Independents say more money means more oil
The first barrel of oil to come out of the British North Sea, Johrie Ouzts says, was not the work of one of the well-known "major" oil companies with operations spread all over the world. It came from a firm that does most of its drilling in the continental United States.
That first crude production, he says proudly, was delivered by Hamilton Brothers Petroleum Company, a Denver-based independent oil exploration and drilling firm. Mr. Ouzts is chief operating officer of Hamilton Brothers, one of the many independents that do much of the on-shore oil exploration in the US.
While the major oil companies win most of the public's attention with growing profits, controversial advertisements, and appearances before congressional committees, independent companies like Hamilton are waging a fierce competition for the oil and gas reserves under the US.
At the same time, they are trying to convince the public and Congress that because their role in the oil picture is more limited than the "majors," this entitles tham to special consideration on such questions as pricing and "windfall profits" taxes.
Mr. Ouzts was in Boston recently to talk about his company to a group of financial analysts.
With sales last year of about $800 million, Hamilton would be considered large by American corporate standards; but it still pales in comparison with the larger oil companies. "We're definitely not a major," Mr. Ouzts said."But we are one of the larger independents."
Unlike the big oil companies, Hamilton's share of the energy picture is almost entirely limited to exploration and drilling. The company does very little refining and "no retailing whatsoever," Mr. Ouzts says.
But Hamilton could do a lot mroe exploration and drilling in the U.S. he contends -- if the government would let him have more money for his efforts, and if it would put aside proposals for a windfall profits tax. In this opinion he has a lot in common with his counterparts in the larger oil companies.
"With a world price for [domestically produced] oil, the US could be three-quarters self-sufficient in oil," Mr. Ouzts declares. Currently, US-produced oil is priced at about $11.25 a barrel while the world price is around $30. If companies like his could get the higher price for US oil, he argues, they could afford to use more of the sophisticated "enhanced recovery" and deep-drilling techniques.
Without taking full advantage of these methods, he continues, anywhere from 50 to 90 percent of the oil that could be jumped out of now-abandoned or existing wells is left in the ground.
Some industry observers, however, are skeptical of claims like this. "I think [the claim] is grossly exaggerated," said Thomas R. Stauffer, research associate at Harvard University's Center for Middle Eastern Studies. For the US to be 75 percent self-sufficient in oil, he said, "we would have to double our current production. And all the evidence shows the amount of oil we can get out of the ground is going down."
Also, he pointed out, so-called "new oil" is already priced at close to the world oil price. So the price incentive for reaching the hard-to-get oil is there, he said.
But one who agrees with Mr. Ouzts is Ray Gibson, analyst with Carl Pforzheimer & Company, a New York brokerage firm. "I think they [the independents] would find more oil with a greater exemption from the windfall profits tax." The windfall profits bill currently undergoing final committee work in Congress calls for the major oil companies to pay a tax of 70 percent of the difference between the selling price and $13 a barrel for oil discovered before 1979.
For the independents, the tax rate would be 50 percent on the first 1,000 barrels of pre-1979 oil.
Such a tax will make it "considerably more difficult" for independent oil companies to do business, Mr. Ouzts argues, because "they are the risk-takers . . . the people who have done a significant amount of wildcatting here in the United States. It will be more difficult for these people to raise funds and accumulate capital."
Other oil industry-watchers say that, for the independents, finding a place to drill for oil, not money, is their greatest obstacle.
"If you talk to most independents, the greates problem is the availability of acreage," said Dr. Philip O'Brien, senior energy economist at Arthur D. Little, Inc., the Cambridge, Mass., research firm. "Many of then will ay 'I've got a lot more money to spend on things than things to spend money on.' They [the independents] are getting in each other's way trying to buy acreage." One area where competition for land is particularly heavy, he said, is the Overthrust Belt in southwestern Wyoming, which reportedly contains massive deposits of natural gas.
Many independents, Dr. O'Brien continued, do thier drilling on land they have leased from one of the major oil companies. He estimates that the US reserves held by the majors and the independents are about equal, but the majors are drilling only about 10 percent of the oil and gas themselves.
A few independents, he added, are entering other businesses besides oil and gas -- some of them energy-related. One company, he noted, might be making investments in housing and real estate, while another is doing a good deal of research into geothermal energy and new methods of "enhanced recovery," to bring more oil out of the ground.
Hamilton, for its part, expects oil and gas to be the major part of its source of revenues in the forseeable future, Mr. Ouzts says. The company is taking some steps toward coal gasification. "We would see ourselves getting more ito coal in the future," he said. "But not now. There's a surplus of unused coal."