Newspaper article The Christian Science Monitor

Oil Industry Adjusts to Lower Prices

Newspaper article The Christian Science Monitor

Oil Industry Adjusts to Lower Prices

Article excerpt

Oil's swan dive from a record high of $147 a barrel last summer to a trading price of $46.10 Thursday, the lowest level in nearly four years, has rattled America's energy industry. But it hasn't flattened it - so far.

What the price drop does mean is that some oil-patch wildcatters have packed up their drill bits as the rush for new domestic exploration has cooled since summer.

"Six months ago everything was roses, and nobody in this business had any inkling that oil prices would decline virtually $100 a barrel," says Alex Mills, president of the Texas Alliance of Energy Producers. Now, he says, "some people have already pulled back on their drilling programs."

No doubt, profits for Big Oil will tumble from this year's record highs. And because of the tightening credit market, many producers - majors and independents - will shut down drilling rigs and trim production in the year ahead.

Fifty-seven percent of the chief financial officers at US oil and gas companies said it's "credit capacity restraints" that will be their most significant challenge in 2009, according to a survey released Tuesday by the accounting firm BDO Seidman.

The oil executives' No. 2 concern is falling prices. While some oil traders are speculating that crude could sink to $30 a barrel in the first quarter of 2009, the outlook from the Energy Information Administration (EIA) has average prices for next year at $63.50.

Sixty-dollar-a-barrel oil is a strong price for the industry, say energy experts and insiders - still higher than 2005 prices.

"The oil industry never imagined that prices would go to $147," says Amy Myers Jaffe, an energy expert at Rice University in Houston. "Obviously, some things have changed if you are a consumer and you are going to the pump, but really, from the industry's point of view, nothing has changed."

For the majors - who have very deep pockets and long-term outlooks - this might be the case. Chevron, which posted $7.89 billion in earnings in the third quarter this year, says its capital program - money intended for finding and developing new sources of energy - will probably remain at a 2008 level of $22.9 billion next year.

"We have experienced a number of years of strong earnings and cash flow that have enabled us to invest in high-quality projects that are either now on line or will start up in the coming year," said Chevron spokesman Kurt Glaubitz in an e-mail response to questions. …

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