After watching their first-quarter earnings tumble along with crude oil prices, several local oil companies are expecting their sales to rise now that crude prices have started to climb.
Crude oil prices have risen from $18 a barrel in mid-February to nearly $21 as of Friday, and that will help Fortune Petroleum Corp. of Agoura Hills and Benton Oil & Gas Co. of Oxnard--as well as H & H Oil Tool Co. in Santa Paula, which provides equipment to the industry.
"It definitely has an impact on the company," said Fortune President Dan Pasquini, who said an increase of $5 per barrel of crude oil would, over a year, add $400,000 in revenue for Fortune. "For a small company like us, it makes a lot of difference."
Retail oil prices, however, typically rise as the summer approaches because there is increased gasoline demand from vacationers.
But while the increase in world crude prices has clearly helped, it won't by itself pull the industry and the three beleaguered companies out of their doldrums.
Still, industry executives were encouraged after the Organization of Petroleum Exporting Countries cartel agreed last week to only a modest increase in oil production. Members of OPEC hope that that will keep prices steady or even nudge them a bit higher this summer.
Gregory Grabar, Benton's manager of administration, expects his company to post a profit for the year. That would be an improvement, given that Benton has just come off one of its worst quarters. In the first three months of this year, Benton lost $491,239 on revenue of $2.2 million, contrasted with a profit of $166,740 on revenue of $2.4 million a year earlier.
Fortune would also have reported a loss for its first quarter, rather than the minuscule $2,000 profit that it posted, had it not been for some acquisitions in February that boosted revenue by 25%--to $399,000. Fortune, which operates about 30 wells in Ventura County and dozens more in Texas and Oklahoma, posted a loss of $48,000 in the first quarter of 1991.
As oil companies have suffered, so have oil service firms such as H & H.
H & H leases drilling and production equipment to big and small companies in several Western states. During the first three months of this year, H & H lost $491,000, contrasted with a profit of $385,000 for the same period a year ago.
Henry H. Rushing, H & H president and chief executive officer, said the average number of oil rigs in the first quarter in H & H's market dropped 30% from a year ago. Rushing's company is particularly affected by the low prices for California crude oil because most of its drilling takes place in the state.
Pasquini said he would also like to do more work on California wells, but not at current prices for California crude, which have also increased about $3 a barrel since the last quarter but still remain far below the higher quality West Texas Intermediate grade.
Most California heavy crude sells for about $12.50 a barrel, and oil producers say the differential between such crude and WTI have increased in recent years, making matters worse for California oil companies.
Fortune and other Southern California producers have long complained that as long as crude oil from Alaska continues to be shipped only to California, there will be a perpetual oversupply depressing prices and discouraging drilling activity. Producers say California's oil industry will continue to contract unless there are changes in federal law so that Alaskan oil can be shipped elsewhere.
Rushing said the recent increase in crude prices will "help business from falling off more." But it certainly won't prop up business, he said, especially with competitors driving him to match discount prices on equipment rentals.
One positive sign for H & H, however, is that it was able to cut operating expenses by 7% in the last quarter, partly by reducing employment. In the past couple of years, H & H has trimmed employment by 20%, to about 135 workers. "We're down to hair bone and gristle now," Rushing said.
Both Fortune and Benton are also trying to cut costs. And like other oil companies, both are looking beyond California.
Earlier in the year, Benton signed a letter of intent to explore and produce oil and natural gas from fields in west Siberia with two Russian partners. Last week, Benton announced that one of its wells there had tested successfully, producing 250 barrels of oil in a 24-hour period.
Benton's main source of revenue comes from ventures in the West Cote Blanche Field in Louisiana, where the company is extracting oil from harder-to-reach pockets of old reserves. Analysts say Benton's prospects there are strong, but operating costs are high, and the company has been struggling to raise money.
This month, Benton completed a bond offering that raised $6.1 million. Although Benton had wanted to raise $10 million, Grabar said, "we're quite pleased with the results given the environment."
But Charles Strain, an industry consultant in Houston, suggested that Benton would need to come up with a lot more to continue its operations in Louisiana.
Local Oil Company Stock Prices Monthly Close
Benton Oil H&H Oil Tool Fortune Petroleum Sept. 90 $11.75 $6.13 $0.88 Dec. 90 $16.25 $5.25 $0.75 March 91 $10.75 $6.50 $1.06 June 91 $8.25 $6.50 $1.25 Sept. 91 $10.00 $5.25 $1.50 Dec. 91 $8.38 $5.25 $1.50 March 92 $8.88 $3.25 $1.50 May 92 $7.75 $3.00 $1.50
May 20 closing price