The widely predicted "windfall profits" for big U.S. oil companies stemming from the crisis induced runup in oil prices probably won't materialize.
Dean Witter estimates third quarter earnings will slip 1% to $3.286 billion for the 11 majors it tracks. Upstream earnings will benefit from WTI postings jumping about $6.40/bbl from third quarter 1989, says Dean Witter, but "no meaningful benefit will accrue from domestic natural gas operations, which experienced slack demand and depressed prices."
The analyst noted U.S. and European downstream margins were excellent in July but fell after the August spurt in crude prices, saying, "Continued sharp escalation in crude oil costs in September created a severe margin squeeze late in the quarter, leading to considerable profit pressures, particularly for companies with extensive retail distribution. In fact, our calculations show that several companies were experiencing losses at the close of the period. Companies with sizable wholesale operations ... should report much better refining/marketing results than those with a heavy retail presence."
Early third quarter earnings reports by companies with strong upstream and little or no downstream activity, however, generally reflect improvement from a year ago and from a poor first half performance (see stories, pp. 42-44): Oxy flat at $109 million, Oryx up 700% to $48 million, Apache up 86% to $9.5 million, Union Pacific Resources up 11% to $51 million, Triton (fiscal 1991 first quarter ended Aug. 31) a loss of $8.9 million vs. a year-ago $4.7 million loss, and Global Marine a loss of $7 million vs. an $11 million loss.
Much of those profits will be plowed into more U.S. E&P.
Cabot Oil & Gas Corp. will hike its capital and exploration budget 19% to $52 million for fiscal 1991. That includes a 25% jump to $7.5 million for exploration. A big chunk of the budget will go to drilling 150 wells in the Appalachian and Anadarko basins vs. 131 wells for fiscal 1990 ended Sept. 30.
The Persian Gulf crisis approaches its fourth month amid mixed signals on supply shortfalls. OPEC Sec. Gen. Subroto sees a shortfall of 1.8 million b/d in the fourth quarter and calls on western countries to release stocks now to avert the shortage.
EIA says loss of 4.3 million b/d of oil from the market resulting from a U.N. embargo of Iraq and Kuwait has almost been made up. EIA said Saudi Arabia has made up more than half of the lost production, and flow hikes from Nigeria, Libya, Iran, and Venezuela and others will bring world output to within 500,000 b/d of replacing the lost supply by yearend.
Saddam Hussein has taken the first step toward implementing his threat to destroy oil production facilities in the Persian Gulf if his forces in Kuwait are attacked. Kuwaiti Oil Minister Rasheed Salem Al-Ameeri says Kuwait's oil fields have been mined by occupying Iraqis but noted that destroying Saudi production facilities would be much more difficult.
Ameeri also says restoration of Kuwait's legitimate government would be accompanied by a request for a higher OPEC quota to provide revenues needed to rebuild its devastated economy.
EOR is boosting OPEC potential productive capacity.
The third and fourth trains of Iran's Marun oil field gas lift project are to be commissioned shortly, boosting injection capacity to 1.4 bcfd. The first two trains, completed last year, provide injection capacity of 315 MMcfd of gas from Pazanan field. Iran expects the project to boost Marun reserves to 7.65 billion bbl from 2.65 billion bbl.
OPEC's membership may grow as well. Economically strapped Argentina wants to deregulate its energy prices in January and boost oil exports so it can join OPEC, Venezuela's official Venpres news agency quoted Argentine President Menem as saying. Argentina now earns about $400 million/year from oil exports.
The crude oil price rollercoaster continues. Brent for 15 day delivery started the week at $40.85/bbl but closed at $34.03 Oct. 18 on IEA reports OPEC output is back to the July level of 23 million b/d. Market nerves were also soothed by Saddam Hussein's offer to sell crude at the last official $21/bbl marker and reports of lower processing runs by refiners. Industry sources don't expect takers for Saddam's offer. In the same span, Dubai for December delivery fell to $30.10 from $35.30. Nymex crude followed the same trend, closing at $39.69 Oct. 12, then at $37.95, $38.89, and $36.72 the first part of last week.
European product prices have drifted steadily down. Rotterdam premium gasoline fell to $370/metric ton, down $55 on the week and triggering cuts in retail gasoline prices. Gas oil prices fell $43 to $311 and heavy fuel oil $27 to $131.
Europe's petrochemical industry is starting to feel the fallout from the Persian Gulf crisis. Exxon Chemical will delay for 2 years a proposed 235 million ($460 million) expansion of its Mossmoran ethylene plant in Scotland. The delay follows a review of postcrisis prospects for petrochemicals in Europe showing a slowdown in growth. Exxon and partner Shell had planned to boost capacity by 40% to 900,000 metric tons/year, with work to start in early 1991 for completion by 1993.
France's petrochemical industry could be hit in the short term by a general economic slowdown, higher feedstock costs, and the effect of dollar depreciation, says a French government report on effects of the gulf crisis. In the medium term, less favorable growth prospects could jeopardize a number of European projects, mainly capacity expansions. Competition would also be sharper from the U.S. and the Persian Gulf, and the European market should adopt defensive measures against competitors with particularly low production costs, the report warns.
Meantime, the Middle East crisis doesn't appear to be cutting the volume of U.S. oil imports. API says the embargo on Iraqi and Kuwaiti oil exports had little effect on U.S. oil imports in September. Total U.S. products supplied averaged 16,737,000 b/d vs. 16,795,000 b/d in September 1989. But U.S. oil production dropped 7.2% on the year to 7,004,000 b/d last month. So U.S. imports averaged 7,961,000 b/d in September, up 0.2% from a year ago. API says gasoline deliveries fell 1.5% last month, apparently in response to a 20% price hike vs. July.
Could another shutdown of TAPS be imminent, worsening the probable fourth quarter oil supply crunch? State and federal agencies and Alyeska are investigating allegations workers falsified corrosion testing last summer on the Alaskan line that moves about 28% of U.S. oil production. Some sections may have to be excavated and reinspected. Alyeska is in the midst of an $800 million corrosion repair project. The charges come in a letter sent to agencies from a worker fired in July by Alyeska contractor Thorpe Technical Services, Fairbanks. He also alleged extreme drug and alcohol use by corrosion inspection crews.
TAPS throughput came within an eyelash of being cut to 1.2 million b/d 2 weeks before Iraq's invasion of Kuwait because of air quality concerns. An 11th hour agreement between Alyeska and federal and state environmental agencies allowed it to resume normal operations after a 4 1/2 hr slowdown cost 100,000 b/d in throughput.
Alyeska and Alaska Department of Environmental Conservation later agreed to a settlement to avoid future impasses on air emissions rules along the line or at the Valdez terminal.
Alaska is the No. 1 U.S. oil producer again, last week briefly pushing past 2 million b/d the first time since Prudhoe Bay began its decline in 1988. Almost every field in the state hiked crude output in recent weeks, enabling it to overtake Texas at about 1.7 million b/d. OGJ estimates average Alaskan production for the week ending Oct. 12 at 1.905 million b/d.
There will be no tax on fossil fuels in a federal environmental plan taking shape in Canada, says Environment Minister Robert de Cotret. The energy industry opposed a hydrocarbon tax pushed by environmentalists to boost conservation and cut air pollution. De Cotret sees no evidence such a tax would change consumer behavior in Canada, noting Canadian energy demand is largely related to low population density, long distances between population centers, and cold winters. Ottawa is to unveil its environmental plan before yearend. De Cotret says it will include spending commitments of billions of dollars.
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