A Gusher of Gloom in the Oil Patch

By Stephen Koepp

The steep decline in world oil prices is good news for U.S. consumers, who can celebrate by turning up their thermostat a touch or taking a trip in their Winnebago. Falling energy costs are also invigorating the stock market, where the Dow Jones industrial average rose 41.06 points last week to close at a record 1570.99. But for the once flush U.S. petroleum industry, no gushers of champagne have flowed since 1981, when the value of oil peaked. And last month's 25% drop in crude prices is bringing even more failures and layoffs to the Energy Belt. Last week one of the largest offshore drilling companies, Houston's Global Marine (1985 revenues: $379 million), filed a bankruptcy petition. The company, which operates 34 rigs, will stay in business but wants temporary protection from its creditors, to which it owes some $1.1 billion.

More collapses in the drilling business seem likely to follow, since oil prices have fallen so low that they provide little incentive for exploration. Only 1,671 drilling rigs are currently operating in the U.S., compared with a peak of 4,530 in 1981. Global was particularly vulnerable because it borrowed heavily to buy modern equipment. Said Jerry Martin, Global's senior vice president: "The downturn didn't surprise us, but we didn't think it would last this long."

Big Oil, meanwhile, has gone on a stringent diet. Atlantic Richfield, which had already slashed its work force from 39,000 to 29,000, announced last week that it will lay off as many as 2,000 more and close its exploration office in Denver.

As the oil barons fretted about falling prices last week, they suffered new pain from an old wound. The U.S. Supreme Court refused to hear an appeal of a lower- court decision requiring Exxon, the largest U.S. oil company, to make a $2.1 billion refund for overcharges to customers. Since it would be impossible to track down all the wronged customers, the money will be given to state governments for such projects as insulating public buildings and helping the poor with utility bills.

The Energy Department started the complex dispute by charging Exxon with violating crude-oil price controls that were in force between 1973 and 1981. In asking the Supreme Court to turn down the case, the department claimed that because the law has expired, the issue did not have enough continuing importance to be taken up by the highest court. The Justices apparently agreed. Exxon Chairman Clifton C. Garvin Jr., who contended that the price- control law was an inequitable hodgepodge, pronounced the company "extremely disappointed" with the ruling. Even so, Wall Street investors think the payment will be only a minor blow for Exxon, which had revenues of $93.2 billion last year.

The decision, though, could be expensive for other oil companies. As many as 400 overcharging cases involving up to $4 billion still await resolution. One accused firm, Atlantic Richfield, agreed last week to pay the Government $315 million to satisfy such claims.

Many other bills are piling up fast for the oil companies. Last week Unocal posted a loss of $134.7 million for the fourth quarter of 1985. The company was hurt last year by the cost of fighting off Corporate Raider T. Boone Pickens and by its money-losing oil-shale plant in Colorado. While several big oil companies, including Exxon, Chevron and Mobil, showed earnings gains in the past quarter, most petroleum experts see a lean future. Says Constantine Fliakos, who follows the industry for Merrill Lynch: "The last good news in the oil patch was the fourth-quarter results. We'll have to wait quite a while to hear anything like it."

At least one oil company got an unexpected break last week. Chevron said that after three years of negotiations, Iran had finally agreed to pay the company $115 million for property confiscated during the 1979 revolution. That gives hope to the twelve other oil firms that are still haggling with the Ayatullah Khomeini's government.

With reporting by Anne Constable/Washington and Gary Taylor/Houston