Well-service firms get bogged down in slowdown as oil industry waits for some 'froth' to subside
Tulsa, Okla. — ''Unless we get a dramatic turnaround in the industry next year, we will be slowing our capital expenditure programs. But I think we should be getting our turnaround.''
So says Jack Bates, chairman of Reading & Bates, an international drilling company based in Tulsa.
Tulsa is feeling the oil glut - more in some quarters than others. R&B reported record earnings in the second quarter of this fiscal year, but it was the only one of 20 publicly held companies in Tulsa to do so. The general wisdom here is that drilling firms doing much of their work offshore, such as R&B, are doing much better than their ''landlocked'' counterparts.
The present tight period is being seen here, as in other oil centers, as something of a wholesome chastisement. Slimming down can be good for you, some say.
''Frothy'' is the word Gerard J. Rothlein, executive vice-president of the First National Bank of Tulsa, uses to describe the way the oil industry was until prices began to fall with the glut. ''There were marginal producers going after prospects that should never have been drilled,'' he says. Apparently, some people were drilling because they had money to drill with.
All this drilling, of sound prospects and not-so-sound ones, also overheated the secondary industries associated with oil, such as equipment makers and well-service firms.
''But now,'' says Mr. Rothlein, ''we're getting back to reality.''
Getting back to ''reality'' is proving considerably more bruising for some firms than others. Older, established firms are coping better, in part because their capital equipment is paid for. Newer companies are still making payments on rigs - and at high interest rates. Bankruptcies are occurring almost daily.
For the long term, though, one of the most notable features of Tulsa's oil scene is the existence of long-established drilling companies, such as Reading & Bates, founded in 1935. A diversified energy company engaged primarily in offshore contract drilling of oil and gas wells, R&B has 27 offshore drilling units and employs some 4,500 people. Assets last year totaled more than $1 billion.
Local people think of them as hometown firms, as indeed they are, but they work all over the world - from South Korea, to the North Sea, to northern Africa.
Many of these firms have gone public over the years, but are still run by members of their founding families, the second and third generations, in some cases. Times have changed since the days when, as the story goes, Gifford Parker of Parker Drilling Company would go out to the fields himself, checkbook in hand , write out each man's paycheck, and figure whatever was left over was his. But the continuing family ties are seen as a real strength, enabling the firms to change with the times better than impersonal corporate behemoths.
Today Parker Drilling employs more than 6,400 people around the world. It has some 175 local employees receiving an annual payroll of $2.625 million. Assets at the end of the third quarter were listed at $920 million.
The company, which operates worldwide and has 148 rigs of its own, even provides specialized drilling services and well-control expertise in China.
Helmerich & Payne is another firm in this category. Last year it reported assets of $546.4 million and a total of 1,685 employees.
Harvard graduates appear to dominate the corporate headquarters of this international drilling company. Walter H. Helmerich III, himself a graduate of Harvard, as well as of the University of Oklahoma, accepts good-naturedly the suggestion that the company is a Harvard annex.
The firms also owns an old but prestigious 30-acre shopping center across the street from its headquarters; an adjacent 16-story luxury condominium complex; a natural-gas-odorant business, which has more than half the national market; and two large warehouse complexes.
Loffland Brothers Company, now a division of Kendavis Industries of Fort Worth, Texas, dates from 1906. The oldest, and one of the largest, drilling-contracting companies in the nation, it has 129 rigs, 29 of them overseas. Loffland employs 117 people in Tulsa and more than 3,000 worldwide.
The firm operates both onshore and offshore. It drilled the first well in the North Sea in 1966, and it also was the first contractor to operate in Venezuela.
Henry Heckert, executive vice-president of domestic operations, says spot oil prices have started to rise and stabilize as the oil surplus decreases.
''I'm sure the operators have their act together more today than they did several months ago when the plug was pulled,'' he added.
Tulsans hope so, because so much of their economy is tied directly to the drilling companies.
In any case, they can take heart from what might be called a concrete symbol of a commitment to Tulsa: the new R&B tower going up downtown. Despite the lure of Houston and Dallas over the years, R&B plans to stay put.
In 1977 R&B bought a historic, 16-story structure to house a portion of its scattered 300-odd local employees. The new building is being cantilevered adjacent to and over the picturesque old Mid-Continent Building.
The exterior of R&B's new corporate headquarters will retain the architectural motif and terra cotta of the old building, erected in 1918 by oilman Josh Cosden.
Three blocks from Reading & Bates headquarters, the new 37-story Cities Service building is still going up, although the future of Cities Service is itself in question because of its pending acquisition by Occidental Petroleum, a deal that is scheduled to be completed Dec. 1. The last major oil company still headquartered in Tulsa - unless you count Phillips Petroleum, some 50 miles away in Bartlesville, Okla. - Cities Service has been laying people off, and is expected to continue to do so.
The company reported total assets of $6 billion at the end of last year. It reported a loss of $49.2 million for last year, compared with a net gain of $477 .5 million the preceding year. The loss stemmed from discontinuance of the firm's plastic business, which resulted in a one-time after-tax charge of $290 million.
Cities, an integrated energy company that had some of its origin in the Sooner State, has 4,000 employees in Tulsa and 18,000 worldwide.