The U.S. oil and gas industry is inbetter health than it was a year ago, according to testimony
given to the Texas Railroad Commission at its annual state of
the industry hearing today.
     The Commission, which regulates the state's oil and gas
industry, heard testimony from a number of high-level company
executives reflecting a belief that the recent industry
downturn had bottomed out.
     "The attitude expressed here today so far is a great deal
more optimistic (than last year)," Commissioner James E. (Jim)
Nugent told Reuters.
     "It reflects their (the executives) belief that they are
seeing the bottom of the economic cycle," he added, "and with
just a few reasonable breaks this industry can begin to move
again."
     The energy industry was hard hit by the sharp drop in oil
prices, which fell from around 30 dlrs a barrel in late 1985 to
as low as 10 dlrs in mid-1986. Prices have since steadied to
around 18 dlrs a barrel.
     At the same time, a number of company executives testified
that the nation's domestic exploration and production segment
was still hurting and in need of government help.
     Production costs are considerably higher in the United
States than in such areas as the Middle East and as prices fell
many domestic producers were forced to shut down their
operations. Currently, there are only about 760 oil rigs
operating in the United States compared with an average of
nearly 2,000 in 1985.
     Citing a study released yesterday by the Department of
Energy, many said the falling production of domestic oil
coupled with increasing U.S. demand, was leading to a growing
dependency on imports, particularly from the politically
volatile Middle East.
     "In the U.S., 1986 petroleum production responded to lower
prices, increasing about 2.5 pct, or 400,000 barrels per day
(bpd)," said J.S. Simon, General Manager of the Supply
Department at Exxon Corp &lt;XON>, the nation's largest oil
company.
     At the same time, Simon said "U.S. oil production declined
by 300,000 bpd, the first decline in several years," and "net
petroleum imports were up 25 pct to 5.3 mln bpd."
     Noting that while oil prices were expected to remain
between 13 and 20 dlrs a barrel, depending on OPEC's ability to
control production, Simon said demand is expected to remain at
1986 levels, leading to "a significant amount of spare
worldwide production capacity, in excess of 10 mln bpd."
     He said the surplus capacity would lead to continued
volatility and called for "governmental and regulatory policies
in support of the domestic petroleum industry."
     Citing the costs recently imposed by the federal
government through the 1986 tax code changes and "Superfund"
legislation, Simon called for the repeal of the windfall
profits tax, total decontrol of natural gas and improved access
to federal lands for oil and gas exploration.
     Simon did not mention an oil import fee, which many in the
industry have called for as a way of building up the nation's
domestic operations before imports reach such a level that
national security might be compromised.
     In yesterday's report, the Energy Department said imports
could make up 50 pct of U.S. demand by 1995, adding that
Persian Gulf producers will provide as much as 65 pct of the
free world's total oil consumption by that date.
     Arguing that "oil is a political tool in every nation on
earth," Frank Pitts, chairman of &lt;Pitts Oil Co>, today called
for a variable oil import fee, among other measures, "before
the treacherous foothold of the Middle East is irreversible and
our national security is compromised."
     Royce Wisenbaker, Chairman of Wisenbaker Production Co,
agreed, saying that like many federal government programs that
were set up with good intentions, it would probably turn into a
"shambles."
     Wisenbaker added that he was optimistic for the future.
"For those of us who have managed to hold on, the worst is
over," he said.
     Roger Hemminghaus, President of Diamond Shamrock Refining
and Marketing Co, said he was "enthusiastic about the future,"
adding that he expected "an increase in profitability by
midyear."
 Reuter
