The decline of gas prices at the pump over the past year, from well over $4 a gallon to less than $3, has been a reflection of declining oil prices, including the value of the oil produced in Monterey County.
That means that the oil company advertising in opposition to Measure Z on the November ballot contains figures that are seriously out of date. In commercials opposing the anti-fracking measures, the industry says it pays $9 million in local property taxes annually based on the oil value. One of the most recent mailers from the oil industry says, “If Measure Z is passed it could end up costing Monterey County $9 million in funding per year, which is currently used to support vital public services like schools, police and fire districts.”
The industry’s local tax bill for this year, however, actually will be “somewhere south of $5 million,” according to Monterey County Assessor Steve Vagnini.
An analysis by Vagnini’s office in July reported that “the assessed value of crude oil in Monterey County has gone from $980 million to approximately $511 million in the last three years as a result of the decline in the price per BBL (barrel).” Since then, the value has continued to decline to below $500 million, said Vagnini, who added that he still has serious concerns about the Measure Z’s potential financial impact on local government, especially if litigation results.
Vagnini’s office presented the reduced amount to the Board of Supervisors earlier this year to be taken into account for next year’s budgeting.
“Oil prices dropped on Monday, weighed by oversupply concerns, with U.S. crude dropping below $50 as trade volumes spiked ahead of the Oct. 20 expiry date for American futures contracts.” CNBC
Roughly, the annual property tax paid by the oil producers works out to about 1 percent of the value of its product. If oil prices continue to decline, it is possible that the oil industry will spend as much on anti-Measure Z advertising as it does in local taxes this year. As of last week, Chevron and others had put about $3.7 million into the campaign against the ballot measure. The industry-financed opposition effort argues that passage of Measure Z would create significant layoffs and increase the nation’s reliance on foreign oil, but the leading argument and focus of the TV advertising is that it would cause the loss of $9 million in local taxes.
Jim Eggleston, a spokesman for Protect Monterey County, the sponsor of Measure Z, says the actual reduced tax figure “exposes how phony their argument is.”
“Measure Z doesn’t shut down anything,” Eggleston said. “It was written specifically to answer the takings question. It’s really about water.”
Measure Z would ban fracking in Monterey County and require the oil industry to adopt technology that would stop the practice of injecting tainted wastewater back into the groundwater supply.
Even at $5 million, the oil fields of San Ardo and elsewhere in southern Monterey County are major contributors to local government operations, including schools. Vagnini mentioned that the proposed Hartnell College bond on the upcoming ballot will become more expensive for Salinas Valley homeowners if Measure Z causes an oil industry slowdown or shutdown.
The process of assessing oil fields is complicated, involving various formulas that account for factors such as the thickness of the oil – Monterey County’s is particularly thick — but the written analysis by Vagnini’s office does a good job of simplifying things:
“Crude oil prices fluctuate on a daily basis with many variables that affect daily prices. The oil prices may fluctuate from domestic or foreign market reasons. OPEC often can set (price fix) foreign oil prices by either flooding the market or reducing production, which in-turn affects all other crude oil prices, stock markets, futures market for both foreign and domestic oil.
“In the third and fourth quarter of 2015 through the first quarter of 2016, we saw some of the lowest crude prices in three decades. Iran and Iraq attempted to force OPEC into relinquishing control over oil prices by flooding the markets with their crude oil. OPEC in response did not curve their production of crude which created a surplus and brought oil prices down to the $20 to $30 per barrel (BBL) range which affected domestic crude oil prices.
“For lien date 2016 the Brent benchmark price was $41.00 per BBL. All oil in Monterey County is benchmarked at a Midway-Sunset (MWSS) 13 specific gravity which is the basis of most of the oil in the central California region. For lien date 2016, MWSS 13 was adjusted to $35 per BBL as a baseline, then each reporting field was adjusted either higher or lower based on their specific gravity of crude oil. Once a base price for the crude oil is determined we forecast the next 5 years and then hold the last number constant for the remaining economic life of the field up to 30 years.
“It is important to note that the current $35 BBL of oil only represents the current market value and does not represent the value of oil in Monterey County. In 2013 the MWSS benchmark was $95.50 BBL, in 2014 the MWSS benchmark was $101.00 BBL and 2015 MWSS benchmark was $54.00 BBL. The Assessed Value of crude oil in Monterey County has gone from $980 million to approximately $511 million in the last three years as a result of the decline in the price per BBL.”
The analysis predicts a slow and steady increase into 2017 but Vagnini’s figures this week indicate that the uptick has not yet started.
The analysis continues, “The price of oil prices also impacts decisions made by oil companies on future exploration. When the benchmark crude oil prices are low, oil companies tend to conserve resources and postpone the construction of new wells, new facilities and new projects. Conversely, when benchmark prices start going up, oil companies take more risks, invest more capital in projects, discover new reserves which all generate new taxable assets.”