A newcomer to his family’s oil well service business, Logan Allen is getting his first wake-up call to the brutal realities of the sector’s downturns.

The company, AllenCo., has seen work for its well service plunge roughly 35 percent in the last three months. Workers who used to be so busy they could barely squeeze in their repair jobs are now sitting idle much of the time.

If the price of oil continues to drop, first will come salary cuts and then layoffs for the Signal Hill company and its 44 employees.

“The work just isn’t there right now,” said Allen, the company’s vice president of sales.

The worry and gloom have spread far beyond AllenCo., gripping the entire oil industry in Los Angeles County, from giant California Resources Corp. in Westwood to even the smallest production and service companies. Capital budgets are being slashed, wells that need repair have instead gone idle and at least one proposed drilling project has been scrapped. While layoffs at this point are rare, local executives say they will begin to cut workers loose if oil prices don’t begin to recover by this summer.

While the oil price collapse and resulting work slowdowns have extended nationwide, the effects are being felt more acutely in California, according to Rock Zierman, chief executive of the California Independent Petroleum Association, a Sacramento trade group of mostly smaller independent oil producers. California crude is generally of heavier texture and tougher to extract than oil from Texas and North Dakota. Add to that the state’s more stringent environmental regulations, and the cost to produce oil here is considerably higher than elsewhere.

That cheaper-to-produce oil from Texas and North Dakota is increasingly shipped by rail into the state – a relatively new phenomenon. The sudden competition has forced down the price of California oil. Six months ago, California crude sold for about $6 a barrel more than the West Texas Intermediate benchmark price; today, it sells for about 50 cents a barrel less, Zierman said.

“Crude prices have fallen farther and faster here, so the effects are more pronounced,” Zierman said.

Wells idled

At Oil Well Service Co. of Santa Fe Springs, work has slowed considerably as the firm’s clients – oil production companies – have chosen to let wells that have stopped functioning remain off-line instead of spending the money to make necessary repairs.

Rick Van Hooser, the firm’s operations manager for the L.A. region, said he hasn’t laid off workers, though he noted the company, which employs 265, did lay off employees during the oil downtown of the late 1990s.

“We’re trying to weather the storm this time if we can, cutting hours, reducing overhead costs and starting an austerity program,” Van Hooser said.

Back at AllenCo., the oil price drop has hit harder than expected, said Allen, who joined the company in 2011. His grandfather, Peter Allen, founded the well servicer more than 50 years ago and has seen plenty of booms and busts. But the scope of this downturn took both of them by surprise.

“My grandfather, who has seen it all, said last summer when the price of oil had just peaked near $110 a barrel that it would fall to $75 by this February,” the younger Allen said. “As it turns out, he should have said it would fall by $75 a barrel.”

As of Jan. 22, the price for a barrel of West Texas Intermediate crude was $46.50 and showed few signs of having hit bottom. California crude is selling for roughly $46.

Of course, with this steep drop, fewer work orders have come in for AllenCo. A year ago, the company’s crews were servicing five to six wells a day, repairing the pumps and pipes that draw oil from underground. Now that’s down to three or four wells a day, a drop of between 30 percent and 40 percent.

But even on the wells that are being worked, Allen said clients are pressuring the company to charge lower rates. That in turn has forced the company to go to its suppliers, including well equipment and tool companies, and demand rate reductions.

Capital spending cuts

Meanwhile, at local oil production companies, capital spending is either being halted completely or re-evaluated in light of falling oil prices. Capital spending falls into two categories: drilling new wells and maintaining existing ones.

At Drilling and Production Co. of Torrance, President J. Chris Hall said the company has halted all capital spending, except on projects required by state environmental or safety laws. The company has also idled six wells, about 10 percent of its total. All of its wells are in oil-rich Kern County.

At giant California Resources, a recent spinoff from Occidental Petroleum Corp. of Houston, all capital spending projects for this year and beyond are being evaluated due to the current pricing environment, according to spokeswoman Margita Thompson. That includes a proposal to drill up to 200 wells in Carson, a project that had been wending its way through the approval process with the city and other regulatory bodies.

Midsize oil producer BreitBurn Energy Partners of Los Angeles has also been evaluating its capital spending, Chief Executive Hal Washburn told the Business Journal last month.

“We’re going to spend significantly less capital in 2015 than 2014,” he said.

So far, only one new oil project has definitely fallen through: a controversial plan by Phoenix oil company Freeport McMoran to drill or expand three wells on an existing oil field site near USC. In making the announcement, the company cited the steep decline in commodity prices, though another contributing factor was likely the intense opposition from neighbors and community groups that said the company’s existing operations have been generating noxious fumes and noise.

But another controversial local project remains on track – for the moment. E&B Natural Resources of Bakersfield is still planning to drill dozens of wells under Hermosa Beach, though that plan is dependent on approval from city voters in the March 3 election.

In a campaign mailer poking fun at opponents’ arguments that low oil prices will mean fewer benefits for the city, E&B sent a postcard to voters with a colorful unicorn. The message: “If you believe that oil prices will stay low, OPEC has a unicorn to sell you.”