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No Rebound Seen for US Oil Rigs

DRILLING Tool Inc. was born in 1953, when the United States had a quarter of the world's oil reserves.

The Houston company grew to 485 employees in 1981, when its valves and pipes commanded top rents from drillers chasing oil that fetched $34 a barrel.

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Last February, Drilling Tool expired - starved for business at home and too weak to move overseas, where 97 percent of the world's oil reserves are today.

The competitor that bought Drilling Tool will keep only half of its remaining 115 employees. As for the rest, says Roger Nafziger, the former president, "the chances are very, very slim" that they will work in the oil industry again. "There are no jobs."

The oil crash of the mid-1980s spawned the joke that the largest employer of geologists in Houston was McDonald's. The wry humor implied optimism that business would eventually recover.

It hasn't. And with three strikes - geology, economics, and environmental politics - against it, oilmen wonder if the domestic industry will ever come back.

The US has been so extensively explored that only small reserves of oil remain untapped in easily accessible areas. Environmentalists have lobbied successfully to keep oil companies out of the best remaining acreage.

Since its employment peak in 1982, the oil industry has lost 423,000 jobs, almost as many as the steel and auto industries combined. Hardest hit were exploration and production activities, where 398,000 jobs (52 percent) have vanished, the American Petroleum Institute (API) reports.

"It's a little hard to see the bottom," says Len Bower, an API economist. "Perhaps there's not a bottom." In April the number of active drilling rigs hit the lowest level since tracking began in 1940.

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Oil production stands at a 30-year low. And it will keep declining 1 to 3 percent a year for 10 to 30 years, predicts Tom Burns, an economist with Chevron Corporation, which recently announced a 28-percent cut in its domestic exploration and production staff.

An increase in oil prices might spur development of deposits that would be unprofitable today. Charles Bowerman, executive vice president for planning and development at Phillips Petroleum Company, says a $1-per-barrel increase adds roughly $40 million to his company's bottom line. But there's no justification for hope, Mr. Burns says.

As US oil reserves have shrunk since the 1970s, global reserves have grown. In 1980 they stood at 650 billion barrels, a 35-year supply. Today the world has 1 trillion barrels, a 45-year supply.

"That's why the US oil industry is diminishing in size," Burns says. "People have reluctantly concluded that [a price rise] won't happen anytime soon."

Ironically, as alternative fuels reduce demand for oil, oil will become cheaper and alternative fuels will also face lower prices.

Unable to affect geology or economics, oil companies have focused on Washington. President Bush recently announced plans to reduce the royalties collected on wells producing 10 barrels per day or less on federal lands.

That's "helpful" but "not too substantial," says Jim Merna, a spokesman for the Independent Petroleum Association of America. The IPAA represents 5,400 small companies that drill 85 percent of the wells in the US.

More important is relief from the alternative minimum tax.

The tax discouraged drilling by putting in-dependents into a 70-percent tax bracket on average and sometimes 125 percent, Mr. Merna says - "preposterous as that sounds."

Relief from the tax could come if Congress passes the new energy bill. But in this election year, "we're not counting on it until it happens."

Bill Keyes, chairman of Marine Drilling Company of Houston, is cheered by the fact that the price of natural gas has bounced back from January's 15-year low.

Marine Drilling has idled 11 of its rigs and has found break-even work for 6 of 8 others. Employment has fallen to 300 from 900 just three years ago.

"It's a waiting game," Mr. Keyes says. "We are committed to staying in business until the market turns around."

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