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Oil Producers Optimistic About OPEC Agreement

November 30, 1988

LUBBOCK, Texas (AP) _ OPEC’s agreement to limit production and boost prices is good news to independent Oil Patch producers, but most call the pact more of a life-support system than a cure for the ailing domestic industry.

Members of the Organization of Petroleum Exporting Countries agreed Monday to limit productin to 18.5 million barrels a day and bring prices back up near $18 a barrel beginning in January. Analysts estimate that the cartel currently pumps about 22.5 million barrels a day.

OPEC President Rilwanu Lukman’s assertion that crude oil prices could reach $18 by June comes as good news to Texas oil producers, who have seen prices gyrate in 1988. West Texas Intermediate, the U.S. benchmark crude, fell to $13.75 a barrel in October from a high of $17.92 in April.

″It looks very encouraging,″ said Bill Kleine, president of Permian Corp., a producer based in Midland, Texas.

But because OPEC members agreed on the production ceiling only for six months, the pact isn’t expected to improve the long-term environment for domestic producers, oil leaders say.

While the prospect of $18-a-barrel oil will benefit small, independent producers in the short term, those producers will continue to struggle in an uncertain environment, said Mickey Thompson, the Oklahoma Independent Petroleum Association’s vice president for governmental affairs.

″Even at $18 a barrel, we’re not looking at a major resurgence as far as exploration or drilling,″ he said.

″But we’re not about to look a gift horse in the mouth, either. It may at least keep us alive for another six months.″

Immediately following the announcement, several large purchasers of crude raised their posted prices, some by as much as $2 a barrel.

Phillips Petroleum Co. increased the price it will pay producers in the Texas and Oklahoma panhandles to $14.25 a barrel from $12.25, while Marathon Oil hiked its posted prices by $2, to $14.75.

″That’s an extremely hopeful sign that prices will, one, stabilize somewhat and, two, increase,″ Thompson said. ″We need a shot in the arm.″

But unless prices rise above $20, domestic drilling activity won’t show much of an increase, with or without the OPEC agreement, said Don L. Evans, president of TMBR-Sharp Drilling Co. in Midland.

″It’s a hopeful sign, but as far as translating into a dramatic increase in the rig count, it doesn’t equal that,″ he said. ″I don’t see that changing budgets dramatically for 1989.″

Major producers such as Phillips and Conoco Inc. also take a cautious view toward the pact.

″We don’t make our plans on the assumption that OPEC is going to do one thing or another,″ said Al Hegburg, Phillips’ director for international affairs and government relations. ″We don’t adjust our strategy according to what OPEC does. We just watch with interest.″

But Texas Railroad Commissioner Kent Hance, who attended part of the OPEC meetings in Vienna, Austria, is more optimistic about the agreement, saying it should boost drilling activity, stabilize oil prices at between $16 and $18 a barrel within two months and help state revenues.

″This is not going to be a boon for the energy industry in Texas,″ said the member of the body that regulates the state’s oil and gas industry. ″But it’s certainly not going to be a bust.″

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