Oil firms borrow as prices decline

Press, 15 May 1985, Page 38

Oil firms borrow as prices decline

NZPA-Reuter New York Sweeping moves by America’s oil moguls to secure a future in a world of declining oil prices have started to worry industry analysts, who fear they are taking on too much debt. Major business restructuring by leading United States oil firms, spurred on by a spate of hostile takeover bids, has led to higher borrowing that risks becoming excessive, economists and industry analysts contacted by Reuters said. The latest examples were Atlantic Richfield and Phillips Petroleum, which went further into debt to buy back substantial quantities of their shares traded on Wall Street.

Paul Mlotok, an analyst with stockbrokers Salomon Brothers, said this higher debt gave the firms “less room to manoeuvre.” This is the latest twist in a long-running saga that started earlier in the decade when sagging world oil prices began to squeeze profits and made oil companies vulnerable to takeovers. Spending on exploration for new oil-fields has also been cut.

Atlantic Richfield, the sixth biggest United States oil company, announced last week it would spend SNZB.B4 billion buying back a third of its shares as part of a major restructuring. Phillips Petroleum, tenth in the industry league table, plans to spend $NZ9.94 billion to buy back half its shares in a bid for future independence after fighting off a hostile take-over bid

This latest upheaval in the industry follows a spate of major take-overs and mergers over the past four years, which were seen as producing economies that would boost financial results.

But the continuing slide of oil prices on the world spot market has highlighted how vulnerable the oil giants remain. Reverberations from these earlier deals were accentuated with an announcement by Mobil, the second largest United States oil firm, that it was to sell off its Montgomery Ward retail chain and write off SNZIIOS million in after-tax costs.

This was seen on Wall Street as inevitable following the poor performance of Montgomery Ward and the debt piled up by Mobil last year, when it paid $NZ12.59 billion — more than half financed by new debt — to buy Superior Oil.