IN THE NEWS / Oil drillers' stocks hit by weak prices, majors' spending cuts
NEW YORK, Nov 10 - The stocks of oil service companies couldn't shake off a chill wind on Tuesday as a key benchmark crude oil price settled below $14 and more major oil firm executives vowed to cut 1999 capital spending below 1998 levels.
Schlumberger Ltd <SLB.N>, the world's largest oil services company, saw its stock drop Tuesday by $2.625 to $53.1875 in composite New York Stock Exchange trading.
Cliffs Drilling Co. <CDG.N> shares also lost $2.625 to $23.30 a share, while R&B Falcon Corp.'s <FLC.N> stock fell $1.74 to $13.6875, both in composite NYSE activity.
The drop in drillers' stocks followed comments Tuesday by Exxon Corp.'s <XON.N> Chairman and Chief Executive Lee Raymond that Exxon, the world's largest publicly traded oil company, would cut capital spending in 1999 from 1998. Raymond made the projection while speaking to reporters at the American Petroleum Institute's annual meeting in San Francisco.
"It would be tough to make a case that our spending in 1999 would be above 1998," Exxon's Chairman and CEO Raymond said.
Eugene Nowak, analyst at ABN AMRO Inc., said, "If industry bellwether Exxon is getting cautious, that is not good news for the oil services industry."
Nowak estimated that capital spending by oil companies in 1999 will be down some 10 percent from 1998.
Oil drilling companies already were getting the shivers before autumn, industry data show. According to Global Marine Inc. <GLM.N>, worldwide rig rates fell by 9.6 percent in August, the biggest monthly drop since June 1986, with the shallow-water Gulf of Mexico hit the worst.
BT Alex Brown analyst Adam Sieminski said that capital spending among major oil companies in the U.S. rose 1.7 percent in the first nine months of this year, but he noted that as low oil prices crimp cash flow, oil companies will spend less than planned.
On Tuesday, the December crude futures contract on the New York Mercantile Exchange settled at $13.52 a barrel.
"It is pretty clear that budget targets won't be met this year, and most majors are still reviewing drilling programs. In addition, overall budgets are likely to be flat to down in 1999," Sieminski said in a report issued on Tuesday.
The warning on spending cuts from Exxon's CEO comes on the heels of remarks by executives of Chevron Corp. <CHV.N>,Texaco Inc. <TX.N> and Atlantic Richfield Inc. (ARCO) <ARC.N>, who said capital budgets would be lower next year than in 1998, and also follows a series of layoffs in the industry, most notably at Royal Dutch/Shell Group <RD.AS><SHEL.L>.
It also came after the International Energy Agency, a Paris-based energy watchdog for western nations, on Monday released figures that projected world oil demand would be weaker than expected and that a recovery in oil prices would not occur any time soon, despite a good level of compliance with production cuts agreed to earlier this year by the Organization of the Petroleum Exporting Countries (OPEC).
The IEA's monthly oil market report sliced its fourth-quarter global demand forecast by 600,000 barrels per day (bpd) to a total of 74.3 million bpd. It cut next year's demand estimates by 400,000 bpd to 75.6 million bpd, marking expected annual growth of 1.3 million bpd.
"The circulation of the IEA report of slower demand growth has been accentuated by comments coming out of the API meeting and even Exxon indicated they would spend less next year than this" year, ABN Amro analyst Nowak said.
Nowak noted that he is waiting for the OPEC meeting in Vienna on Nov. 25 before projecting oil prices for 1999. But he said the probability is for a cut in his forecast of $16.50 to $16.75 per barrel.
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