Slide in Price of Oil Leads to Bust and Boon : Energy: Local companies fare differently based on their role in the industry. Some are trying to improve their outlook by diversifying.

A sharp drop in oil prices over the past year has hurt two local oil producers and a drilling equipment company, but the change has also helped a maker of liquid asphalt.

The production companies--Benton Oil and Gas Co. in Oxnard and Agoura Hills-based Fortune Petroleum Corp.--both reported large losses in 1993, due in part to the decline in oil prices.

Santa Paula-based H&H; Oil Tool Co., which supplies drilling equipment and services to oil and gas producers, has seen its profits and revenues climb even though its business has slowed in some areas because low oil prices have contributed to a slowing of certain drilling activities.

However, Huntway Partners in Valencia had a profit turnaround in the latter part of 1993, after losses in 1992 and the first half of last year. Part of the reason for the improvement is that crude oil is the key ingredient in the liquid asphalt Huntway makes, so low oil prices amount to big cost savings for the company.

Oil prices, notoriously vulnerable to political events, spiked as high as $40 a barrel during the Gulf War in 1991. But in the past year, prices have been held down by worldwide oversupply as the Organization of Petroleum Exporting Countries has failed to reach agreement to cut production. The price of crude oil hit about $13 a barrel in early April, down from $20 about a year ago.

Although oil prices have risen to about $16.50 currently, many analysts expect them to remain soft for some time. John M. Selser, an oil and natural gas analyst at the investment firm Howard, Weil, Labouisse, Friedrichs in New Orleans, expects that oil prices will remain in the $15-to-$16-a-barrel range for the next couple of years.

Benton Oil and Fortune Petroleum say they’ve responded to falling oil prices by spending more money exploring for natural gas, which has had relatively strong prices recently. The price of natural gas is currently about $2.15 per 1,000 cubic feet, compared with as little as $1 a couple of years ago. Analyst Selser thinks gas will reach $2.25 next year.

Local oil companies have had other troubles as well. Benton Oil last month reported a $4.8-million net loss for 1993, compared with a year-earlier loss of $2.9 million, while its revenue fell 9%, to $7.8 million from $8.6 million in 1992. The big loss and revenue decline last year was mostly due to lower domestic oil and gas production, the company said.

But Benton Oil spokesman Gregory Grabar said declining oil prices probably accounted for 10% of the drop in revenue. This year the company is curtailing its domestic oil activities, centered in the Gulf Coast region of Louisiana, and is instead planning to drill four to six deep natural gas wells there.

“We as a company right now are about 90% oil,” said Grabar. “We’d like to change that mix and get more natural gas production.”

He said Benton will also cut capital expenditures on its Russian joint venture in western Siberia because of a $4.70-per-barrel oil export tax imposed by the Russians--which Benton and other American oil companies are hoping will be rescinded--coupled with low oil prices.

However, Grabar said Benton will continue to emphasize its oil and gas projects in its third production area, in Venezuela. Benton doesn’t actually own the oil and gas reserves from its Venezuelan drilling operations, but rather is paid by the country under an agreement that gives Benton some protection from the ups and downs of the prices of those commodities.

Falling oil prices were cited by Fortune Petroleum as a major reason for its big 1993 loss. The company took a one-time, $1.9-million charge in the fourth quarter because of lower oil prices, which contributed to its $3.65-million loss for the year on a 31% increase in revenue to $2.83 million.

Tyrone J. Fairbanks, Fortune’s vice president and chief financial officer, said that his company derived 80% of its revenue from California oil production a few years ago, but it has shifted focus and made acquisitions to lessen its dependence on oil. It is now positioned to receive about 75% of its revenue from natural gas production in Texas, he said, which should begin showing up in the company’s financial results this year.

Fairbanks said there are other factors making natural gas more attractive. The demand for natural gas, a relatively clean-burning fuel, will strengthen as states and municipalities enforce clean-air requirements and if auto makers ever mass-produce natural-gas vehicles, he said.

“We’re quite intently focusing on natural gas and not on oil production,” Fairbanks said. “We want to make sure Fortune is positioned for what the future is going to bring.”

H&H; Oil Tool President and Chief Executive Henry H. Rushing said that low oil prices combined with California’s discouraging regulatory climate has hurt his business renting drilling and production equipment. “We can’t make it if the oil companies can’t make it,” he said. Indeed, 75% of H&H;’s revenue last year came from California, but Rushing said its California operations were not profitable.

H&H; did report a $1.55-million profit for 1993, compared to a year-earlier loss of $1.76 million, while its revenue rose 9% to $21.7 million from $19.9 million. But Rushing said all the earnings were generated by its operations in Rocky Mountain states such as Utah and Wyoming that it acquired over the past few years. Natural gas and even some oil production has continued in the Rocky Mountain region, he said, because the costs for complying with regulations there are far lower for oil exploration companies than in California.

For that reason, Rushing said that H&H; will continue to emphasize its out-of-state business. Last year, the company spent half its capital budget outside California; this year, it will be 75%, he said.

While some companies have been hurt by low oil prices, for Huntway Partners the price drop has provided needed relief. A year ago, the company revised its loss for the first nine months of 1992 to $10.9 million, compared to a $1.9-million loss it had reported earlier. It said its former chief financial officer had misstated inventories, accounts payable and other assets.

Huntway has since restructured its debt and shut down its Arizona liquid asphalt refinery operations to cut costs. It recovered with a $1.09-million profit in the fourth quarter of last year, although for all of 1993 it lost $18.7 million on a 4% decline in revenue to $100.9 million.

Warren J. Nelson, Huntway’s executive vice president and chief financial officer, hired after his predecessor was fired for the accounting errors, said that oil prices are critical to the company because crude oil is the main ingredient in its products and its biggest cost item.

In the fourth quarter of 1993, Nelson said, Huntway’s average price for crude oil was about $3 a barrel cheaper than in the second quarter. With sales of about 1.2 million barrels a quarter, that represents a savings of $3.6 million. Although some of those savings dissipate as Huntway lowers prices on its asphalt products, much of it goes to the bottom line, Nelson said, and so has helped the company regain profitability.