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In The Midst Of A Downturn, Some In Oil Industry Are Prepping For A Bounce


This is ALL THINGS CONSIDERED from NPR News. I'm Michel Martin. We're going to start the program today looking at the energy industry, which we've been watching pretty closely. A few months ago, oil reached a 30-year low. The price of a barrel of crude has inched up since, but the domestic oil industry is still struggling. Oil and gas companies, once flushed with cash, have cut exploration and pulled up to three quarters of their rigs from the field. Many companies have gone bankrupt and tens of thousands of people are out of work.

We've been interested in the consequences of this across the board - from the decrease in pirate attacks on oil tankers to the traumatic effect on oil and gas boom towns. Yet, in every economic downturn there are survivors who position themselves for recovery. Lorne Matalon of Marfa Public Radio, reports on the recovering strategies from the Nation's largest producing oil field - the Permian Basin in Texas.

LORNE MATALON: Kenny Scudder is on the road a lot, constant travel from Texas to other energy states like Louisiana, New Mexico and Oklahoma.

KENNY SCUDDER: This is where we're going...

MATALON: Scudder is VP of Sales at Palmer of Texas. His company makes storage tanks and separation equipment for oil and natural gas producers. Scudder's calling on some of his customers and their contractors. And right now he doesn't like what he sees. The energy business - a key driver of the U.S. economy - is hurting.

SCUDDER: I'm with a manufacturing company and pain to us is less bookings, less revenue, less shipments...

MATALON: But Scudder says the company's adjusted and positioned itself for energy's inevitable bounce-back.

SCUDDER: You downsize your workforce, you have pay cuts, you diversify into other areas other than oilfield areas. So as a manufacturer, that's what you do - you look for other avenues to keep your plant open so that when it does pick up again, you're ready to ramp back up to where you need to be.

MATALON: Palmer has diversified. It's making filters for aquariums in places like SeaWorld and manufacturing storage tanks for a water reclamation plant near Los Angeles.

SCUDDER: One of the upsides of a downturn is if you have a strong balance sheet, if you've made wise investments during the last boom, you can still maintain your business and expand and get ready for the next upswing.

MATALON: Scudder says he's fortunate in that he can diversify. The company kept cash in reserve and his storage tanks can be tailored to suit multiple purposes. But oil producers only have one product. And for them, there aren't a lot of options.

DAVID MCDOW: Really painful, a lot of people being laid off.

MATALON: David McDow's a construction foreman at a contractor of one of Scudder's customers. His hands speak to a lifetime of work in the oilfield and his face is burnished by the Texas sun.

MCDOW: I'm fortunate that I'm not laid off but I've had to come, you know, 500 miles from my home to work. You know, everybody's hungry. All of our competitors are all hungry too just like we are so, you know, a lot of them will take jobs for nothing. And, I mean, that makes it tough on everybody.

MATALON: McDow says his 40-year career has consisted of peaks and valleys. Now, he says, he can at least visualize the next peak.

MCDOW: You know, if you'd want to drill a well, right now's a good time to do it. You know, I mean, everything you can get a good deal on it if you've got the capital to work with.

MATALON: Distressed companies here in West Texas are selling off assets - or themselves entirely to buyers from China and Mexico anxious to snap up a good deal. Major players like Chevron, Shell and BP are also making huge layoffs, but analysts believe they'll be stable financially again. Analyst Jordan Goodman says even smaller players with cash in reserve will emerge stronger because of the pain they're dealing with now.

JORDAN GOODMAN: You can thrive because you'll be one of the few left over when all your competitors are going under. So in the long run, the strong will get stronger. The weak will go bankrupt.

MATALON: An energy-focused law firm Haynes and Boone says at least 60 American oil and gas companies have filed for bankruptcy since last year. But businesses like Palmer of Texas - and there are hundreds in Texas alone - are hunkered down now with an eye on future profit. For NPR News, I'm Lorne Matalon in Midland, Texas.

MARTIN: This story came to us from Inside Energy. That's a public media collaboration focused on America's energy issues. Transcript provided by NPR, Copyright NPR.

Lorne Matalon