Robert J. Beck
Economics Editor
Joan Bonfield Biggs
Statistics Editor
First half 1991 profits for the Oil & Gas Journal group of 22 large U.S. oil companies totaled $10.553 billion, down a scant 0.1% from the same period the year before.
However, second quarter profits were down sharply, dipping to $3.656 billion or 27.4% below the second quarter of 1990. This is in sharp contrast with first quarter profits, which totaled $6,897 billion and were up 24.8% from the same period of 1990.
First half individual results were widely diverse, with seven companies showing profit improvements from last year and 15 companies a decline. Only one, Murphy Oil Co., posted a loss in the first half. Six companies showed profit gains of more than 20%, and 11 posted declines greater than 20%. In the second quarter 16 of the group had lower earnings than they booked in the same period of 1990.
Restructuring charges and gains, along with provisions for future environmental costs, continued to have a great deal of influence over year to year changes in profits.
Chemical earnings were down for the 6 months and in the second quarter for most companies. U.S. refining and marketing earnings were mixed but generally lower for both periods. Due to an economic recession product demand was down in the first half of this year. Non-U.S. refining and marketing profits were up for the first half, but the gain stemmed from improved margins in the first quarter.
World exploration and production earnings were mixed for the 6 months. Most companies posted improved U.S. profits in the second quarter. Prices in the second quarter were higher than in 1990, when prices slid sharply during that period.
OGJ group revenues for the first half totaled $226.8 billion, up 7% from first half 1990. Second quarter revenues moved up 4.3% to $106.9 billion. Seventeen companies booked increased first half revenues.
Eleven companies reported capital and exploration spending for first half 1991 totaling $16.1 billion. This was up 21.3% from their outlays in first half 1990. Only one company had marginally lower spending this year.
Capital and exploration spending as a share of net earnings advanced to 202.7% from 187% in first half 1990. Several companies boosted spending in the first half even though profits were down. Shell Oil Co. saw first half 1991 earnings fall 84% from the year before, but capital and exploration spending moved up 22.5%.
PRODUCT DEMAND
The U.S. was in the midst of an economic downturn during the first half of this year.
The latest estimate by the Energy Information Administration (EIA) shows U.S. products demand during the first half averaged 16.386 million b/d, down 3.7% from first half 1990.
Demand for motor gasoline, one of the more profitable products, was down only 1% at 7.118 million b/d. Demand for distillates fell 4.2% to 2.967 million b/d average for the first half. Demand for residual fuel oil dropped 14.1% to 1.159 million b/d.
Resid is in direct competition with natural gas and coal. The higher cost for resid made it difficult to compete during the first half.
Jet fuel consumption also dropped in the first half due to the slowdown in business activity. Demand fell 5.1% to 1.435 million b/d. Jet fuel demand had moved up each year during 1981-90.
Demand for other miscellaneous products fell 11.6% to 2.028 million b/d. Many of these products are used in the chemical and construction industries, which have felt the effects of the recession.
World petroleum product demand moved up slightly in first half 1991.
The International Energy Agency (IEA) pegs first half 1991 consumption at an average 66.25 million b/d, up 0.5% from first half 1990.
Sharp declines in the U.S. and U.S.S.R. were offset by increases elsewhere.
Consumption in western Europe rose 3.5% to 13.35 million b/d. Asia-Pacific demand was up 5.3% at 11.85 million b/d.
OIL AND GAS PRICES
World crude oil prices remained relatively stable during first half 1991. The absence of export crude from Iraq and Kuwait resulted in a tight fit between oil supply and demand. Without production from those two countries the world level of spare productive capacity is greatly diminished. But major producers in the Organization of Petroleum Exporting Countries, mainly Saudi Arabia, have stepped up production and kept market prices stable.
EIA lists the average price of world export crude during first half 1991 at $17.48/bbl, up 7.1% from the same period of 1990. There was very little fluctuation in price during the second quarter, when crude prices averaged $16-53/bbl and moved in a narrow band from $16.05/bbl to $17.18/bbl.
The average wellhead price for U.S. crude oil was an estimated $16.58/bbl for first half 1991, up 5.4% from first half 1990. The higher crude oil prices helped boost OGJ group exploration and production earnings during the first half.
Increased crude oil production in the U.S. also helped boost earnings for some companies.
U.S. crude oil production averaged 7.437 million b/d during the first half, compared with 7.386 million b/d in the same period of 1990.
This was offset by lower natural gas prices. The average U.S. wellhead price for natural gas during the first half of 1991 was an estimated $1.55/Mcf, down 7.7% from 1991.
For the first 5 months of the year marketed production of U.S. gas was down a slight 0.7% at 7.744 tcf. Total consumption was boosted by lower prices and rose 4.2% to 9.1 21 tcf.
The average U.S. refiner acquisition cost of crude oil was up 5.9% for first half 1991 at $19.14/bbl.
Despite weaker demand, petroleum product prices advanced this year. EIA figures place the average pump price for all types of motor gasoline at $1.2037/gal for first half 1991. This was up from $1.1003/gal in first half 1990, an increase of 9.4%. Half of the gain was due to the 5/gal increase in the federal gasoline tax at the end of 1990. The price net of taxes was up only about 5% for first half 1991.
Motor gasoline prices rose sharply at the end of 1990 due to the crisis in the Persian Gulf and averaged $1.4243/gal during the last quarter. The average price fell to $1.138 last March but recovered with stronger demand in May and June.
The price of residential heating oil averaged $1.066/gal for the first 4 months of 1991, up 7.1% from the same period of 1990.
U.S. UPSTREAM
Group earnings from U.S. exploration and production operations were mixed. Higher crude oil prices, along with increased production, helped boost profits for some in the group. However, earnings were reined by lower U.S, natural gas prices.
Exxon Corp. profits from U.S. upstream operations fell to $329 million for first half 1991 from $436 million the year before. Results this year included $75 million in loss provisions related to prospective sale of producing leases. Also contributing to the decline were lower gas volumes and prices "due to weak demand in an oversupplied market." Gas production fell 7% to 1.709 bcfd. Liquids production fell 21,000 b/d to 630,000 b/d due to natural declines in Lower 48 fields.
Mobil Corp.'s U.S. upstream profits jumped 45% to $100 million in this year's first half. The gain reflected higher production of liquids and natural gas. Liquids production increased 4% to 335,000 b/d, while gas production rose 6% to 1.683 bcfd.
Mobil's average crude price during the first 6 months of 1991 was up 29/bbl at $16.60. However, natural gas prices slipped 31/Mcf to an average $1.58 for the first half this year,
Shell's upstream profits fell $50 million to $101 million for first half 1991 because of a decline in oil and gas production in the U.S. and depressed gas prices. U.S. crude production fell 15,000 b/d to 392,000 b/d, while gas production fell 4.3% to 1.415 bcfd. Average U.S. crude oil price inched up to $16.06/bbl from $15.91/bbl last year, and average NGL price was $14.11/bbl, up from $12.50/bbl last year.
Operating earnings from Texaco Inc.'s U.S. upstream segment increased 18.9% to $315 million in first half 1991 due to higher crude oil prices and greater liquids production this year. This was partially offset by lower gas prices and sales volumes. Liquids production rose 7,000 b/d to 461,000 b/d, but gas production fell 4.4% to 1.958 bcfd.
Amoco Corp. U.S. upstream earnings were flat at $349 million for the first six months of 1991. Second quarter profits were up 28.4% from the previous year at $131 million. That reflected higher liquids prices and gas volumes, partly offset by lower gas prices. Amoco first half liquids production dipped slightly to 361,000 b/d from 365,000 b/d for the same period of 1990. Gas production increased 9.6% to 2.336 bcf d.
Chevron Corp.'s first half earnings from this segment slipped to $228 million from $246 million in 1990. Second quarter profits were down $21 million at $70 million, but last year's profits included a net gain of $48 million mainly from property sale. Results this year included a gain of $5 million from the sale of marginal producing leases. Excluding that gain earnings improved on higher crude oil prices. Prices in the second quarter were up almost $2.50/bbl at $16.80/bbl. Gas prices were down 8% at $1.33/Mcf.
U.S. liquids production for the first 6 months of this year averaged 459,000 b/d, down 18,000 b/d. Gas production was down 8.1 % at 2.495 bcfd.
NON-U.S. UPSTREAM
First half exploration and production profits for operations outside the U.S. were also mixed for the group. Average crude oil prices were up, but that was offset by lower production volumes in some areas and increased costs.
Mobil's profits in this sector fell to $497 million from $592 million in 1990. However, last year's earnings included a gain of $138 million from sale of a 5% interest in Beryl oil field in the U.K. North Sea. Excluding all special charges, earnings this year were up $23 million at $477 million.
Prices for crude oil and natural gas were higher. Mobil's average crude price was up $1.68/bbl at $19.70. Average gas price was up 35/Mcf at $2.94. Liquids production rose slightly-1.3% to 468,000 b/d. Gas production increased 9.3% to 3.01 bcfd.
Exxon's non-U.S. upstream net income slipped a little-$10 million-to $1.184 billion for first half 1991. Earnings last year included a gain of $115 million from the sale of certain Canadian producing and transportation assets. Earnings this year got a boost from higher oil and gas prices and increased gas sales. This was partially offset by lower liquids production.
Liquids production outside the U.S. fell 7.9% to 1.033 million b/d because of increased maintenance in North Sea fields, Canadian divestments, and lower entitlements in some countries. Gas production advanced 9.7% to 4.066 bcfd, mainly due to colder weather in Europe.
Chevron's first half earnings in this sector jumped 69.2% from a year ago to $369 million. Results this year included a $57 million gain from the sale of production in Spain and nonproducing assets in the U.K. North Sea. Also lifting earnings this year were higher crude oil prices and increased production from Indonesia and Nigeria. North Sea production was down due to maintenance projects. International liquids production averaged 491,000 b/d, up 12,000 b/d.
Amoco's first half earnings from exploration and production outside the U.S. dropped sharply to $71 million from $525 million in 1990. Amoco posted a loss of $24 million in the second quarter, compared with a profit of $420 million the year before. However, last year earnings included a $439 million gain from a settlement with Iran. This year earnings were reduced by a $43 million restructuring charge in Canada.
Liquids production outside the U.S. fell 2.6% to 410,000 b/d. Gas production rose 7.8% to 1.551 bcfd.
Phillips Petroleum Co.'s net income from this segment was $128 million, up from $110 million in first half 1990. This included a $61 million gain from sale of the company's interest in Alba field off the U.K.
Earnings from operations were down due to higher lifting costs and foreign currency losses. This was offset by increased production and higher prices for oil and gas. Total liquids production advanced 3,000 b/d to 135,000 b/d, while gas production rose 10.3% to 416 MMcfd.
Average crude oil price moved up $1.91/bbl to $19.97 for the first half, and gas price averaged $2.95/Mcf, up 28.
Texaco's net income from non-U.S. upstream operations was down 15.7% at $156 million for first half 1991. Profits were buoyed by higher crude oil prices and increased Indonesian production, but this was more than offset by lower North Sea production and increased costs because of accelerated U.K. exploration.
U.S. REFINING, MARKETING
Profits from U.S. refining and marketing were generally lower this year.
Product prices moved up along with crude prices, preventing gross refining margins from collapsing. But the slump in petroleum product demand produced a more competitive environment for refiners and reduced sales revenue.
Shell's income in this category plunged to $9 million in first half 1991 from $52 million in the same period of 1990, due in part to a heavy schedule of turnarounds of key refinery units. This lowered light product yields.
In addition, marketing margins were depressed. Refined product sales slipped 15,000 b/d to an average 1.16 million b/d for first half 1991. Gasoline sales were down 32,000 b/d at 630,000 b/d.
In sharp contrast, Exxon's first half earnings in this sector were $369 million, up from $48 million in 1990. Most of the gain occurred in the first quarter when margins were significantly higher due to declining crude prices and tight refinery conversion capacity. U.S. product sales in the first half averaged 1.202 million b/d, up 12% from 1990, while U.S. refinery runs were up 21.2% at 950,000 b/d.
Texaco's U.S. manufacturing, marketing, and distribution sector earned $125 million in first half 1991, down from $201 million in the same period of 1990. Texaco blamed lower margins. Scheduled maintenance resulted in more plant downtime in second quarter 1991.
Earnings got a lift from higher product sales volumes. This resulted in part from acquired service station chains. Product sales averaged 878,000 b/d for first half 1991, compared with 850,000 b/d last year.
Mobil's U.S. refining/marketing profits rose $68 million to $165 million this year. But the increase was due to a special charge in 1990 of $87 million for environmental provisions. Excluding that charge, earnings slipped $19 million this year. Lower net margins due to severe competitive pressure in marketing more than offset increased refinery production. U.S. product sales inched up 2% to 917,000 b/d, and refinery runs increased 7% to 782,000 b/d.
Chevron's U.S. refining, marketing, and transportation earnings plunged to $83 million from $429 million in the first half of last year. Results this year included a $23 million environmental charge. Chevron said, "Reduced industry-wide demand has resulted in an intensely competitive marketplace, particularly in the company's key West Coast gasoline markets. Competitive pressures have held product prices down, reducing sales margins. Margins were further depressed because unanticipated refinery downtime required greater outside purchases of products for resale."
NON-U.S. REFINING, MARKETING
Companies that broke out data for non-U.S. refining and marketing showed increased profits for first half 1991. However, the increase was entirely due to strong margins in the first quarter. Second quarter earnings were below a year ago due mainly to higher crude oil costs this year.
Non-U.S. manufacturing, marketing, and distribution earnings for Texaco advanced to $340 million this year from $263 million in first half 1990. Second quarter earnings were $28 million below a year ago at $129 million. Product margins were strong in the first half, particularly in the Pacific basin. The decrease in second quarter earnings stemmed mainly from lower margins in Europe.
Exxon's refining and marketing earnings outside the U.S. for first half 1991 were up 111.4% from the year before at $1.516 billion. Second quarter earnings, by contrast, were down 15.9% at $419 million. Earnings this year included a gain of $160 million from asset sales, mainly refining and marketing operations in Australia and a large crude carrier. Product sales averaged 3.542 million b/d for first half 1991, down 3,000 b/d from last year's period.
Mobil also posted sharply higher first half earnings from non-U.S. refining and marketing, where profits jumped 104% to $556 million. The gain mainly reflected record first quarter margins that prevailed in European and Far East markets and improved refinery performance. Product sales outside the U.S. rose 15,000 b/d to an average 1.675 million b/d, while refinery runs were up 14,000 b/d at 1.109 million b/d.
Chevron had non-U.S. refining, marketing, and transportation earnings of $200 million for the first half, up from $149 million a year ago. Second quarter earnings were down $12 million from the year before at $66 million. Sales margins were very strong in the first quarter but returned to more normal levels in the second quarter. Refined product sales for the first half averaged 781,000 b/d, up 15,000 b/d. Refinery inputs moved up 35,000 b/d to 533,000 b/d.
CHEMICALS
Lower yield from chemical sales was one of the consistent elements in the group's reports. Ten of the 11 companies reporting chemical earnings posted lower profits for the first 6 months of 1991 than for the same period a year ago. Lower sales volumes and lower margins contributed to the decline.
Shell reported chemical earnings of $129 million for the first half, down $60 million from the same period of last year. Major factors were lower margins and lower sales volumes of commodity chemicals, reflecting the downturn in overall chemical demand. In addition, operating costs were higher due to scheduled maintenance at a major olefins unit.
Amoco's chemical operations had first half earnings of $86 million, down $54 million from 1990. This decline also was due to lower sales volumes and lower margins. Performance this year included charges of $25 million as a result of writedowns. Last year's results included a $60 million provision for future environmental costs and a $32 million gain related to the Iranian settlement.
Chevron's first half earnings from chemicals slipped $79 million to $109 million in 1991. Chevron said, "Prices for the company's aromatics and olefins commodity chemicals have continued to erode due to industry overcapacity, coupled with soft market conditions reflecting the U.S. recession."
At Mobil, chemical earnings in the first half slipped 12% below the 1990 level at $153 million because of a drop in petrochemical prices during second quarter 1991.
Exxon's earnings from worldwide chemical operations slipped 6.2% to $333 million for first half 1991. Second quarter earnings of $110 million were down 36.8% from the same period last year. The declines occurred because of slightly lower sales volumes.
Texaco booked first half chemical earnings of $25 million, down from $46 million for first half 1990.
In contrast to other companies, Unocal Corp. had higher chemical division earnings in first half 1991-up $14 million at $36 million.
Increased margins for industrial chemical products in the second quarter and higher fertilizer sales prices and volumes for the 6 months lifted earnings.
Copyright 1991 Oil & Gas Journal. All Rights Reserved.