Drop In Oil Prices Is Being Felt By U.S. Drillers, Oil Field Firms OPEC's decision not cut production is sending ripples throughout the industry as drillers pull back and reassess their plans. The next few months could send some companies under, one consultant says.
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Drop In Oil Prices Is Being Felt By U.S. Drillers, Oil Field Firms

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Drop In Oil Prices Is Being Felt By U.S. Drillers, Oil Field Firms

Drop In Oil Prices Is Being Felt By U.S. Drillers, Oil Field Firms

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STEVE INSKEEP, HOST:

Falling oil prices have begun to hurt oil companies. This may be the point where you make a sarcastic remark - oh, the poor oil companies.

DAVID GREENE, HOST:

But we're talking here of smaller oil and gas producers in the United States. They don't have the resources of BP or Exxon Mobil.

INSKEEP: And when your prices fall at the pumps, so do the producers' bank accounts. They are among many producers affected worldwide as NPR's Jim Zarroli reports.

JIM ZARROLI, BYLINE: The decline in prices has made major oil exporters, like Venezuela and Nigeria, nervous. And a lot of people were expecting OPEC to try to reverse the decline by announcing production cuts at its big meeting in Vienna last week. But OPEC Secretary General Abdalla Salem el-Badri told reporters that wasn't about to happen.

(SOUNDBITE OF ARCHIVED RECORDING)

ABDALLA SALEM EL-BADRI: That does not mean that we should really, you know, rush and do something. We have to wait and see how the market will settle.

ZARROLI: Prices have been very decent for a long time, he said. And just because they're falling now doesn't mean the industry should panic. The news that OPEC isn't going to ride to the rescue sent oil prices plummeting. But OPEC appears to be playing a long game. Jim Burkhard is vice president and head of oil market research at IHS.

JIM BURKHARD: OPEC, especially the core OPEC members, are likely to be patient and in order to allow demand/supply to rebalance and eventually see prices recover but that will take time.

ZARROLI: Prices have fallen so much in recent months because of a glut of supply brought about in large part because of the shale oil boom in the United States and Canada. With prices declining, a lot of those producers will have less incentive to drill. Energy consultant Michael Lynch says that won't affect major energy projects, and big oil companies like Exxon can afford to wait out the storm by concentrating on their most productive wells. But he says, there could be something of a shakeout.

MICHAEL LYNCH: The small producers tend to operate a lot more on cash flow. They don't have deep pockets.

ZARROLI: Lynch says a lot of small companies have borrowed heavily to lease wells and begin drilling.

LYNCH: And if they don't have the cash coming in as they had expected, they won't be able to service that debt or keep drilling to raise their production levels.

ZARROLI: So the next few months could be pretty brutal and some companies could go under. Jim Burkhard says it's still too early to gauge the impact of the price declines. But the pace of growth in the industry is likely to fall, and a lot of companies are already reassessing their drilling operations.

BURKHARD: We've already seen companies decide to cut back their spending in 2015 by 20, 30, 40 percent. So the impact is already materializing.

ZARROLI: And that impact is likely to be felt throughout the industry. With less drilling going on, companies that cater to oil producers, companies such as Halliburton and Schlumberger, are already seeing their stock prices fall.

BURKHARD: It's a significant challenge for companies that provide services because if we drill for less oil - if there's less wells drilled, then there's simply less of a market for those service companies.

ZARROLI: OPEC is banking on the fact that the market will eventually find its equilibrium and prices will stabilize. But in the meantime, some of the companies that have done so well in the boom are seeing their fortunes began to fall. Jim Zarroli, NPR News, New York.

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