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BY JOHN BRINSLEY

Staff Reporter

The Port of Long Beach has many reasons to cheer these days.

Container trade through July is up by more than 6 percent from a year ago, West Coast shippers and dock workers recently agreed to a new contract, and the Asian economic crisis seems to be abating.

But the port is losing millions of dollars from a business it never wanted to enter and would like to get out of: oil. The situation is a growing source of conflict between competing interests in Long Beach.

In 1994, amid projections that its trade volume would more than double by 2020, the Port of Long Beach purchased 725 acres of land from Union Pacific Corp. for $405 million using 170 acres to build a $250 million terminal for South Korea’s Hanjin Shipping.

Situated on a portion of that acquired land is the western section of the Wilmington oil field, and much but not all of the oil rights on it. The port stood to make some money as long as the price of Wilmington crude stayed above $15 a barrel. But with worldwide oil prices in free-fall through most of 1997 and 1998, the port has been losing money: $26 million between January 1995 and March 1999, or $17,000 a day, according to an internal report.

Port officials are trying to persuade the city of Long Beach to shut down the oil operations.

“When we purchased the property, we purchased it for the land, but got the oil operations as well, ” said Port Assistant Executive Director Paul E. Brown. “They are a millstone around our neck.”

But closing down isn’t easy.

While the land belongs to the port, the crude that is pumped out belongs not only to the port, but to various oil companies that have an interest in the Wilmington field. In addition, California law holds that the city is the trustee of the field for the state, which gets revenue from production. Another complication: thousands of individual investors who get residuals when the operations generate profits.

“If the port was the only owner it would be one thing to shut down,” said Long Beach City Manager Henry Taboada. “But to do so, they have to come to terms with a whole lot of people. There’s no simple answer.”

The Department of Oil Operations, which oversees the city’s oil operations, doesn’t want the port’s field shut down.

“The port knew when it bought the land that the oil side wasn’t always profitable because there is significant abandonment liability,” said the department’s director, Dennis Sullivan. “There is a lot of oil still down there. It wouldn’t be in the city’s best interest” to close down the operation.

The “abandonment liability” refers to the estimated tens of millions of dollars it would cost the city to shut down the oil operations and clean up the site.

Sullivan argues that the port’s report is “significantly flawed” because its losses include those abandonment charges, which eventually must be incurred anyway.

And with oil prices on the rebound, the port may stand to gain from keeping open the operations. After falling as low as around $6 a barrel in 1998, Wilmington crude was fetching about $15.50 a barrel as of last week.

“We just went through the worst year and a half the oil industry has seen,” Sullivan said. “Currently (the west Wilmington field) is profitable. In July, excluding abandonment costs, the port made $160,000 in operating profit.”

No one disputes that the oil industry’s prominence in Long Beach has been steadily dwindling for decades. The Wilmington field pumped more than 150,000 barrels a day in the 1960s and early 1970s, but that is down to around 45,000 barrels today, with the port’s western portion accounting for about 7,000 barrels.

Port officials argue that, even with oil prices at $15 a barrel, which is historically high, the life span of its part of the field is no more than six years before production becomes prohibitively expensive. At $10 a barrel, it estimates a viable life span of only about two years.

Closing down would mean tens of millions of dollars in abandonment costs for both the port and the companies that drill on the land. But the port would prefer to cut its losses now.

Thanks to booming international trade, the port is a cash cow. It posted net income for the year ended Sept. 30, 1998 of $62 million, and is projecting similar earnings this year, despite a projected $10 million loss from its oil operations.

But the port has considerable expenses, most notably those related to servicing its debt, now at around $800 million, for projects like the Alameda Corridor project. And plans to convert the old Long Beach Naval Complex for civilian use will require the issuing of another $600 million in bonds.

Another drain is the city’s right to take 10 percent of the port’s net income every year for upkeep of the area’s tidelands, a right it has exercised every year for the past five years.

“Every contribution to someone else means raising money for our capital productions elsewhere,” Brown said. “We believe we have a very persuasive argument for closing (the oil operations).”

To bolster that argument, the port has commissioned a report from Long Beach City Auditor Gary Burroughs to evaluate the situation and recommend a solution to the City Council.

Sullivan fears that the report may be biased in favor of the port. Burroughs, as an elected official, insists he has only the public’s interest in mind. But his comments seem to favor the port’s side. “There are real losses and the port’s principal object in life is not oil,” he said.

Tabaoda said the report, even if it recommends a shutdown, may not convince the City Council to let the port have its way.

“A good prudent businessmen would probably say to get out, but this business is a public trust for the state,” he said. “You can’t just turn the switch off. In shutting down wells that aren’t productive now, you make it difficult to turn them back on if the situation changes. The longer oil stays at $16 a barrel, the less of an issue it is. The moment oil goes back to $6 a barrel, everyone will be running for cover.”