Pennsylvania Drillers Sue 3 Buyers Over Prices : Market: Struggling oil-well owners want a bigger piece of the profits of Pennzoil, Quaker State and Witco.
These are dry times in the world’s first oil field.
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A major refiner that takes its name from Pennsylvania is moving its headquarters from the state. Many of the rugged drillers who drive the industry are losing money and barely hanging on.
To top it off, the price for Penn Grade Crude, which yields products from engine lubricants to food additives, is about $5 shy of what oil producers say they need to make a profit.
Benny Landers and a handful of other producers have decided to fight back, suing the only three places that buy their increasingly scarce product--Quaker State, Pennzoil and Witco. Landers wants a little bigger piece of the profits he says they earn from his toil.
“They’re sitting up there in their Taj Mahals, and their employees are living the best lives they can, and meanwhile the oil producers are barely holding on at the poverty level,” Landers said.
Landers contends the companies conspire to keep prices low. If true, the practice would violate federal antitrust laws, and the companies could face stiff penalties.
“We have done nothing resembling price fixing,” said Rufus Oliver III, an attorney for Pennzoil in Houston. Quaker State and Witco, the maker of Kendall motor oil, said they set prices independently.
A federal judge in Erie recently designated Landers’ lawsuit as a class-action case. Thousands of well owners in Pennsylvania, Ohio, West Virginia and western New York are eligible to join Landers at a trial expected to begin in 1996. A partnership of well-owning Philadelphia doctors already has signed up.
Landers’ lawsuit says the refiners’ oil buyers are an old-boy network that fosters chummy discussions of future prices “as a matter of courtesy.” He alleges they once plotted price strategies during a hunting trip to North Carolina--an allegation the refineries deny.
The public part of the court file lacks a smoking gun, but many more documents remain secret under a judge’s order.
Refineries say they learn of competitors’ price changes from reporters or an Ohio association that announces them.
Prices can be volatile. According to court papers, all three companies changed their prices within 14 minutes on April 27, 1994. Pennzoil altered its price 300 times in 12 years.
Hard times have fed the harsh feelings among sellers and buyers, who were best of friends in the go-go 1980s. The price per barrel fell to today’s $15 from highs around $36 in 1980 and 1990.
When the price was high, so many oil speculators traveled to northwestern Pennsylvania that booking a room at Oil City’s Holiday Inn was often impossible.
“It was an unbelievable amount of investment. There were Gucci bags here from Wall Street and cowboy boots from Texas, and it was overnight success for a lot of people,” said Timothy Weaver, a fifth-generation Oil City oilman.
Since then, the price of Penn Grade Crude has plummeted along with the worldwide price of oil, save for a brief jump in 1990. And in such a small segment of the industry as Appalachia, the drop had significant ripples.
Also, the emergence of synthetic oils and synthetic blends has reduced demand for Penn Grade Crude. The competing products negated a premium that once was paid for Pennsylvania oil.
Drillers in decline say dozens of their friends are struggling or getting out of the business.
“The majority of independent drillers I know are drawing on their savings just to get by,” Landers said.
And Quaker State, whose motor oil has been a billboard for Pennsylvania since 1931, just moved its main offices from Oil City to Dallas to be closer to its businesses in the Southwest.
State regulators say the number of oil-drilling permits issued fell from 3,711 in 1985 to 337 by last year.
Pennsylvania’s oil industry, rich in tradition with the historic discovery of oil in 1859, is strictly bush-league in production. Single wells in Saudi Arabia spew as much oil in one day as Pennsylvania’s roughly 21,000 wells bring up in a year.
Even Ohio’s wells produce twice as much Penn Grade Crude as do Pennsylvania’s.
Still, “wildcat” drillers are sticking with their investment, hoping prices will rise again.
One of the problems with prices is that oil producers have nowhere else to go. The drillers cannot simply sell to higher bidders--there are none. They say it would cost them too much to transport crude oil beyond Quaker State’s refinery in Newell, W.Va.; Pennzoil’s outside Oil City, and Witco’s about 60 miles away from the city.
Landers, who once talked of opening his own refinery, says he simply wants the wax-based Penn Grade Crude to get its due, especially for its byproducts. They include waxes, resins and white oils sold to producers of food additives and sundries such as wax paper, skin cream and Vaseline.
The quality of the oil is the main selling point in the drillers’ case for higher prices. Penn Grade Crude was going for $15 a barrel last month, down from $18 last winter.
“There is no way we can survive with these numbers,” Landers said.
