Oil companies take steady, careful approach to '09

SAN FRANCISCO (Reuters) - Energy companies put on a brave face in response to a rapidly deteriorating industry outlook on Wednesday, keeping 2009 spending plans largely steady, even as oil prices tumbled to a 16-month low.

Executives plan to wait for cues from clients before making drastic changes to their plans because, even if oil prices are half that of three months ago, a $70-a-barrel range still represents a historically healthy level for production.

They will be closely watching OPEC's meeting on Friday, although a U.S. fuel inventory build-up indicated weak demand may move prices more than any cartel supply cuts.

ConocoPhillips , kicking off third-quarter reporting for big oil companies with good results, said 2009 capital expenditure would be similar to 2008.

"We want to live within our means," Chief Executive Jim Mulva said.

The shares of the third-largest U.S. oil company fell 9 percent, mostly due to the fall in oil prices, while Baker Hughes Inc plunged 17 percent as the oilfield services company missed Wall Street estimates.

Yet Baker Hughes executives told analysts they could maintain capital spending or even raise it depending on how 2009 shapes up and they would have a clearer view on that in the next month or so as clients set budgets.

Baker Hughes would tighten up hiring practices and reduce money tied up in working capital, which had been of little concern when energy prices regularly topped new records and the industry seemed like it could not grow fast enough.

"The whole industry over the last three years has probably been less focused on inventory and receivables because everybody is growing," Chief Executive Chad Deaton said.

SOME REGIONS WORSE OFF

The steady approach of the two U.S. companies mirrored that of Norway's StatoilHydro , which said lower oil prices were not affecting its projects or spending.

Indeed, many parts of the world look in relatively better shape than the U.S. energy production market, where a collapse in natural gas prices in particular threatens marginal projects.

Yet Russia's gas industry, while enjoying strong prices, is being squeezed by a global shortage of finance.

Asked about what projects $70-a-barrel oil will threaten, Deaton expected its clients in the declining fields in the waters near Britain could feel the impact hardest.

"The UK could be one that we'd have to watch," he said on a conference call with investors. "Fortunately, right now we are extremely busy in Norway ... which is pretty handy to support out of the UK."

The results from the Houston-based company follow those of larger rivals Schlumberger Ltd and Halliburton Co in the past week. Both had posted strong third-quarter performances, but they expect slower growth in 2009 as clients tighten belts and operate fewer rigs in North America.

Baker Hughes expected about 200 oil and gas drilling rigs in North America would be idled in the fourth quarter alone out of 2,400 operating at the end of September, due to tighter credit and lower energy prices.

But that decline would only put profit margins back where they were in the first quarter of the year, before the industry began increasing the number of rigs in operation.

"The next 200 rigs are the ones that are going to hurt a little bit more," Deaton said.

There were more than 1,100 offshore and land rigs operating internationally at the end of September, according to monthly figures from Baker Hughes and few analysts expect to see that drop as sharply as in North America.

(Editing by Andre Grenon)

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