After 2-year low, the oil search accelerates
Energy companies have a lot more reasons to go out and look for oil and gas now than they did last year, or the year before: Oil prices are stable, drilling costs have slid, and energy demand is finally on the way back up.
But in Houston's glass office towers, filled with energy-related businesses, executives don't just show you today's snapshot. Their eyes are glued on 20 years from now, and they don't like what they see. Americans have forgotten the importance of energy independence, they say. This has hurt and will continue to hurt the pace of exploration.
Proven reserves of United States oil and natural gas have shrunk by 28 percent since 1971, and ''here we have to lay the blame on Uncle Sam,'' says Jim Woodok, the lively vice-president of exploration for Exxon Company, USA. High taxes, restrictions on land available for drilling, and regulations have been a drag on exploration. ''I'm tired of telling that to Washington,'' he states, and so Exxon is now telling it to the public: with an educational campaign on offshore drilling.
However, the near term has been hard to overlook. Many companies - and the people who invested in them - landed with a crash after the last boom in oil prices. In 1978 there were about 2,300 rigs in use. Oil prices started their triple leap. By 1981 the rig count was up to 4,500, with new companies taking advantage of the market. Overly high expectations of the market caused a fall as swift as the rise though, and as the oil glut came into being, the number of rigs in use plummeted to a low of 1,800 last year.
Little wonder then, that the modest upturn in exploration and drilling since last year is causing some excitement. ''I feel we are on an upward trend that will continue through 1985,'' says a confident Ike Kerridge Jr., economist at Hughes Tool Company, a major supplier to the industry. Of course, he adds, that trend will keep its course assuming continued strong economic growth across the nation, a normal winter next year, and stable crude-oil prices.
Mahogany-paneled offices and exquisite marble flooring speak for themselves at Hughes: The company gained a lot from the booms of the '70s. But afterward, it suffered like the rest of the industry, losing $91 million last year. Mr. Kerridge says companies like Hughes will benefit from the exploration uptick.
Major energy companies and independent wildcatters are stepping up exploration efforts for a number of reasons. Cost is one, says Jon Rex Jones, president of the Independent Petroleum Association of America and chief executive officer of Jones Exploration Company. Trying to drum up business, equipment suppliers and drilling contractors have slashed prices. Mr. Jones says drilling costs for his company of 125 employees dropped 40 percent in two years.
''Equally important,'' says the lean, tall Texan, ''is what people imagine will happen.''
What they are imagining is that oil prices won't drop. The price stability of the last year has given the industry - and investors - confidence. Investor interest is especially important to the independent companies, because they don't have the financial resources for exploration that the major corporations have.
However, Mr. Wood at Exxon says the near-term price outlook is not that optimistic. ''But we've got a big problem that's much more serious. We have a problem of reserves,'' he emphasizes.
For the past three years, Exxon has been able to replace the reserves it's produced. ''We're big enough to worry about the bigger problem,'' he says, ''but the US needs to worry.''
Exxon and other major energy companies such as Shell Oil are stepping up exploration efforts this year. Shell is drilling in 6,448 feet of water in the mid-Atlantic - the deepest offshore project attempted so far. They will be going after lease sales in the Gulf later this year.
Imports worry exploration executives at Exxon and Shell too. While the United States has made progress on imports (they now account for about 30 percent of our use compared with 45.7 percent in 1977), they say, it has not been enough progress.
The industry argues government policy should be more supportive of exploration. ''Oil is seen as an unending supply of revenues (for the government) whenever they are needed,'' says Mr. Jones. According to the American Petroleum Institute, taxes eat up 43 percent of pre-tax income in the petroleum industry, compared with 24 percent for other US industries.
And while former Secretary of the Interior James Watt opened up sizable amounts of land for exploration, the industry complains that Congress has taken the shine off their good fortune by stepping up exploration moratoriums because of environmental concern. In fiscal year 1982, for example, 700,000 acres were withdrawn from offshore exploration. The 1984 total is 53 million.
''We don't do any (environmental) damage,'' states Wood. ''We can document that, but we can't make anyone believe us.''
The industry also blames regulation for today's uneven distribution of pricing, the present glut, and hence disincentive to explore. It warns that once the glut is over, there will be a problem of delivering enough gas because the gas needed then is not being produced now.
Two subjective questions come out of the issue of government policy: Is the drop in US reserves such a bad thing? And how much is the government to blame for the last two years of exploration drop-off?
Industry analysts have various opinions. As far as the public is concerned, the drop in reserves is not a big deal because it has not made a drastic impact on energy prices, says Michael Maddox, director of drilling services at Data Resources Inc. ''If you are Exxon, though, you are awfully concerned, because you are watching an industry liquidate itself.''
On the issue of government policy, Maddox says ''There's no question that the government has hurt exploration. On the other hand, getting out of the way wouldn't have caused imports to go to zero.'' However, now that the easy oil has been found, and companies are having to look to the offshore frontiers for fuel supplies, government policy will become more important.