Robert J. Beck
Economics Editor
Valerie Sanders
Statistics Editor
Oil & Gas Journal's list of the largest publicly traded, oil and gas producing companies in the U.S. posted poorer results in 1991 than in 1990 in almost all categories of financial and operating performance.
This year's OGJ300 reflects lower crude oil and natural gas prices in 1991, which suppressed revenues, net incomes, and profitability ratios.
Total assets for the group fell in 1991 following a large increase the year before.
In contrast with earlier years, the number of public companies operating in the U.S. did not shrink noticeably.
In the several preceding years, mergers, acquisitions, consolidations, and liquidations slashed the number of publicly held U.S. oil and gas companies. Last year OGJ cut its assets-ranked list to 300 companies from 400 (OGJ, Sept. 30, 1991, p. 49).
During the past 6 years, periodic slumps in the prices of crude oil, natural gas, and petroleum products have buffeted oil company profits. Excess worldwide energy production capacity has kept prices behind both inflation and growth in the general cost of operations. In addition, new environmental regulations have driven up the cost of operations and restricted access to potentially productive areas.
In this atmosphere companies have been forced to seek mergers, consolidate operations, and sell assets in an attempt to sustain profitability. In some cases companies have been liquidated, their assets sold to other members of the group or to privately held companies not on the list.
Assets for the OGJ300 group of companies totaled $488.6 billion in 1991, compared with $499.3 billion on last year's list, which reflected 1990 results. Last year's assets total represented a 6.3% gain from the 1990 total, even though 1990's list included 400 companies and publicly traded limited partnerships.
On this year's list, total net income for 1991 fell to $16.6 billion from $23.2 billion the year before. That 28.4% decline contrasts with a 14.2% gain in 1990. Group profits still are higher than the recent low of only $5.2 billion in 1986.
Other measures of financial performance for the group showed declines.
Capital and exploration expenditures fell along with net income. Outlays by the group in 1991 totaled $52.9 billion vs. $56.2 billion in 1990. In line with the spending decline, the number of U.S. net wells drilled by group members last year fell 15.9% to 9,146.
Group revenues in 1991 totaled $507.1 billion, compared with $536.5 billion for 1990.
THE EARNINGS DECLINE
Earnings from exploration and production activities were down sharply in 1991 for many of the companies, reflecting the decline in crude oil and natural gas prices. In addition, gas production was down for the group, both in the U.S. and worldwide. This was partially offset by higher liquids production.
Crude oil prices jumped at the end of 1990 after Iraq invaded Kuwait, triggering shortage fears. They dropped in 1991 when it became clear that markets had adapted to the supply interruption.
The average worldwide price for export crude oil dropped to $17.82/bbl in 1991 from $21.35/bbl in 1990. The average wellhead price of crude in the U.S. fell 17.6% in 1991 to $16.50/bbl. The average wellhead price of gas fell 7% to $1.59/Mcf.
In contrast to the OGJ300 group, total U.S. natural gas production rose in 1991, by 0.6% to 18.705 tcf. Total U.S. crude oil production moved up 0.8% to 7.417 million b/d.
OGJ300 earnings from downstream operations were mixed. U.S. refining and marketing earnings fell in 1991, while those outside the U.S. improved.
In the U.S., recession held product demand to 16.714 million b/d, 1.6% below its level of 1990.
Outside the U.S. product demand moved up except in East Europe and the C.I.S. According to the International Energy Agency (IEA), product demand for member countries of the Organization for Economic Cooperation and Development, which includes the U.S., rose by 200,000 b/d in 1991 to 38.1 million b/d.
Also suppressing downstream earnings in the U.S. were low product prices. The average U.S. refiner resale price for finished motor gasoline fell 11.1% to an average 68.9/gal in 1991. The refiner resale price for heating oil fell 11.8% to 62.2/gal.
Lower feedstock costs partly offset the product price slump. The U.S. refiner acquisition cost of crude oil fell 14.3% in 1991.
SPENDING DIPS
During 1991 investment by the OGJ300 companies did not fall as sharply as earnings. Total capital and exploration spending for the group was down 5.9%, while earnings were down 28.4%.
Group spending during the past 4 years has reflected substantial earnings improvements from the depressed levels of 1986 and 1987.
Group net income averaged $20.6 billion/year during 1988-91. That compares with $9.4 billion in 1987 and $5.2 billion in 1986.
During 1988-91, capital and exploration spending averaged $52 billion/year. Reacting to an earnings jump, spending in 1988 increased 20.3% to $50.1 billion. Capital and exploration spending dipped to $49.2 billion in 1989 and rose to $56.2 billion in 1990.
Group spending has been as high as $66.5 billion in 1983, when net income totaled $28 billion. Capital outlays for the OGJ400 through 1985 averaged $65 billion/year.
UPSTREAM ACTIVITY
Drilling activity slumped in 1991 for the OGJ300.
Net U.S. wells drilled fell 16% to 9,146. In general U.S. drilling activity has not tracked earnings gains since 1986, when group profits totaled only $5.2 billion yet drilling totaled 10,993 net wells.
Profits in 1990 exceeded those of 1986 by $18 billion, but net wells drilled totaled 123 fewer.
In 1991 earnings were up 218% from 1986 levels, but drilling was down 17%.
U.S. drilling has been sluggish since the crude oil price collapse of 1986. The U.S. annual average active rig count set record lows of 936 in 1987, and 869 in 1989. The rig count average moved up to 1,010 in 1990.
Last year, however, it set another annual record low of 860 active rigs. This year's average probably will fall below that.
Declines in crude and natural gas prices account for much of the drilling slump. The average wellhead price of U.S. crude fell from $24.09/bbl in 1985 to $12.51/bbl in 1986 as Saudi Arabia shattered the Organization of Petroleum Exporting Countries' efforts to hold up prices.
Through most of the years since, excess production capacity and the willingness of OPEC members to use it have kept a lid on prices.
The U.S. wellhead crude price rose to $15.40/bbl in 1987, fell to $12.58/bbl in 1988, and moved up to $15.86/bbl in 1989. Iraq's invasion of Kuwait in August 1990 lifted crude prices, which averaged $20.03[bbl for the year.
Natural gas prices followed oil prices down. The U.S. average wellhead price for gas fell from $2.51/Mcf in 1985 to $1.69/Mcf in 1987, where it remained through 1989 before moving up to $1.71/Mcf in 1990 and falling again last year.
Elsewhere, drilling activity hasn't been as depressed as in the U.S., although worldwide activity, too, showed the effects of slumping prices.
The number of active drilling rigs outside the U.S. and Canada averaged 1,023 in 1988, then fell to 922 in 1989 and 907 in 1990. It moved up to 909 in 1991.
Price stability after the Persian Gulf war hasn't stimulated drilling.
PRICE MOVEMENTS
World crude prices fell immediately after the war early in 1991 but stabilized in the $16-18/bbl range through most of the rest of the year as it became clear that an international embargo on Iraq would not be lifted promptly and that Kuwaiti oil would return to the market slowly. Prices rose late in the year as refiners increased purchases to meet winter demand for products.
When prices began to slide in the first half of this year, Saudi Arabia cut production, and the market firmed. As a result, crude prices have been $13/bbl higher than in recent years.
In addition, natural gas prices are up substantially from their levels of a year ago. The near-month futures price for gas was $1.83/MMBTU the week of Aug. 21, up 33.6% from the same week of 1991.
Nevertheless, the rig count in the U.S. averaged only 665 through the first 8 months of 1992.
The international rig count outside the U.S. and Canada averaged 880 for the first 7 months of 1992 vs. 900 in the same period a year earlier.
U.S. companies are investing growing shares of their capital budgets outside the U.S., but the spending shift isn't reflected in increased rig activity. Part of the reason is that companies are devoting increasing portions of their upstream budgets to non-drilling activities, such as geophysical work.
FINANCIAL RESULTS
Last year 169 companies on the OGJ300 list recorded profits, compared with 200 the year before. In 1986, only 116 of the companies on the 1987 OGJ400 list reported profits.
With last year's reduction in net income, all profitability indicators declined. Return on assets for the group dropped to 3.4% from 4.7% the year before. The low year since 1982 for return on assets was 1986, at 1%. The best year was 1982 at 5.7%.
Group return on revenue slipped to 3.3% in 1991 from 4.3% in 1990 because the decline in net income was greater than the decline in total revenues.
The best year for return on revenue for a OGJ300/400 group was 5.1% in 1988. The lowest return on revenue was 1.2% in 1986.
Return on stockholders' equity in 1991 dropped to 9.8% from 13.6% in 1990. The highest level for this measure of performance was 13.8% in 1982; the low was 3% in 1986.
The OGJ300/400 group has constantly been changing since the first report for fiscal 1982, so year to year comparisons are not for identical groups.
However the group does represent a large portion of the U.S. oil and gas industry and therefore shows changes and trends in industry activity and operating performance.
OPERATING RESULTS
The exception to declining operating results in 1991 was group liquids production, which increased in the U.S. and worldwide.
In the U.S., total liquids production gained 3.2% to 2.094 billion bbl, reversing a 5 year slide.
Mainly because of the U.S. increase, worldwide liquids production also moved up in 1991-by 0.3% to 3.101 billion bbl. Worldwide liquids production also had fallen for 5 years.
All of the other key operating statistics declined in 1991. Worldwide gas production slipped 0.6% to 14.05 tcf, and U.S. gas production fell 1.6% to 10.46 tcf. Worldwide gas production had risen since 1985.
Group reserves of liquids and natural gas declined in 1991. Worldwide liquids reserves fell 3.2% to 30.8 billion bbl. This followed an 8% decline to 31.9 billion bbl at yearend 1990. Group worldwide reserves have been falling since 1988.
U.S. liquids reserves fell 3.2% to 21.1 billion bbl at yearend 1991. The group's U.S. liquids reserves have been falling since 1987.
Worldwide natural gas reserves of the group fell 2.9% to 160.2 tcf, the group's third annual decline in this category. Natural gas reserves in the U.S. dropped 4.3% to 108.9 tcf.
GROUP CHANGES
Industry restructuring and consolidating have been evident every year in the OGJ300/400.
This year the group did not shrink, but there were some changes in the members. The list contains 48 new companies. Last year there were 26 newcomers.
OGJ included on the list all publicly traded companies with production in the U.S. for which financial reports were available. It completed the list with six of the largest publicly traded limited partnerships (LPs).
Last year's list included 30 LPs. There were 95 LPs the year before, 71 in 1989, and 63 in 1988.
The largest LP on this year's list is Santa Fe Energy Partners, with assets of $301 million. The smallest LP is Callon Consolidated Partners, with assets of $20 million.
There are four royalty trusts listed this year, compared with five last year and six the year before. Sixteen companies are subsidiaries of non-U.S. energy companies or of companies operating mainly in other industries.
Publicly held LPs were first included in the OGJ400 of 1988. At that time, many drilling and income funds were being converted to LPs for tax advantages, and new LPs were appearing.
OGJ included them on the OGJ300/400 lists because they hold U.S. reserves and are publicly owned. But it favors traditional public companies in its listing priority.
To be included in this year's OGJ300 list required assets of $271,000, up from $71,000 last year. Last year's cutoff point was the lowest since the OGJ400/300 list was started.
This cutoff asset number has fluctuated from a previous low of $149,000 in 1986 to a high of $2.366 million in 1983.
The asset value cutoff for the top 100 companies fell to $108.7 million on this year's list from $128.5 million last year.
The number of companies with net incomes exceeding $100 million in 1991 fell to 18 from 30 in 1990, 28 in 1989 and 1988, and 21 in 1987. A total of 131 companies posted losses for 1991. Four of the companies had losses greater than $100 million, compared with five companies last year.
TOP 20 COMPANIES
One company joined the top 20 list this year. Consolidated Natural Gas moved up to No. 20 from No. 22 last year. Oryx Energy dropped to No. 23 from 19.
Some companies changed positions within the top 20. No other company in the top 20 moved more than two positions up or down.
The top 20 companies had total assets of $403.3 billion in 1991, compared with $408.9 billion in 1990. The 1991 total represented 82.6% of the OGJ300's total assets. The top 20's 1990 assets amounted to 81.9% of last year's OGJ300 total.
Top 20 revenues totaled $459.9 billion in 1991-90.7% of the OGJ300 total. Net income for the top 20 totaled $15.8 billion-95.2% of the total. Total stockholders' equity for the top 20, excluding Conoco and BP (USA), was $139.1 billion-82.3% of the total.
Capital and exploration expenditures by the top 20 group in 1991 amounted to $41.7 billion-78.8% of OGJ300 spending. Members of the top group drilled 5,370 net wells in 1991, which was 58.7% of all wells drilled by the OGJ300.
The top 20 companies accounted for 87.5% of the OGJ300's worldwide liquids production and 85.4% of U.S. liquids production. And they had 74.817,, of the worldwide natural gas production and 67.9% of the U.S. production.
The 20 biggest companies hold 88.9% of the OGJ300's total worldwide liquids reserves and 87.6% of its U.S. liquids reserves. They also have 77.3% of the group's gas reserves worldwide and 69.1% in the U.S.
OGJ300'S SHARES
The OGJ300 group's total revenue of $507.1 billion in 1991 amounted to 8.9% of U.S. gross domestic product (GDP). This was down from 9.7% of GDP last year. Group revenues had been as much as 18.4% of GDP in 1983.
OGJ300 liquids production represented 62.6% of the 1991 U.S. total; group gas production came to 55.9% of the U.S. figure. Group members hold 62.5% of total U.S. liquids reserves and 64.3% of U.S. gas reserves.
On a worldwide basis the statistics for the OGJ300 are not as impressive, since the OPEC countries and national oil companies elsewhere control a large share of non-U.S. reserves and production. The OGJ group holds 3.1% of worldwide liquids reserves and 3.7% of natural gas reserves.
In 1991 group output was 13.2% of worldwide liquids production and 19.7% of worldwide natural gas production.
These percentages may move up. New production sharing opportunities for private companies have been developing in the C.I.S., East Europe, Latin America, and Africa.
The need for investment capital is the major reason behind changing terms and conditions in these areas. OPEC's need for capital might create opportunities in some of its member countries.
FAST GROWING COMPANIES
Rankings in the list of fastest growing companies are based on growth in stockholders' equity.
Other qualifications are that companies have positive net incomes for 1991 and 1990 and have increases in net income in 1991. Subsidiary companies, newly public companies, and LPs are not included. Many of the companies posted substantial increases in net income in 1991. Seven of the 20 companies in the fast-growth list had increases in net income of 100% or more. And 15 of the companies posted increases exceeding 30%.
The long term debt positions of companies on the growth list were mixed. Long term dept increased for 11 of the companies, decreased for six, and didn't change for three.
Saba Petroleum leads the list this year. its stockholders' equity moved up 159.4%, and net income increased 9.6% to $515,000 in 1991. Saba's assets rank is 224.
Four of the companies appeared on the OGJ300 fast-growth list last year. For Nucorp, it is the third such appearance in a row. Lomak Petroleum led the list last year and appears on it again this year.
Copyright 1992 Oil & Gas Journal. All Rights Reserved.
