Falling oil prices are bringing joy to drivers but pain to local companies that serve the energy industry.

As oil companies’ revenue slides with no relief in sight, they are cutting the money they spend on oil and gas drilling and related activity. That means projects secured by local engineering and construction companies such as Pasadena’s Jacobs Engineering Group Inc., Tetra Tech Inc. and Parsons Corp. as well as Century City’s Aecom have been delayed or canceled, and sales volume has fallen for downtown L.A. metals supplier Reliance Steel & Aluminum Co.

To offset the pullback, companies have laid off employees, turned their focus to more promising areas of their business and been designing projects that save money on drill sites to stay relevant with energy customers if and when gas prices climb again.

At Reliance, volumes of metal tubing and other components sold by its energy businesses fell 40 percent from a year ago during its most recent quarter, said Chief Financial Officer Karla Lewis. Sales from that business segment now account for only 6 percent to 7 percent of the company’s total business, compared with 10 percent a year ago.

Reliance doesn’t break out revenue by segment in its financial reports, but reported an 83 percent drop in third-quarter net income to about $53 million from $97 million for the year-ago period on revenue of $2.3 billion, down from $2.7 billion. Declines have also been caused by a glut of materials in the worldwide metals market.

To cut costs, Reliance laid off about 400 employees, mostly in its Houston and Canada energy businesses, and closed a handful of those units in Houston, Lewis said.

“In those businesses, we started to anticipate a downturn last October and we started reducing head count and employees there because our personnel is 60 to 65 percent of our total expenses outside of our material cost,” Lewis said.

Those businesses provide metal and steel pipes and tooling for oil and natural gas drilling rigs to customers such as Houston-based oil field services company Halliburton Co., she added.

In July, Halliburton announced it was cutting capital spending 21 percent over the rest of the year compared with a year ago. San Ramon-based Chevron Corp. recently announced a 24 percent cut in spending for production and exploration in its $26.6 billion capital and exploratory program next year due to the near-term price outlook.

Energy analyst Pavel Molchanov with St. Petersburg, Fla.’s Raymond James Financial Services Inc., said the economics of lengthy drilling and exploration projects have caused many cancellations and delays worldwide.

“Looking at the headline numbers, there has been a massive 5 to 6 million barrels per day of project cancellations or deferrals announced since the oil down cycle began,” Molchanov said. “The domino-effect spills over the whole chain: exploration and production cancelling/deferring projects reflects into the oil services space, with construction/engineering/platforms also seeing activities curb.”

Drilling down

Crude oil prices are reaching multiyear lows and have fallen to between $35 and $37 a barrel, according to the U.S. Energy Administration. Gasoline prices are at their lowest levels in almost 14 years.

Parsons is feeling the effects through the construction and engineering firm it bought in March, T.J. Cross Engineers Inc. in Bakersfield, which specializes in designing oil and gas production systems. Customers for that business have cut capital spending on oil and gas projects between 33 percent and 50 percent this year, said Dante Caravaggio, Parsons executive vice president of global sales for environmental and infrastructure.

Overall, Parsons’ customers have similarly reduced spending, he said.

T.J. Cross is profitable, he said, but Parsons laid off 44 people out of the 220 employees due to customers’ reduced spending. Competitors had even greater reductions, he added.

“All oil companies are just about producing as much as they can, so their capital spend to add projects is starting to show decline,” said Caravaggio, who expects oil and gas prices to drop for another year. “We are not forecasting more layoffs, and I believe the worst is over, but I don’t expect a rapid turnaround in the marketplace.”

Chatsworth oil producer California Resources Corp., a spin-off of Houston’s Occidental Petroleum Corp., has also cut its capital budget for this year to an estimated $440 million from the roughly $2 billion it was last year, said Margita Thompson, vice president of communications. It’s drilling at only three rigs compared with its original 27.

CRC also reduced its workforce by 15 percent to 1,700 employees over the third quarter through a voluntary retirement program, by not replacing workers who left and through layoffs, according to its quarterly report for the period ended Sept. 30.

“The reduction in our drilling rig count was the primary means for us to adjust our level of capital investment to live within our cash flows,” Thompson said.

Tetra Tech, where oil and gas drilling and related services account for 58 percent of business, said in its annual report for the period ended Sept. 27 that the company’s revenue from that segment fell by $58.6 million this year compared with a year ago. Tetra Tech reported its overall revenue was $2.3 billion this year.

However, the company said it offset that drop with increased business in processing, storage or transportation of oil and gas.

Aecom also is seeing reduced demand for its contracting services at drilling and well sites as well as a drop in prices that it can charge for them, the firm said in its annual report for the period ended Sept. 30.

Some projects have been deferred or terminated, the company said, and revenue from URS Corp., the oil and gas services firm it bought last year, was hurt. It did not provide further financial details.

Drilling up

Companies are hoping to appeal to energy customers’ increasing fiscal conservatism by cutting prices and adding services that aim to save them money.

Customers say costs need to come down, Parsons’ Caravaggio said, and the company’s confident it can pick up market share that way. Parsons has begun designing and installing renewable energy systems, such as solar-powered steam generators, at oil field sites, which lower energy costs, perhaps ironically, and now also installs systems to treat on-site water for other purposes such as agriculture.

At Jacobs, where oil and gas spending declines have also dented revenue, the firm will be refocusing on other oil and gas services, such as maintenance, safety regulations and energy savings, the company said in its fourth-quarter and annual report for the period ended Oct. 2.

John Rogers, an analyst and managing director with D.A. Davidson & Co. in Oswego, Ore., who covers Aecom, Tetra Tech and Jacobs, said there is a silver lining in the lower prices, and potential growth from new federal highway and infrastructure funding bills.

“Lower commodity prices are expected to encourage demand and increase opportunities for work associated with transportation and consumption,” Rogers said, “in particular, refineries, pipeline, chemical production and other infrastructure associated with capitalizing on low-cost energy, particularly in the United States.”

Caravaggio expects oil and gas prices will continue dropping through next year, but also anticipates Parsons will grow despite the headwinds.

“You look at downturns as opportunities to grow market share – as an opportunity to diversify and establish credibility as a performer,” he said.