WATCHING THE WORLD BULLISH OILMAN BESET BY BEARS

If you want cheering up, spending a gray Monday morning at a London conference on financing the oil industry is a long shot.

So it proved last week.

First speaker was Stephen Hodge, group treasurer of Shell International Petroleum Co. Ltd., who proved to be a bullish oilman among financial bears.

Hodge recalled wryly how one banker in the early 1980s showed a conference the world would run out of oil about now unless oil price reached $80-90/bbl.

"Now $19/bbl would make us content," Hodge said. "In the meantime, oil has become a commodity. There are two things to know about commodities: Prices fluctuate and in the long run always go down, and the more the world wants a commodity the more the price goes down."

Added to these, Hodge said, improving technology also makes commodities cheaper in the long run. Yet he emerged on balance as an optimist.

Hodge said, "As an industry we have some things to do to ensure our long term financial health, but we are doing them. Reports of the death Of the industry through a dearth of financing are greatly exaggerated."

EQUITIES HOPE

John Martin, senior vice-president of investment banker ABN AMRO Hoare Govett Ltd., London, appeared at first to bring hope. But he proved to be a bear in bull's clothing.

"The oil industry won't be constrained by lack of finance," Martin said, "but it must increasingly look for new ways to finance its activities."

The oil industry has been reluctant to raise capital through equity markets, when compared with other commodity producers. But the need for capital during the next 5 years will be enormous, he said.

Demand for oil will increase by 10 million b/d to a high of 75 million b/d by 2000, Martin said. TO meet this demand, more than $1 trillion investment will be needed at a rate of as much as $300 billion/year.

HOPES DASHED

Martin seemed at first to be offering equity funding as a solution. Then he pointed out that state oil companies, integrated oil companies, and upstream companies would all be competing for equity backing.

"The first signs of a wave of state company privatization are visible," he said. "Privatizations will be the main drain on equity funds. And we expect two or three privatizations a year."

Next up to the lectern was David Cockburn, director of Salomon Bros., London. There was no mistaking him as a bear, one in a black mood.

Cockburn explained that bond markets have lost about $1.4 trillion since early 1994. This colors the way financiers look at investments.

"Financial markets can't afford to take major hits any more," Cockburn said. "I am confident of the future of the oil and gas industry, but not my own industry The finance sector is going through major restructuring."

If investment banks are short of cash, what hope is there for oil companies looking to raise capital?

"Watch out for negativity in my industry," Cockburn said. "Go back to basics. Reasonable assets will always get financing."