Guarded hope surfaces in the oil patch
In Amite, La., Sybil McCray was ``absolutely amazed'' when Texaco showed up at her door recently and asked to lease her 35 acres in rural Louisiana north of Hammond for oil exploration. ``This area is really hurting,'' she says, ``so we can take all the new activity we can get.'' The oil patch is still ``hurting,'' but from Louisiana to Colorado a new attitude is beginning to raise its wary head: guarded optimism.
After last year's precipitous drop in the price of oil from around $30 a barrel to about $10, every energy index, from exploration and production to employment, also plunged.
But today's price, tickling the $20-a-barrel benchmark, is slowly leading to renewed activity in energy states. Perhaps most important, a certain price stability above the $17 level over the past few months has convinced many in the oil business that a slow upward movement of prices has set in.
That conviction is what is leading to new money trickling into oil exploration and to a leveling-off in the fall of domestic oil production. But no one is even whispering the word recovery, yet. That will not be possible until oil reaches about $25 a barrel, many in the oil industry say. And they do not expect that threshold to be reached, barring a major interruption in the flow of Middle Eastern oil, before the early 1990s.
Others say the price is actually being kept up by tension in the Persian Gulf, and that a change there could jostle the new price stability.
But Alexander Holmes, state director of finance for Oklahoma, says, ``We have certain harbingers of a recovery. The big question is whether growth at respectable levels will be in three months, six months, or a year.''
``If prices stay somewhere around $19 [a barrel] for a while, we'll see this confidence building,'' says Steve Kelley, executive director of the Oklahoma Independent Petroleum Association. ``There's a general feeling of guarded optimism.''
That optimism is echoed by others in an industry that, between exploration, extraction, machinery manufacturing, refining, and distribution, employs more than 400,000 people - down from more than 550,000 two years ago - in Texas, Oklahoma, and Louisiana.
``Our leasing has picked up, and we're seeing more inquiries into our mineral interests all the time,'' says Charles Neal, whose independent oil company in Miami, Okla., carries his name. ``During the depths, we weren't getting any inquiries at all.''
Oil equipment is no longer being dumped on the market for any price it will fetch. ``I don't think there's any more market for the equipment than there was a year ago,'' says veteran oil-field equipment buyer John Cassidy. His 160 acres of idled pipe, towers, motors, winches, and pumps near Stroud, Okla., make him the largest individual supplier of used oil-field equipment in the country.
``But there is a more positive attitude,'' he says, ``so people are more careful about what they do with [equipment]. There's no more dumping, and some people are actually holding their equipment off the market'' in anticipation of higher prices down the road.
The number of active drilling rigs across the country topped 800 recently, after falling below 665 last summer. Some say it could reach 1,000 by the end of the year, when annual activity is often at a peak.
But there are still many words of caution.
``We can't have any kind of recovery here until financing is made available again,'' says Mr. Cassidy, who claims that virtually no bank, especially those energy-belt institutions burned by six years of falling oil prices, will approve a loan on drilling equipment today.
``What do you think would happen to the auto industry if suddenly there were no more car loans?'' the salty, four-decades-long oil man asks rhetorically.''
In Abilene, Texas, Paul Galloway, president of the West Central Texas Oil and Gas Association, says the area's abrupt economic downturn that followed the oil-price drop will not make an appreciable turnaround until oil hits $25 a barrel.
The number of active rigs within a 60-mile radius of Abilene has dropped from 90 to 9 since the boom days of 1981, according to Mr. Galloway. ``And when you consider that each one of those rigs puts about $1.5 million a year into the local economy,'' he notes, ``you begin to see the impact.''
Galloway says his own well-servicing company, while experiencing some increased activity since last year, has nevertheless reduced its work force by 50 percent, to about 40 employees, over the past few years.
``There has to be some optimism over the kind of price stability we've had here recently,'' he adds, ``but that's all OPEC's doing, and who's to say what they're likely to do?''
The Organization of Petroleum Exporting Countries ministers met last last week. As expected, the oil cartel followed the course it set last December of gradually raising the price of oil through low production quotas. But whether member countries continue to follow the OPEC line, especially in light of heightened Persian Gulf anxiety, is an unknown that could yet muffle the oil field's happier tune.
The effects of the OPEC action ``constitute the big wild card right now,'' says Ray Perryman, director of the Baylor University Forecasting Service in Waco, Texas. ``The real telling numbers will come in a couple of months when we see if the OPEC countries are abiding by their agreements.''