YOU ARE HERE: LAT HomeCollections

'Oil Patch Asks for Help'

December 18, 1986

I read with great interest the editorial "Oil Patch Asks for Help" (Dec. 5) and find agreement with all but two statements.

The oil industry has a high profile and there is no way government will "stay out." The first violator of free trade for the oil industry is the government. Whether you call it price control, windfall profits, or complex gas regulations, government is always there.

The flagrant error in the editorial is the statement " . . . the industry is highly profitable and has expended considerable energy and money on mergers and takeovers."

The industry is not profitable at current price levels. The market price for crude oil is less than the cost of finding and producing it. So those companies that show a profit are doing so by reducing their reserves (inventory). We are not, as a nation, drilling enough wells to rep1818321765with no thought to replacing merchandise (inventories).

While there have been many mergers, these fall into two classifications. One is a consolidation of two companies to reduce overhead and "down-size." The other, and more prevalent type merger, is a matter of lashing two leaky canoes together to try to keep afloat. Though the many mergers make great sense from an economic standpoint, they have done nothing to increase the reserve base of the nation. Energy is the driving force of this nation and its economy. Failure to maintain an adequate reserve base places the long-term security of our country in hands that may not be friendly.

One issue your editorial fails to address is the annihilation of the infrastructure of the industry.

In addition to the loss of skilled engineers, geologists and other technicians, the service industry is in total disarray. Should another embargo occur, we would be at a catastrophic disadvantage.

A reasonable increase to $22 per barrel in crude oil pricing would keep the industry alive, though not booming, with little effect on the consumer.


Los Angeles

Los Angeles Times Articles