Tuesday, November 24, 1998

Oil producers struggle amid depressed oil prices

By SANDY SHORE AP Business Writer

DENVER (AP) - As world leaders cross swords over a glut oil supplies that has sent prices down to the lowest level in 11 years and consumers gleefully buy cheap gas, independent producers in the Rocky Mountains are struggling.

Companies are laying off workers, selling property and eliminating unnecessary expenses. Many believe the situation mirrors a 1980s oil bust that battered the region.

"The impact has been devastating," said Kevin Kauffman, who owns KP Kauffman Co., which has been in the business in Denver for 15 years. "I would say the oil and gas industry is nearing a depression level."

Craig Creel, who owns Rio Chama Petroleum in Santa Fe, N.M., has put off some maintenance programs and delayed replacing an employee to save money. "It's a belt-tightening year," he said.

The boom-bust roller coaster is nothing new for oil producers from Montana to New Mexico, where 80 percent of the production is generated by small, independent companies with no more than two dozen workers.

They basked in prices that peaked at $45 a barrel in 1981, only to scrape bottom when prices sunk to about $10 a barrel in 1986. During that recession, thousands of jobs were lost as energy companies pulled out of the region.

Earlier this year, the oil cycle spiraled down again amid an increase in the world's oil supplies and the Asian economic crisis. Prices have seesawed between $12 and $14 a barrel for months, down about 30 percent from a year ago.

The drop in oil prices has been a boon for motorists. Earlier this month, the nationwide average price of regular-grade gasoline fell below $1 a gallon for the first time since January 1994.

The downturn has hurt oil companies nationwide. Four of the major oil companies are laying off workers and cutting capital investments in wake of steep declines in third-quarter earnings.

Amoco Corp. plans to eliminate 380 jobs in Denver. Texaco's 450 employees and contractors here could also feel the pain under plans by that company to cut 1,000 jobs worldwide in exploration and production.

In the Rockies, many small companies are pulling out of exploration and production and several mid- to large-sized companies are selling properties, Marc Smith of the Independent Petroleum Association of Mountain States.

In Wyoming, the number of producing oil wells dropped to 9,536 in August from 10,270 at the end of 1997. Don Likwartz of the state Oil and Gas Commission staff said companies will be forced to close if prices do not improve.

New Mexico, Colorado and Utah officials speculated that oil production has fallen off, but they have not seen it in statistics because the collection of data lags months behind.

"I know people have been shutting in wells ... operators are generally shutting in production until the price of oils come back," said Ed Martin of the New Mexico Oil Conservation Division.