tidelands Fund, which helps support beach and marina operations, and the Long Beach Convention Center and Aquarium of the Pacific. That fund received $15.4 million in fiscal year 2019.
But the issues that have plagued CRC have also hit Long Beach’s budget outlook.
The Uplands money was expected to provide $8.8 million to the General Fund in the current fiscal year, which ends Sept. 30. The money set aside for the Tidelands Fund was estimated to be $12.6 million.
Instead, those funds will receive $7.48 million and $12.3 million, respectively according to city budget manager Grace Yoon. The city was able to narrow the gap between expected and actual money those funds will receive by not setting aside funds for abandoned, inoperable wells, which must be plugged and meet other state requirements.
The Fiscal 2021 budget proposes once again foregoing money for abandoned wells — though the amount of expected net revenue going to the General and Tidelands funds is still much lower than in the past. The proposed budget calls for $4.7 million to get transferred to the General Fund and $9.5 million to the Tidelands Fund.
But CRC’s bankruptcy should not impact that — as long as the company exits the process, as its CEO suggested, in a stronger position.
Dowell, for his part, seemed optimistic.
“It is unfortunate that (the city’s) contractor, CRC, is struggling with debt obligations caused by the recent volatile oil price market,” he wrote. “However, (Energy Resources) is confident the city and its partners will successfully navigate the turbulent oil price environment and continue to operate its existing world-class oil and gas operations.”