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Among the first of the industry's cutbacks have been construction plans for a number of highly capital-intensive synthetic-fuel plants to produce gasoline and other petroleum products from coal, tar sands and shale rock. Occidental Petroleum and Tenneco Inc. have already shelved joint plans to exploit Colorado shale oil, and Exxon has postponed construction of a $4 billion East Texas plant to make gas from lignite. Says Exxon Chairman Clifton C. Garvin Jr.: "We'd rather gamble on the price of oil in our explorations than in synfuels."
Exploration plans are also being sharply pared. As recently as last December, the industry was planning to invest about $40 billion on such projects, an increase of 15% over 1981 levels. Many of those projects are now on the shelf. Says Industry Analyst Barry Good of the Morgan Stanley investment banking firm: "If you polled those same companies today, you would come up with a rate of increased investment probably half as large as anticipated last autumn, and in two months' time, planned investment might actually be below the 1981 figure." Mobil has already pruned this year's drilling program back from $5.9 billion to $4.1 billion, and Standard of California has trimmed projected outlays almost as much, from an estimated $5.9 billion to $5.3 billion.
Hardest hit of all have been the independent wildcatters who do exploratory drilling under contract for the oil majors. The wildcatters, many with no more than $2 million to $3 million in working capital, or about the cost of three exploratory drilling operations in the Intermountain West, are finding it increasingly hard to come up with the financial backing to go out and search for crude. Says Thomas Petrie, an industry analyst for the First Boston Corp. investment firm: "Investors see no point in backing high-risk drilling operations that can cost $12 or more per bbl. Instead, they can in effect acquire proven reserves for less risk, at, say, $3 to $5 per bbl., on Wall Street simply by investing in the depressed stock of financially sound oil giants."
With world oil consumption currently running at nearly 6 million bbl. a day below the level of just three years ago, the immediate supply outlook is reassuring. Nonetheless, American crude oil imports, which have declined a dramatic 36% during the past year, still account for approximately 25% of all U.S. needs. As long as one of every four barrels of oil consumed in the U.S. is supplied by foreign producers, there remains the constant peril of exorbitant new price increases and economically disruptive supply interruptions.
This is all the more a problem because Western oil supplies come largely from the volatile Middle East. Some unpredictable event there could quickly turn the present abundance into scarcity and send petroleum prices rocketing upward on markets around the world. The current fortuitous situation of declining oil prices provides an ideal opportunity to press ahead with greater efforts at conservation and the development of non-OPEC energy supplies. It was just such efforts in the past three years that helped bring about the present break in oil cartel prices.
—By Christopher Byron.
— Reported by Gary Lee/Washington and Frederick Ungeheuer/New York