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Daily Newspaper and Travel Guide
for Pecos Country of West Texas

Living off the Land

January 26, 1999

Oil glut threatens U.S. industry's future

Related Photo
Pump Jack at work
Staff Writer
Activity in the oil patch has slowed to a crawl since the
posted price of crude oil dropped below $10. Gasoline prices
last week in Pecos ranged from 85 cents per gallon at Flying
J to 91 cents at Uncle's Convenience Store.

Natural gas prices have stayed near the $2 mark that means a
profit for producers, but oilmen say they can't survive on
$9.50 per barrel for crude.

Clayton Williams of Midland said the posted price is only $1
per barrel over production costs, and he is shutting in 25
percent of his production.

John Bell of Kermit was promoting an area-wide shut in until
he learned it may violate anti-trust laws. But independents
still are encouraged to take the action that will draw
attention to their plight.

Bell said that the world produces 75 million barrels of oil
per day, and that only 95 percent of that is being consumed.
Producers must cut oil production by 5 percent in order to
balance supply and demand, he said.

Local oilman John Dorr said that low energy costs fuel the
economy everywhere but the oil patch.

"We can't make a living at these prices," he said.

Alan Zeman said he doesn't have any producing oil royalty,
but that he was able to lease some property last spring that
had not been leased for 20 years.

"They are looking for gas," he said. "Anything that's going
on in the oilfield now is related to gas."

Oil developers are unable to get financing, he said. "I have
felt like for a lot of years that any future this part of
the world has is more related go gas," Zeman said.

Lease prices are "kind of in the middle," he said. "In the
early 80s, people went crazy and paid way too much. It is
not as high this time, but it sure beats what we were
having, which was nothing."

Area producers joined a march on the state capitol last
Monday in Austin, which Bell promoted.

More than 300 demonstrators marched through downtown Austin
in an effort to call attention to the plight of the oil
field caused by the dropping price of oil.

Marchers hoped to influence legislators to pass a bill that
would cancel the severance tax whenever the price of oil
falls below $15. The tax currently stands at $4.60.

While most agree canceling the severance tax would be a
start, they realize the real solution lies somewhere in

Bell said the country's reliance on foreign oil is doing the
most damage.

"We are paying for defense of the Persian Gulf oil and I
think Persian Gulf oil ought to pay for its own defense," he
said. His web addressing the problem is

Last Tuesday, the Texas Railroad Commission voted to draft
proposed legislation to suspend severance tax payments when
the price for oil and gas drops below $15 per barrel of oil
or $1.50 per Mcf of natural gas as determined by the
Comptroller of Public Accounts.

In addition, the Commission voted to suspend for six months
all new regulations relating to oil and gas exploration and
production, except when necessary to ease the regulatory
burden or when it may be needed to protect the environment
or public safety.

"Severance taxes may be the difference between pumping and
not pumping for some folks," said Commissioner Michael L.
Williams. "I urge the Legislature to join us in supporting
this proposal which helps to make certain that Texas
schools, jobs and paychecks aren't impacted by this downturn
in the oil industry. Severance tax relief means Texas
producers could get a fair crack at the global and domestic

In 1997, the Texas oil and gas industry pumped nearly $60
billion into the state economy. It contributed more than
$171 million to the Texas Permanent School Fund, $84 million
to the Texas Permanent University Fund and provided more
than 1.2 million direct and indirect jobs for Texas.

Oil and gas producing properties contributed over half a
billion dollars to Texas school districts in 1997.
Ninety-five school districts received more than half of
their properties tax revenue from oil and gas property in
1997. More than two-thirds of all school districts in Texas
received some level of property tax revenue from oil and gas

Mineral values in the Pecos-Barstow-Toyah ISD, which
includes some land in both Reeves and Ward County, totaled
$245 million in 1998. Balmorhea ISD had $12 million
appraised value. Reeves County alone had $211 million.

In neighboring Oklahoma, the governor has called a special
legislative session to consider $29 million in tax relief
for the industry, the Associated Press reports.

Gas that sells for 70 to 80 cents a gallon in Oklahoma is a
blessing for drivers but a curse for independent oil
producers like Dean Eyler. He has laid off all six of his
employees, shut down 15 wells and is beginning to sell
assets to stay afloat.

``I feel like we have subsidized the rest of the economy,''
he said.

Across the state, the pump jacks that usually bob up and
down, drawing crude from the ground, sit idle, and producers
fear an estimated 10,000 oil industry jobs in Oklahoma could
be lost if prices don't pick up.

Alaska, which loses $95 million for every $1 drop in the
price of oil per barrel, had to draw nearly $1 billion from
cash reserves this year to balance its budget. The gap is
expected to widen in the next few years.

Louisiana faces a possible budget deficit of $15 million to
$60 million, though most of the problem is tied to a college
tuition program that is more costly than expected. Gov. Mike
Foster has responded with a six-month freeze on hiring and

Texas has remained financially strong despite the price
drop. The state is projecting big surpluses during the next
two years, and Gov. George W. Bush wants to reduce taxes by
$2.7 billion.

After oil prices took a similar drop in the 1980s, Texas and
other oil-producing states diversified their economies to
become less dependent on oil. In Oklahoma, for example, oil
taxes made up 20 percent of the revenue in 1982. Now they
account for less than 1 percent.

Even so, state officials and oil producers say damage is
being done.

Largely because of a glut of foreign oil, Oklahoma oil
prices crashed to $8 a barrel in December and have increased
only a small amount. When the state budget was drawn up last
spring, it assumed an average price of $17.02 a barrel.

E.W. Carter, an Oklahoma oilman since the 1960s, said this
downturn is ``100 times worse'' than the bust of the 1980s.
Even giants like Phillips Petroleum haven't been spared. The
company just announced 900 layoffs in Bartlesville.

In nearby Hominy, Joyce Whitewing points out a restaurant,
an antiques store, a variety store and an oil equipment
supplier that have closed in the past year. Some restaurants
in Pawhuska stopped serving dinner because no one shows up.

``I think everybody has been slow in responding,'' said Mrs.
Whitewing, executive vice president of the Osage Producers
Association. ``This is a crisis.''

Eyler, meanwhile, hopes the worldwide oil glut will pass.

``We're just almost down to a week-by-week basis,'' said
Eyler, who wears overalls stained by work he and his son now
do alone. ``We're hanging on for a little higher prices.''

More woes for ranchers

Harrison Cattle Company headquarters southeast of Pecos was without water after this windmill toppled in high winds Jan. 21. Click to view photo.
Windmill toppled by wind

Lightweight steer draws $3,100 bid

Staff Writer
Salem Mitchell's first-place lightweight steer took top
price at the Reeves-Loving County Junior Livestock Premium
Sale Jan. 16. Cee Sales and Trans Pecos Dairy bid $3,100 for
the steer.

Security State Bank paid $2,400 for Courtney Clark's grand
champion steer. The Champions Club bought Lyndall Elkins'
grand champion lamb for $1,500, and Trey Miller and Acid
Delinters paid $1,100 for Justin Owen's grand champion hog.

Chase Laurence sold his grand champion goat to Balmorhea
Feeders for $600.

Gary Clark offered $1,200 for the reserve grand champion
steer and $500 to $700 for the reserve grand champion lamb,
hog and goat, shown by John Marvin Clark, Lauren Martinez,
John Stickels and Adriel Roman, respectively.

Total sales of $51,000 was about $2,000 below last year's
total of $53,000.

Dallas Upton of Lovington Livestock was auctioneer for the
82 animals sold out of 286 entered in the annual show.

Steve Armstrong announced the show, and judges were Chad
Thomas of San Angelo, goat and lamb; Greg Jones of
Levelland, steer; and Geoff Cooper of Denver City, hog.

Ray Owen was sale chairman.

C.W.'s Quips

By C.W. Roberts
Reeves-Loving County Agent

Prune trees after damaged by storms

The recent snow was a beautiful sight with the white
glistening sparkles and the much needed moisture that it
brought. The snow also brought about a few problems. As I
drove around town, I noticed a lot of trees with limbs
broken. If left alone, a jagged tear can invite disease and
insect problems into your trees and shrubs.

When damage occurs to trees, either from wind, ice or snow,
it's necessary to remove the branch as soon as possible.
Sometimes this means a quick clean-up in order to
remove a limb from your roof or driveway. After emergency
clean-up, return to finalize the job. Before making a
pruning cut, be sure that your saws, pruning shears or
loppers are sharp.

If you have a large limb where a portion has broken,
there's a three cut pruning method to use. The
first cut should be made on the underneath side of the limb
about 4 inches away from the trunk. The second cut will be
made about 6 inches away from the trunk, cutting from the
top through the limb. The third cut should be made about a
half-inch from the trunk. This area is called the branch
collar. Be sure that the third and final cut is smooth. The
three step method will prevent the bark from peeling down
the trunk.

If stumps are left more than a half inch in length, the
result will end in decay. Don't make the cut flush with the
tree trunk. This exposes too much of the cut and slows the
"healing" process. Properly cutting branches a half inch or
so from the trunk, allows a callus to form. This seals the
internal tissue of the branch and promotes faster healing.

Experts found after years of research that applying pruning
paint slows down the "healing" process of trees. Pruning
paint is no longer recommended EXCEPT when pruning oak trees
during the months from March through August. If it is
necessary to prune oaks during this time, <sm25>painting the
cuts will help prevent the infection of a fungus called Oak
Wilt. This disease can be spread by a beetle during these

Remember, improper pruning will reduce the life of your
trees and shrubs. We should treat these plants as
investments that will provide enjoyment and pleasure for
years to come.

U.S. rig count 87 percent off 1981 record

HOUSTON (AP) - The number of rigs actively exploring for oil
and natural gas in the United States plummeted to an
all-time low 588 Friday in the latest sign of trouble for an
industry crippled by collapsed oil prices.

``When it's as low as it is now, we're a pretty anemic
industry,'' said John Bell, owner of a small independent oil
company in the West Texas town of Kermit. ``We're about as
unhealthy as we can get.''

The number of rigs operating this week dropped by nine from
last week's 597 to surpass the previous low of 596 set on
June 12, 1992, Houston-based Baker Hughes Inc. reported.

Baker Hughes has kept track of the count since 1940. The
tally peaked at 4,530 on Dec. 28, 1981, during the height of
the oil boom. The current count is 87 percent below that

Tony McAloon, director of market research at Baker Hughes,
said the record - while not unexpected - signifies that more
bad news is on the way for domestic producers and oil
service companies.

``We anticipate that the U.S. market will bottom-out
sometime here in the course of '99,'' he said. ``To find oil
in the United States is more expensive than to find it in
various international markets, and so although international
locations can survive with low oil prices, many U.S.
producers cannot.''

Prices for oil have plunged to their lowest levels in more
than a decade as demand from suffering Asian economies
withers and oil-producing nations continue to churn out
crude despite a huge oversupply in world markets.

In the United States, the world's second-largest oil
producer after Saudi Arabia, the crisis has prompted
companies to lay off workers, slash expenses and cut back or
completely eliminate drilling projects.

In the Houston area alone, about 4,200 oil industry workers
lost their jobs in 1998, including 2,500 positions in
exploration and production, Texas Workforce Commission data

``Unfortunately, the number of rigs is directly linked to
the number of jobs in the oil patch,'' said Morris Burns,
executive vice president of the Permian Basin Petroleum
Association, with 1,200 members in Texas and New Mexico.

``All of the service industries - people selling pipe, mud,
engineers, geologists - all of these people are working when
the rigs are running and they're not when the rigs stop,''
Burns said.

Many companies have joined forces in hope that merging will
help them weather the storm. But for the country's smaller
producers, cutting back is the only answer.

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Pecos Enterprise
York M. "Smokey" Briggs, Publisher
Division of Buckner News Alliance, Inc.

324 S. Cedar St., Pecos, TX 79772
Phone 915-445-5475, FAX 915-445-4321

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Copyright 1999 by Pecos Enterprise