Robert J. Beck
Economics Editor
Valerie Sanders
Statistics Editor
Earnings for Oil & Gas Journal's group of 22 large U.S. oil companies advanced sharply last year, increasing 70.9% from 1992.
Group profits totaled $16.1 billion, with the gain stemming largely from lack of one time charges that depressed earnings in 1992. Adoption of new accounting rules associated with future postretirement costs caused the 1992 charges.
Nine companies in the OGJ group posted losses for 1992. For 1993, only two showed a loss.
Group profits totaled $3.5 billion during fourth quarter 1993, down 15.4% from the same period in 1992 and down from earnings posted in earlier periods of 1993. Profits for first quarter 1993 were $4.1 billion, rising to $4.2 billion in the second quarter and $4.3 billion in the third. Slumping oil prices helped drag down income late in the year.
U.S. exploration and production earnings were mixed, tied in part to oil and gas production volumes. Higher gas prices and production helped boost earnings for a number of companies. But the earnings improvement from gas was offset by reduced oil production and prices.
Results from non-U.S. E&P also were mixed. Average worldwide crude oil export prices were down from year earlier levels. However, for some companies this was offset by higher production levels and lower exploration costs.
Earnings from refining and marketing were improved from 1992 levels, particularly for non-U.S. operations.
Lower feedstock costs, especially in the fourth quarter, helped boost earnings in this sector. In addition, increased product demand, largely in the U.S. and Far East, buoyed sales volumes. Refining earnings gains also flowed from lower costs due to restructuring and an accompanying improvement in operating efficiency.
Earnings from chemical operations continued to be mixed. A number of companies posted weaker results due to slimmer margins because of excess industry capacity and faltering markets. However, some companies fared better because of greater sales of specialty products, asset sales, or improved operations due to restructuring.
Most companies described the chemicals business as somewhat depressed as a result of sluggish economic growth and worldwide overcapacity.
There was a decline in group revenues from 1992. Revenues for 1993 were down 4% at $426.8 billion. Higher gas prices were offset by lower world crude oil prices and weakness in some product prices.
Sixteen of the companies reported their estimated capital and exploration spending for the year, with nine showing a decline in outlays, six an increase, and one with no change.
Total spending in 1993 by the 16 fell 3.6% to $35.2 billion, or 241% of their earnings. The group in 1992 spent $36 billion, or 382% of profits.
Exxon Corp. led the way in spending volume with an outlay of $8.2 billion, but that was down 6.5% from 1992. Louisiana Land & Exploration Co.'s big increase - $554 million - was due mainly to acquisitions.
WORLD TRENDS
Special charges aside, petroleum industry earnings for 1993 reflected. sluggish economic growth in the world-even recession in several major industrial countries. The pace of. economic growth quickened in the U.S., but there were big problems in. Europe and Japan.
Economic activity in the U.S. as, measured by real gross domestic,. product was up 2.9% in 1993 from the 1992 level. Canada posted a preliminary GDP growth rate of 2.5% for 1993.
But the latest figures from the Organisation for Economic Cooperation and Development list Japan's 1993 GDP down 0.5% from 1992.
And in Europe, Germany's GDP was down 1.5%, France off 0.9%, and Italy 0.1%. In slight contrast, the U.K.'s GDP increased 2% following 2 straight years of decline. The 15 other European countries that are part of the OECD posted a combined GDP increase of only 0.1% for 1993.
Combined GDP for OECD Europe fell 0.2% during the year.
Among other OECD-Pacific countries, GDP rose 2.5% in Australia and 3% in New Zealand. The result was a combined GDP growth rate of only 1.1% for all OECD countries in 1993.
OECD has been mired in a period of slow growth for the last several years. Its OECD annual GDP growth was only 0.8% in 1991. This inched up to a modest 1.7% in 1992.
The slow pace of economic growth also slowed the growth of demand for energy.
International Energy Agency (IEA) figures show OECD consumption of petroleum products averaged 39.1 million b/d in 1993, up a bare 0.5% from 1992. Demand in non-OECD developing countries rose 5.2% to average 22.4 million b/d for the year. However, those gains were offset by a sharp drop in consumption in the C.I.S., where demand fell 18.8% from a year earlier, slumping to 5.6 million b/d in 1993.
The net result was a drop of 100,000 b/d in world consumption for 1993, falling to an estimated 67 million b/d for the year.
The economic recovery in the U.S. helped boost petroleum product demand there. The Energy Information Administration (EIA) said U.S. product demand barely moved up-only 0.9% - in 1993 to average 17.179 million b/d.
U.S. demand for motor gasoline, the most profitable fuel, averaged an estimated 7.483 million b/d in 1993, up 1.2% and a record high. The previous record was 7.412 million b/d in 1978.
Distillate demand also was strong in 1993, moving up 1.9% to an average 3.037 million b/d. That was the highest distillate demand since 1989.
Kerosine jet fuel demand for commercial aircraft advanced 3.5% to average 1.356 million b/d.
These gains were partially offset by a 5% drop in residual fuel oil consumption to an average 1.039 million b/d for 1993.
Lower product prices also helped bolster U.S. petroleum demand last year. EIA reported the average pump price for all grades of motor gasoline fell 1.4% to an average $1.173/gal for 1993. The average refiner resale price for motor gasoline fell 6.9% to an estimated 63cts/gal, the average price of residential heating oil was an estimated 89.1cts/gal for the year, down 4.6% from 1992.
Upstream, U.S. crude oil production continued to slide during 1993. EIA estimated average production of 6.842 million b/d, down 4.6% from 1992. As a partial offset, natural gas liquids production rose 2.6% to 1.741 million b/d. Thus U.S. total liquids production slipped only 1.7% to average 8.841 million b/d.
World crude oil production averaged 59.752 million b/d in 1993, down 0.5% from 1992. In non-U.S. areas where the OGJ group might have significant interests - non-OPEC, non-former Communist countries - production advanced 3% in 1993 to average 17.13 million b/d.
Increased oil flow among OPEC members contributed to the decline in crude oil prices in 1993. OPEC production increased 2.3% to 24.627 million b/d last year, even though world product demand slipped.
The average price of world export crude oil fell 11.9% in 1993 to an average $15.81/bbl. OPEC's average export crude oil price was down 12.5% at $15.45/bbl, and the non-OPEC export crude oil price was down 11.2% at $16.44/bbl. In the previous year, prices rose in the third quarter and early fourth quarter while in 1993 prices weakened substantially after midyear and fell sharply in the fourth quarter. The average export price was down to $12.44/bbl the last week of 1993.
The pattern was similar for crude oil prices in the U.S.
Prices weakened substantially at the end of 1993 and averaged an estimated $14.34/bbl, down 10.3% from the previous year. The average spot price for West Texas intermediate crude was $17.21/bbl, down from $19.67/bbl for 1992. The spot price averaged only $13.70/bbl in December 1993, down from $19.25/bbl in December 1992.
U.S. refiners' acquisition cost of crude averaged an estimated $16.42/bbl last year, off from $18.43[bbl in 1992.
Lower crude oil costs helped boost average refiners' cash operating margins, the Wright Killen consulting firm reported. Gulf Coast margins averaged $1.40/bbl for 1993, up from 93cts/bbl in 1992.
The real bright spot for U.S. producers was the natural gas market, where prices and production rose in 1993.
The largest producers' revenue gain flowed from an increase in gas prices. The average U.S. wellhead price was an estimated $2.02/Mcf for 1993, up 16.7% from 1992. In addition, U.S. marketed gas production for 1993 was up 2.8% from 1992 at an estimated 19.228 tcf.
OPERATIONS, PRICES
Figures for the OGJ group's U.S. upstream operations in 1993 underscore the weakness in that segment of the industry.
Nineteen companies reported data showing that their combined U.S. liquids production fell 5.7% in 1993 to 4.359 million b/d. Natural gas production also slipped, falling 1.1% to 17.564 bcfd.
In addition, the U.S. average crude oil price received fell sharply in 1993. Twelve companies on the OGJ list reported crude prices averaging $14.54[bbl, down 12% from 1992. However, their average U.S. natural gas price was up 18.6% at $2.04/Mcf.
Non-U.S. liquids production averaged 3.787 million b/d, up 3% from 1992. Gas production outside the U.S. averaged 11.878 bcfd, up 3.5% from 1992.
There was little change in 1993 in OGJ group U.S. downstream operations. Fourteen companies reported U.S. refinery runs virtually unchanged-up only 4,000 b/d at 8.024 million b/d.
There also was little change for 16 companies reporting U.S. product sales. Such sales for this group moved up only 16,000 b/d to 10.684 million b/d.
Only five companies reported non-U.S. refinery runs - up 201,000 b/d at 5.129 million b/d. Seven companies reported non-U.S. product sales - up 292,000 b/d at 8.311 million b/d.
U.S. E&P
Group members showed mixed results in 1993 profits from U.S. E&P.
Exxon's earnings from this sector increased to $934 million from $763 million in 1992. The increase came mainly from lower operating costs and higher gas prices and production. This was partially offset by lower crude prices and production.
Exxon's U.S. natural gas flow advanced 9.8% in 1993 to 1.764 bcfd, while crude oil and NGL production fell 6.4% to 553,000 b/d.
Chevron Corp.'s earnings from U.S. E&P fell sharply - down 45.7% to $566 million. However, 1992 earnings were inflated by special gains of $413 million, mainly from sales of assets. And 1993 profits were reduced by $136 million due to special charges related to environmental cleanup provisions, losses on asset sales, and other one time provisions.
Excluding special items, Chevron's E&P earnings improved for the year in the U.S., moving up to $702 million from $630 million in 1992.
Chevron's U.S. production fell. Net liquids were down 8.8% at 394,000 b/d, natural gas down 11.1% at 2.056 bcfd.
Mobil Corp. posted 1993 U.S. E&P earnings of $358 million, up 3% from $348 million in 1992. Earnings were reduced by sharply lower crude oil prices - down $2.19/bbl at $13.54 and reduced production due to asset sales and normal field declines. This was offset by significantly higher natural gas prices-up 36(t/Mcf at $2.22. In addition, earnings got a boost from lower operating and exploration expenses.
Mobil's liquids production slipped 2% to 305,000 b/d for 1993, while gas flow was off 7% at 1.529 bcfd.
Amoco Corp.'s U.S. E&P profits rose to $811 million from $778 million in 1992. Earnings were running well ahead of 1992 levels until the fourth quarter, when operations earned only $172 million compared with $323 million in fourth quarter 1992.
Amoco's crude oil production slid 7.9% from 1992, averaging 209,000 b/d. NGL production increased 2.1% to 96,000 b/d. Gas production rose 2.3% to 2.442 bcfd.
Texaco Inc.'s U.S. E&P net fell 6.1% from 1992, slipping to $510 million because of a combination of higher gas prices, lower expenses, a $2/bbl decline in crude and condensate prices, and slightly lower crude oil and gas production. But Texaco said its successful drilling program in the latter part of the year slowed the decline rate in gas flow.
Texaco's net production of crude oil and NGL slipped 2.1% to 423,000 b/d. Net production of natural fell 3% to 1.729 bcfd.
NON-U.S. E&P
In contrast to most of the group's U.S. results, some companies reported increased non-U.S. crude production. But earnings outside the U.S. did not benefit from a sharp rise in gas prices.
Chevron's non-U.S. E&P earnings slipped to $566 million from $1.043 billion in 1992. Earnings in 1993 were reduced by $136 million in one time charges, while profits in 1992 were increased by $413 million by asset sales and special items. Excluding those one time items, profits were up $72 million in 1993.
Increased production and lower operating and exploration costs more than offset lower crude oil prices.
Chevron's non-U.S. net liquids production increased 8.6% to 556,000 b/d, while net gas flow increased 1.3% to 469 MMcfd. Operations in 1993 reflected a full year of production in Papua New Guinea, second quarter start-up of the Tengiz joint venture in Kazakhstan, and increased flow from development in Indonesia.
Mobil earnings from non-U.S. E&P jumped 24% to $1.292 billion in 1993. Lower oil and gas prices were more than offset by reduced costs and increased production. Non-U.S. crude production rose 5.1% to 531,000 b/d, all in Nigeria and the U.K., while gas production increased 3.9%, mainly in the U.K., to 3.08 bcfd.
Amoco Corp.'s non-U.S. E&P segment earned $184 million in 1993, up from $93 million in 1992. Profits in 1993 included gains of $190 million from the sale of certain Canadian assets and $60 million in net tax adjustments, offset by charges of $170 million from the writedown of Congo operations to current recoverable values. Crude and NGL production fell 4.4% to 373,000 b/d, but gas production rose 7.9% to 1.705 bcfd.
Texaco's non-U.S. E&P profits were off $94 million at $322 million. The drop occurred in fourth quarter 1993 when profits slipped $134 million due to lower oil prices, offset in part by increased production.
Fourth quarter 1993 production was up 18% from 1992, mainly in Indonesia's Belida field, in the North Sea, and in the Neutral Zone. For the year, Texaco's non-U.S. production averaged 305,000 b/d, compared with 304,000 b/d in 1992. Net gas production advanced 11.7% in 1993 to 238 MMcfd.
Phillips Petroleum Co.'s non-U.S. E&P net income totaled $136 million, up from $109 million in 1992. Earnings were up even though crude oil production fell 3,000 b/d to 110,000 b/d. Natural gas production fell 7.1% to 382 MMcfd.
Unocal Corp. earnings from non-U.S. upstream operations fell $31 million to $212 million for 1993. Slightly lower production and sharply lower prices contributed to the decline.
Crude oil production fell 1.8% to 98,400 b/d. The average price of non-U.S. crude dropped 11.9% to $15.26/bbl. Gas production remained at the 1992 level, but average price fell 4.6% to $2.07/Mcf.
U.S. REFINING, MARKETING
U.S. refining and marketing profits improved for most companies in the OGJ group.
Many noted lower operating costs resulting from restructuring programs and cost containment efforts. However, some companies booked special charges related to future environmental costs and restructuring.
U.S. petroleum product demand increased, hiking sales. But the boost to revenues was offset by a drop in most product prices. That in turn was offset by lower feedstock costs due to lower crude oil prices.
The net affect was increased margins and refining profits for U.S. operations.
The 1993 U.S. average composite refiner acquisition cost was down 10.1% at $16-42/bbl of crude. By comparison, the average refiner price of motor gasoline for resale slipped only 6.9% to 63cts/gal in 1993 and the average refiner price of No, 2 fuel oil for resale fell 5.4% to 54.8cts/gal.
Wright Killen estimated refiners' average cash operating margin for Gulf Coast refineries jumped 50.5% in 1993 to $1.40/bbl.
Shell Oil Co.'s 1993 net income from its oil products group was $285 million, up from only $6 million in 1992. Earnings benefited from continuing cost management, a lower level of refinery turnarounds, and stronger product margins. Refined product sales rose 80,000 b/d to average 1.2 million b/d for 1993, yielding a revenue increase of $143 million.
Texaco's net R&M income fell 19.5% to $215 million because of special charges totaling $91 million. Special items for 1993 included charges for staff reductions, environmental reserves, and the U.S. tax rate increase. Excluding special charges, operating earnings from continuing operations increased 6.3% to $306 million.
Exxon reported much higher earnings from U.S. R&M operations. Earnings in 1993 jumped to $465 million from $157 million in 1992, largely because of higher margins. The increased profits were posted in spite of a drop in U.S. refinery runs and product sales. Refinery crude runs fell 7.7% to 841,000 b/d, while product sales fell 4.2% to 1.152 million b/d.
ARCO's R&M operations posted 1993 profits of $307 million, down from $346 million in 1992. Strong operating results were offset by a net charge of $80 million, mainly for litigation related accruals and losses associated with the sale of a Brazilian marketing subsidiary.
Unocal posted 1993 U.S. R&M earnings of $166 million, up from $102 million the year before. The results reflected higher West Coast margins and lower losses from Southeast U.S. marketing operations, which are being phased out. Petroleum products sales slipped to 344,900 b/d from 417,000 b/d. Sale of Unocal's Auto/TruckStop system and continuing phaseout of Southeast U.S. marketing contributed to lower product sales.
Phillips' 1993 earnings from petroleum products slipped to $81 million from $102 million the year before. The drop was due to lower sales prices, pipeline abandonment costs, an incinerator writedown, and effects of an extended shutdown of the Sweeny, Tex., refinery. Those items were partially offset by lower feedstock costs.
The Sweeny refinery downtime stemmed from a fourth quarter maintenance program. Shutdown costs were $9 million higher than expected, and overall refinery utilization rate in the fourth quarter was reduced to less than 70%. The petroleum products division posted a loss of $15 million in the fourth quarter.
Amoco's 1993 earnings from refining, marketing, and transportation jumped to $826 million from $462 million in 1992. Sales of refined products increased 4.1% to 1.133 million b/d. This included a 3.1% increase in motor gasoline sales to 598,000 b/d and a 4.8% increase in distillate sales, which averaged 350,000 b/d.
NON U.S. R&M
Group earnings from R&M operations outside the U.S. rose in 1993. The improvement came generally from increased sales and higher margins, much of it in the rapidly expanding economies of the Far East.
Exxon earnings in this category were up $133 million at $1.55 billion. Margins were higher particularly in the Far East and Europe. Petroleum product sales outside the U.S. were up 1.9% at 3.775 million b/d.
Texaco profits increased $134 million to stand at $434 million. That reflected strong margins and higher sales volumes in the Caltex operating areas, as well as improved margins in Latin America, particularly Brazil.
Offsetting some of the improvement in operating earnings were Caltex noncash charges of $51 million to reflect a market value of inventories that was lower than their LIFO carrying value.
Mobil's non-U.S. R&M earnings increased $472 million to a total of $801 million in 1993. The increase flowed from earnings in the Pacific Rim resulting from higher margins, robust refinery performance, and increased sales.
European results also improved, as many production records were set and marketing results remained strong despite the continuing recession. Product sales outside the U.S. rose 5.8% to an average 1.847 million b/d.
Chevron's non-U.S. R&M operations posted profits of $252 million, compared with $111 million in 1992. Results were reduced by $52 million for Chevron's share of the Caltex adjustment to the carrying value of its petroleum inventories.
Refining inputs for international operations rose 55,000 b/d to 598,000 b/d. Sales of refined products rose 7.5% to 923, 000 b/d.
Conoco Inc.'s international downstream operations posted after tax operating income of $202 million in 1993, up from $133 million in 1992. The increase was a result of lower costs, a German marketing acquisition, and increased refinery runs.
CHEMICALS
OGJ group earnings from chemical operations were mixed. But several companies listed higher earnings in 1993 from chemicals. Profits have been depressed in recent years due to slow growth in product demand and slim margins.
Shell's chemical segment posted earnings of $220 million in 1993, up from only $12 million in 1992. The improvement came mainly from increased sales of polymers, including new polyester resins, and lower feedstock costs for commodity chemicals. In addition, operating costs were down even though capacity had been added. Chemical products revenues rose 9.8% to $3.598 billion.
Chevron's net income from chemicals was $143 million, up from $89 million in 1992. In both years most of the earnings came from special gains, mainly asset sales, totaling $112 million i@ 1993 and $53 million in 1992. Excluding special items, earnings slipped to $31 million in 1993 from $36 million in 1992. Chevron said the results "reflected the continued depressed state of the petrochemicals industry, especially olefins. Industry overcapacity, coupled with weak worldwide economies, held down product prices."
Chevron's chemical sales revenues fell 5.7%,( to $3.296 billion for 1993.
Mobil's 1993 chemical earnings fell to $44 million in 1993 from $136 million the year before. The 1992 earnings included a restructuring charge of $17 million and an asset sale of $80 million. Operating earnings excluding the special items were $73 million in 1992. The $29 million decline in operating earnings was due to sluggish demand and industry oversupply. World chemical sales fell 4.6% in 1993 to $3.408 billion.
Amoco posted 1993 chemical earnings of $240 million vs. a loss of $94 million in 1992. However, 1992 results included restructuring charges of $265 million. Earnings from chemical operations were improving throughout 1993. Fourth quarter 1993 earnings were $83 million, compared with only $18 million in the same period of 1991. Earnings improved even though chemical revenues slipped 6.3% in 1993 to $3.462 billion.
Exxon's worldwide chemical operations earned $410 million, down 9.1%, from 1992. U.S. earnings were $268 million vs. $272 million a year earlier.
In September 1993 Texaco announced its intent to sell substantially all of its chemical operations to an affiliate of the Jon M. Huntsman Group of Companies. Texaco's chemical operation posted a loss from operations of 517 million in 1993, compared with a loss of $26 million in 1992. In addition, in 1993 there was a loss of $174 million on disposal of chemical operations property.
WHAT'S AHEAD
IEA forecasts significant growth in world petroleum product demand during 1994. Demand will advance 600,000 bid to an average 67.6 million b/d despite another sharp drop in C.I.S. consumption increased OECD demand is expected to lead the way, rising 400,000 bid to 39.5 million bid. Most of the OECD increase will be in North America, where demand will be up 300,000 bid. Demand in OECD Europe also is expected to rise, based on improvement in economic activity.
Consumption in the C.I.S. will fall another 600,000 bid to an average 5 million bid. Demand in the former U.S.S.R. in 1990 was 8.5 million bid. East European demand leveled off at 1.2 million b/d in 1992 and 1993 and is expected to remain there in 1994.
For the rest of the developing countries of the world, 1994 demand will move up 800,000 bid to 23.1 million bid. Strongest growth will be in non-OPEC Asia, other than China, where demand will increase 300,000 bid to 7.1 million b/d. Demand in China will rise 200,000 bid to 3.1 million bid.
Demand in Latin America will increase 100,000 bid to 5.7 million bid, and Middle East demand will also be up 100,000 bid at 3.9 million bid.
IEA forecasts non-OPEC oil supply to be up 100,000 b/d in 1994 at 40.6 million bid. C.I.S. production will fall another 800,000 bid to 7 million bid. Excluding the C.I.S., other non-OPEC supply will be up 900,000 bid at 33.6 million bid.
The largest increase will be in OECD-Europe supply, projected to increase 800,000 b/d to 5.9 million b/d, mainly due to increases in North Sea production. Oil production also will rise in Latin America, Asia, Africa, and non-OPEC Middle East. In OECD North America, production will slip 200,000 bid this year.
Increased demand projected for the OECD and Asian developing countries is a positive indicator for OGJ group, boosting product sales revenues and possibly profits. Profits will depend heavily on oil prices. The ability of OPEC to balance supply with demand will be a major factor in determining the future price level.