Oil & Gas Journal/February 28, 2005
by Bill Stephens
Two large, flapping signs outside Holmes Western Oil Corp's Taft,
California office proclaim: NOW HIRING.
The signs reveal a shortage of oil field workers, just one of
many challenges California independent producers face today, even
as they celebrate sustained high oil prices.
Veteran California independent oil producer Fred Holmes says that
despite strong oil prices, these are challenging times for California
independents. Like mom and pop grocers, he says, traditional mom
and pop oil producers are becoming extinct. To survive, small
and medium sized independents need to be excellent operators--professional,
resourceful, and modern.
Holmes is in a position to know. A third generation independent,
Holmes grew up on an oil lease near Taft. In 1957, at age 13,
he started working after school and summers as a rig hand, eventually
doing all the oil field jobs. His family has worked the same Kern
County fields for more than 80 years.
Holmes also wears three hats--producer, drilling contractor, and
well service contractor. As a producer, he's grown from 90 to
1,500 barrels per day, with production in six fields stretching
over three southern San Joaquin Valley counties. He's the 28th
largest oil producer in California, drilling 30 wells per year,
often reviving abandoned Bureau of Land Management (BLM) leases.
A self-described workaholic, Holmes evolved in recent years from
a mom-and-pop company with three office employees (including his
wife) to a large mom-and-pop with 19 office employees (including
his wife). Overall, he has 160 employees. He's active in industry
Despite current challenges, Holmes believes independent producers
have a key niche in California. "We're the low cost operators
who keep mature fields going," he says. "We give personal attention
to a few fields we know well. My family has been in the oil business
in this area since the 1920s and we've worked these fields all
About thirteen percent of California oil production is from stripper
wells, largely operated by independents. If you count Oxy as an
independent, independent producers account for more than one-third
of California oil production. The marginal leases independents
operate provide tax revenue, jobs, and royalties. They reduce
reliance on imports and help keep California production going.
Holmes is pleased that sustained high oil prices are stimulating
his business and that new tools are helping him help squeeze more
oil from old fields.
"But it's not a bed of roses for California independents these
days," Holmes says.
California is a unique oil patch, with unique challenges for independents,
Holmes says. The state has a lot more oil than gas, and that oil
is in the southern part of the state where Holmes operates.
California oil is heavy, which commands a lower price than West
Texas crude. Environmental regulations have long been strict.
Also, a handful of large oil firms produce a significant amount
of the state's oil production. Holmes says that because there
are no oil pipelines out of California, independents can only
sell their crude to two or three large local companies. And while
California is fourth in national oil production with about 719,000
barrels per day, its aging fields are declining about four percent
Today, Holmes says challenges for California independent producers
are growing. Currently, there's a shortage of experienced oil
field workers. Oil price slumps over the last 20 years spelled
layoffs. And Holmes says young people today see oil field jobs
as unstable, hard, dirty, low paying work. They can make more
money in the building trades or even in grocery stores. Holmes
has two rigs idle because of a lack of experienced crews.
County, state, and federal environmental regulations are proliferating.
"It can take years to get a drilling permit for a sensitive area,"
he says. "New laws keep coming out, and it's time-consuming to
Also, current high natural gas prices hurt California oil producers.
Steam is used to help get heavy oil out of the ground. Natural
gas is used to make steam.
Another challenge for California independents: Large oil firms
aren't selling properties to independents as readily as they used
to, Holmes says.
"Five or ten years ago we thought the majors were going to sell
all their California properties to independents in their quest
for bigger overseas targets," he says.
But he says the majors have been holding onto their California
"The big firms own a large percentage of San Joaquin Valley acreage
and are holding onto their fields because oil prices are good
and because of 'cradle-to-grave' liability regulations. Majors
don't want to sell old properties to small independents without
deep pockets because later, when the time comes to abandon, liability
could revert back."
In addition, he says, California crude prices have been lagging
even more than usual lately behind West Texas crude prices.
Also, Holmes says independents have little ability to take advantage
of higher oil prices by adding production through exploratory
"The state is pretty well drilled up for oil, and the easy stuff
has been found."
To navigate today's challenging California business climate,
Holmes says small and medium-sized independents must be excellent
operators--resourceful, and as professional as the big boys.
"Some independents have nostalgia for the old days," Holmes says.
"But you can't fly by the seat of your pants and run your business
out of a shoe box. The days of the wild, wild west are over for
"Mom and pop firms have had to adapt because government agencies
expect professionalism. One person can't handle it. You have to
do things right when it comes to the environment and safety or
you will soon be in trouble."
Holmes has some suggestions for independents:
--Run your business like a professional business. "You need professional
business people to help you run it."
--To help comply with burgeoning environmental regulations, hire
enough staff. Mostly to deal with 140 different county/ state/federal
government agencies, Holmes has grown his office staff significantly.
"You need people to help you figure out environmental rules, which
are coming faster than we can decipher them."
"When the government introduces a rule that goes too far, you
have push for a realistic compromise. And you need to keep pushing
for more streamlined processes. But you need to comply with regulations
because that's what John Q. Public wants. If you don't operate
responsibly, you won't be around."
Holmes is proud of the fact that his oil firm consistently wins
outstanding lease maintenance awards from California's Division
of Oil & Gas.
--Be a safe operator. "It's the way business has got to be done,
and the industry has made impressive strides. As a good operator,
you need to be on the leading edge. We do daily safety training."
--Actively recruit, train, and retain oil field workers. Not
only does Holmes advertise for workers, but he runs a comprehensive
in-house training program and serves on the board of two Taft-area
oil field schools.
"Good operators don't put untrained people out in the oil field,"
Holmes says. "You need more formal training programs these days."
Holmes thinks that as job stability continues and wages eventually
improve, more young people will seek oil field work.
--Be a resourceful operator. When Holmes' well pulling business
slowed temporarily in the 1980s, he also began offering well drilling
services. When oil prices sagged, he also became a producer by
purchasing inexpensive BLM leases. The firm's versatility has
helped it weather oil business ups and downs.
--Arm yourself with modern oil field tools. "We purchase dried-up,
edge properties and use science to find missed spots," he says.
"We use tools like horizontal drilling to squeeze out more oil."
--Participate in industry organizations. "For mom and pops, they
are our eyes and ears in Sacramento and Washington, keeping us
informed of new regulations. They also provide industry networking."
--Be an industry advocate. "Because we haven't done a good job
of telling the public how much we've improved operations in the
last 20 years, our industry's reputation still lags. A better
reputation can mean more community acceptance, fewer regulatory
restrictions, and more access to oil resources."
--Finally, hold onto what's good about being an independent.
"Keep your intimate knowledge of local fields," he says. "Keep
the family feeling in your company, even as it grows. We don't
have executive bathrooms, and everyone has the same retirement
plan. We are proud of the fact that some employees spend their
careers with us."
"I still enjoy this business. And today I do a whole bunch of
stuff I don't like (paperwork), so I can do a little bit I like
(visiting the field)."
Despite current challenges for independents in California, Holmes
doubts he'll ever retire. He'd even encourage his grandchildren
to become independent California producers.
"All my life I've been hearing that California has only 10 more
years of oil production," he says. "And while California's oil
fields are declining, they're declining slowly. There are lots
and lots of years left."
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