Oil Firms Accused of Neglecting Wells : Baker Chairman Says Delaying Repairs Retards Production

Baker International Chairman E. H. Clark Jr. said Wednesday that the oil industry is delaying necessary oil well repairs that would increase production, despite a recent OPEC-engineered hike in crude oil prices.

Clark said that Baker just completed a national survey of oil producers and discovered that they are postponing expenditures on “workovers” of idle and less than optimally producing wells in order to boost their companies’ cash flow.

“Workover is not coming back as we expected (because) our customers are not in the mood to spend increased revenue that is coming their way with higher (oil) prices,” Clark said.

Baker, a major oil service company based in Orange, derives 15% to 20% of its revenue from maintenance and repair products and services, according to company President Jim Woods.

Restoration and improvements of existing wells normally lead an oil industry revival, followed by new drilling for production and exploration.

Crude oil prices have risen to about $17 a barrel from a low of $8 last summer. Moreover, Clark said he discovered that two-thirds of the oil production companies that are postponing repairs “believe prices are in fact going to (continue to) go up.”

Larry Bell, vice president of operations coordination for Arco--the domestic exploration and production division of Atlantic Richfield in the 48 contiguous states--said his “perception is that the workover service industry has not come back in proportion to oil prices.”

“The concern is about the long-term stability of oil prices,” he said. “The industry has undergone such a blow that I think we are being very cautious.” If the industry were guaranteed that crude oil prices would remain near $17 a barrel for the next several years, he added, all maintenance and production activity would be greater. But he added that the industry’s “track record at making predictions is very poor.”

Bell said that Arco is doing “workovers on the most cost-effective wells first” and slowly making repairs on a huge backlog of idle and ailing wells.

James Carroll, an energy industry analyst with Paine Webber, warned that if oil companies don’t spend more money to repair and maintain existing wells, “there may be a decline in oil production in the next six to 18 months.” He said that most companies began to defer well maintenance last February when oil prices began to drop. He added that maintenance came almost to a stop last summer and hasn’t revived significantly since.

Carroll added that the nation’s oil companies “continue to maximize their earnings and cash flow” and to restrict expenditures on well workovers. By taking this course, he said, “they are jeopardizing long-term earning power.”

Carroll said that some oil company executives who publicly predict that oil prices will hover at about $18 a barrel during 1987 nonetheless are running their companies as if oil prices may drop as low as $14 a barrel. Their conservatism is not surprising, he said. “They can’t afford to get burned again.”