Oil industry and economy unite in Houston

What a difference a year makes, with oil now hovering at just over $50 a barrel, the world in recession, and budgets cut to the bone, surely this year’s Offshore Technology Conference (OTC) in Houston would feel the affects.

And it did. By putting the size of OTC in perspective, the first day of this huge mega show felt the affects of a downward economy as aisles had show goers, but not as many.

“It’s not a real big surprise. A lot of people have been cutting back,” said Michelle Latham with 3M.

David Morgan of LTS Energy, a maker of high-pressure valves for the offshore market, agreed.

“At this point compared to last year it has been less active,” Morgan said. “With oil prices quite a bit lower, a lot of projects have been postponed or cancelled.”

“Prices of goods and services are not retreating as fast as the retreat in the price of the oil and gas we produce,” said Luc Messier, senior vice president at ConocoPhillips. “We therefore have to concentrate on the trimming of our projects to account for this. But, we are not reducing out total capital spending.”

“We have concentrated our workforce,” said Dominique de Soras with French oil and gas engineering company, Technip. “Operational level is the same and we have increased our engineering personnel 34%. We have increased our research and development expenditures.”

“Oil demand will go up over time, and the age of easy access to oil and gas are over,” said Matthias Bichsel, executive vice president at Shell Oil. “These ‘hard truths’ are the basis of Shell strategy. Our investment in technology continues as before, unabated. We are renegotiating contracts to offset present irregularities of the economy.”

While OTC is hardly a disaster (the number of attendees remains large), the amount of users coming to the show has cut down considerably.

“It’s not that we are losing customers, they are just not buying as much from us,” said Mike Blundell, with Scancon Encoders.

It is not all about this year either.

Jim Shettig, with Crowley Marine Services, isn’t worried about this year. His business cycle will most likely feel the effect next year.

With the delay in spending, “the recession is not affecting us right now, but it will next year.”

After years of rising prices and robust profits, the oil and gas sector is trying to adjust to vastly different market conditions. In the ongoing recession, people simply aren't using as much energy.

Even the world’s largest publicly traded oil company, Exxon Mobil, felt the economic pinch as it reported its lowest quarterly profits in nearly six years.

Exxon earned $4.55 billion in the first quarter, down 58% from $10.89 billion in the period last year.

Exxon, whose operations stretch from Nigeria to Siberia, managed to wring out bigger profits than any of its rivals because of its size and its cost controls.

Crude oil futures contracts traded in New York have averaged about $43 in the first quarter of this year, compared with nearly $100 a barrel in the first quarter of 2008.

Exxon said the drop in prices would not change its spending plans for the year. The company said it still expected to spend $29 billion this year to expand production and develop new projects.

ConocoPhillips’ profit for the quarter plunged 80%, to $840 million.

Royal Dutch Shell’s first-quarter profits dropped 62%. The company’s profit dropped to $3.49 billion from $9.08 billion. Stripping out $337 million of one-time gains as well as the price changes on unsold inventories, and Shell's earnings would have been $2.96 billion, compared to estimates of $2.55 billion.

The company sold oil for, on average, 54% less than it did in the same quarter last year. Gas prices dropped 15%. That will hurt profits. But the key word still remained: “Profits.”

Production slipped 3% to 3.32 million barrels of oil equivalent a day, with crude-oil production falling 7% and natural gas production steady.

Each of Shell's major divisions -- exploration and production, gas and power, oil sands, oil products, and chemicals -- saw either profit declines or losses.

Shell was not alone as UK-based BP felt the profit crunch.

As a result, the oil giant reduced its spending target for the year after first-quarter profit fell 64% on lower oil and natural gas prices.

BP’s profit was $2.56 billion, compared with $7.09 billion in the same period a year earlier. Lower oil prices prompted BP to reduce its capital expenditure target to less than $20 billion for the year from as much as $22 billion estimated in October.

Tony Hayward, BP’s chief executive, started a cost-cutting program intended to streamline operations and cope with the decline in demand as a result of the global recession. BP said it reduced costs by more than $1 billion in the quarter.

The average selling price for BP oil fell to $41 a barrel in the first quarter of this year from $91 a barrel in the first quarter of 2008, company officials said.

Chevron Corp., the second-largest U.S. oil company, posted net income that dropped 64% from a year ago. This was Chevron’s lowest quarterly earnings since 2003.

It wasn't all bad news at Chevron. Because it and other integrated oil companies must buy oil to make fuel for everything from planes to automobiles, lower crude prices actually helped lift earnings at its refining business, and its overall oil production increased from a year ago.

The San Ramon, Calif.-based company said net income for the first three months of 2009 amounted to $1.84 billion, compared with $5.17 billion in the quarter a year ago.

Chevron said total revenue fell 45% to $36.1 billion from $65.9 billion in last year's first quarter.

Chevron said income from its exploration and production operations fell 75% in the quarter to $1.27 billion. The U.S. hurt Chevron the most as earnings dropped from $1.6 billion a year ago to $21 million in the first three months of 2009.

Chevron's average sales price per barrel of crude oil and natural gas liquids fell 60% from a year ago to $36. Comparable natural gas prices fell 45%.

‑ Gregory Hale