Oil and Gas Sector Hit Hard By Slowdown

Houston reels - again - as industries shrink and former geologists now work at K mart

HOUSTON hosted the annual meeting of the American Petroleum Institute in 1986, the year oil prices swan dived to $10 a barrel. Yesterday the API convened here again, and this time oil commands more than $20.So how is the oil industry feeling? "Downbeat," says API Vice President Michael Canes. "Depressed," adds Jere Smith, a spokesman for Phillips Petroleum Company. A gloomy energy outlook Houston doesn't need. This, after all, is Petropolis, the planet's greatest concentration of oil and gas exploration, production, transmission, services, equipment manufacturing, refining, and petrochemical activity. The city learned how heavy a liability its reliance on petroleum could be during the 1980s. "Guys that used to be geologists or producers - many of them went to work at K mart or selling shoes," says James Merna, a spokesman for the Independent Petroleum Association of America. The IPAA represents smaller companies in all 33 oil and gas producing states. Many members are in Houston, where exploration and production employment dropped from 107,000 to 66,000 between 1982 and now. The return of $20 oil was supposed to fix everything, but it hasn't. For one thing, oil executives say, the price hasn't been stable enough to bank on. Natural gas has been worse an endless stream of low prices and low earnings," Mr. Canes says. Last summer, prices hit 12-year lows. As oil has become harder to find in the United States, gas has grown in importance, especially to independents. Some were forced to sell gas for less than its replacement cost just to keep cash flowing in. The refining industry faces a $41 billion tab between now and the year 2000 for upgrades to comply with clean-air legislation, estimates John Hall, chairman of Ashland Oil Inc. That expenditure will not yield new products or win additional market share. "Is it really worth it?" Mr. Canes says refiners are asking themselves. No, some are answering. Amoco Corporation will close a refinery in Wyoming because its size cannot justify investing another $150 million. Mr. Hall says that refineries smaller than 50,000 barrels per day may not be economical to upgrade. Those represent 13 percent of total US refining capacity. Meanwhile, the recession has eroded profit margins and sales volumes on gasoline and petrochemicals. Hopes for a rebound by year's end have been punctured. "We don't see [the economy] coming out in early '92 either," says Phillips Petroleum's Mr. Smith. Pressure from so many sides has squeezed a stream of restructuring announcements from the industry. Layoffs are finally coming to employees who had been kept on for the better times that their companies no longer expect, says University of Houston economist James Smith. The industry's uncertainty has been felt in academia. Despite recruiting, petroleum engineering enrollment has fallen so low at Mississippi State University that a faculty committee recommended phasing the program out. What the industry views as excessive environmentalism also weighs heavily. Congress has placed moratoriums on offshore drilling where oil companies have already spent $1 billion for exploration rights. Notes Mobil Corporation spokesman John Lord: "Nobody's said how we're going to get that money back." Lacking opportunities at home, companies spend more of their budgets on overseas exploration. At Occidental Petroleum, which just had its seventh layoff in 10 years, "the domestic employees are much more jaded than the international ones," who weren't hit by the latest cuts, a company geologist says. "The function of domestic, at least in this company, is to break even, first of all, and periodically to drill some high-risk but high-potential plays that could be cash cows to finance international ventures," the geologist adds. Fresh in the minds of the API conferees was the Senate's recent refusal to stop a filibuster against the National Energy Security Act, killing the bill for now without a debate. The legislation would have opened the Arctic National Wildlife Refuge in Alaska to oil exploration, albeit subject to a score of special environmental stipulations and oversight by 10 government agencies. The API, which represents the largest US oil companies, reacted to the Senate's action with blunt and bitter words: "Make no mistake about it, this action occurred because of the extremism of environmental organizations and their allies in the Senate." Not allowing a debate was "a shameful abdication of responsibility," the API said. For Houston, the up side of the miserable '80s and no-relief-yet '90s has been its place at the center of an energy industry implosion. Petroleum club rosters in former oil strongholds like New Orleans and Tulsa have dwindled as companies move to Houston. Apache Corporation, the fourth-largest independent, will relocate its headquarters and 300 employees here from Denver by next spring. The move will position Apache to bid on the increasing number of US properties that high-overhead major companies consider too marginal to operate. "With the players being in Houston, and us wanting to play on that ball field, we're headed that way," spokeswoman Jeane Buchanan says.

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