ARCO Chairman Lodwrick M. Cook told New York security analysts last week his company expects crude oil prices to remain within current ranges during the long run despite an expected increase in production by members of the Organization of Petroleum Exporting Countries.
Referring to a 1988 ARCO forecast that prices for West Texas intermediate crude will continue to hover at about $18/bbl adjusted for inflation-that's $20/bbl in 1990-Cook said, "We are not raising our long range price forecast even though we are raising our forecast of volume calls on OPEC oil.
"Our fundamental belief is that there are plenty of oil resources in Saudi Arabia and Iraq, and they will be developed and brought to market in an orderly manner in the general price range we've suggested. Prices could spike for short times, but we don't believe these spikes should drive long run investment decisions."
Although ARCO's operating earnings for first quarter 1990 will be up somewhat from the same period last year, quarterly net income will be down from the $704 million reported in first quarter 1989. Last year's quarter included a $634 million gain from the Lyondell Petrochemical Co. public offering, partially offset by a $345 million charge for future environmental expenses and other provisions.
Other ARCO executives outlined ARCO's 5 year, $16 billion capital program to develop worldwide oil, gas, refining, marketing, chemical, and other assets. In 1990 alone, ARCO's capital program of $2.9 billion will represent a 16% increase from the $2.5 billion spent in 1989.
SPENDING PLANS
Although international exploration and production will claim a much larger amount of ARCO capital during the 1990s, the focus in 1990-94 will remain on the U.S. About $7 billion will be spent on U.S. E&P.
In 1990, E&P capital spending in the Lower 48 and Alaska will total $800 million and $320 million, respectively. That's up from $750 million and $260 million spent last year in ARCO's two U.S. regions.
The 5 year projection for international E&P capital spending is more than $2.7 billion. The sum includes $530 million budgeted for 1990, compared with $370 million spent in 1989.
ARCO Pres. Robert E. Wycoff told analysts his company's focus for growth in international oil and gas is exploration in new venture areas with high geologic and economic potential.
In 1989 ARCO added exploration licenses covering 7 million gross acres in areas including Congo, Egypt, Indonesia, New Zealand, and the North Sea.
ALASKA'S ROLE
Alaska will remain an "outstanding" oil province for ARCO throughout the 1990s, said Executive Vice Pres. James S. Morrison.
Start-up of Point McIntyre field north of Prudhoe Bay is planned for 1992-93, using facilities in nearby Lisburne field. ARCO's combined net liquids production from Lisburne-Point McIntyre will be about 40,000 b/d by 1994-95.
Although an 8.7% drop in net liquids production from the North Slope is anticipated in 1990, said Morrison, "over the next few years our net production profile remains very strong due to gas handling expansion projects at Prudhoe Bay, continued stellar performance at Kuparuk, and production from Point McIntyre.
"Even though we are experiencing the Prudhoe Bay reservoir decline, our estimated 1995 net production of about 440,000 b/d from the North Slope is higher than our production rate in 1985."
DOWNSTREAM OPERATIONS
Continued growth in West Coast gasoline demand and a difficult regulatory environment for motor fuels have convinced ARCO that major new refinery investments are needed starting this year, Morrison told analysts.
During the next 5 years, ARCO's refining and marketing operations will account for $2.7 billion in capital spending, including $410 million in 1990, although Morrison cautioned that this figure might be reduced because of regulatory and other factors.
ARCO plans to continue expanding its network of am/pm minimarkets, Morrison said. The capital program at refineries will include providing added gasoline to supply the new units as well as to meet demand at existing stations. These additions will be achieved mainly by upgrading distillate products to gasoline.
ARCO plans to convert its unleaded and premium gasolines to emission control formulations in the coming years. Last year it introduced EC-1 regular, the industry's first reformulated gasoline designed specifically to reduce pollution from older cars that run on leaded gasoline.
Environmental concerns also drew comment from ARCO's chairman.
Although the congressional compromise package on the new federal Clean Air Act is "a bit shaky," Cook said he expects the measure to pass Congress and be signed by President Bush-with reformulated gasoline included among the alternative fuels that can be used to improve air quality in cities with the worst ozone problems.
"We understand that the status of the environment may well be society's first priority concern today," Cook said. "We are going to work with government, the auto industry, and others in the petroleum industry to meet environmental challenges in a way that makes the most sense. To us, this means measures that are real, that work from the technical point of view, and are justifiable from an economic point of view."
On other matters, ARCO Chemical Co. Pres. Harold A. Sorgenti told analysts his company intends to invest about $2.5 billion during the next 5 years to essentially double the size of the company in terms of capital employed. More than half of the capital program will go overseas.
ARCO owns an 83.4% interest in ARCO Chemical.
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