Expect record earnings for oil companies in the fourth quarter, says Merrill Lynch.
The analyst sees fourth quarter earnings of majors it tracks jumping to $6 billion, up $2.7 billion from the third quarter. The earnings hike will stem from higher oil and gas prices and increased production, more than offsetting refining/marketing and chemical earnings that are projected to be flat with depressed third quarter levels. Merrill Lynch estimates spot WTI and Brent prices will average about $32/bbl for the quarter, the highest since 1982. Although oil prices were higher in 1980-81, companies did not realize the full benefit because of the windfall profits tax and sharp cost hikes.
Most of the profits rise will accrue from higher worldwide E&P profits, up $2.6 billion--of which about $2 billion is from higher prices. The projected earnings increase amounts to $1.90/bbl, the analyst says, or about 30% of the crude price increase in the quarter. That's in sharp contrast with the third quarter, during which adjusted earnings fell by $900 million from the second quarter despite a $9/bbl rise in crude prices.
Although downstream profits have remained under pressure in the fourth quarter, as companies have trouble passing through higher crude costs, profitability has shifted to marketing from refining, says Merrill Lynch. The analyst's yardstick for refining margins shows them squeezed to 13/bbl vs. $3.51 in the third quarter and $1.67 in fourth quarter 1989.
By contrast, Merrill Lynch estimates marketing margins the past several weeks have grown to about 34/gal from about 3.5 immediately after Iraq's invasion of Kuwait and an average 1520/gal prior to the invasion. The analyst expects this situation to persist as retail gasoline price declines continue to lag the recent fall in spot gasoline prices.
Reflecting that scenario is Ashland's expectation of a likely loss for its fiscal first quarter ending Dec. 31 vs. a profit of $22 million a year ago. The company cites depressed refining margins and a sharp drop in demand for gasoline and heating oil in October and November.
Volatility in oil and gas prices and uncertainty over future earnings have spurred relative caution in capital spending increases planned for 1991.
In comparison with 1990 budgets, LL&E will boost spending 16% to $291 million, Equitable Resources will increase expenditures 8.5% to $117 million, and Murphy will jump outlays 20% to $324 million from what it expects to spend in 1990.
Caution is the watchword in other company plans. Enron Oil & Gas is indefinitely postponing plans to offer 4.1 million primary shares, or about 20%, of its common stock.
The reason: Stock prices for EOG and other gas oriented companies are being undervalued. The company sees gas demand increasing sharply in the near term because of increased electric power demand and environmental and energy security concerns, which will boost stock values of gas focused companies.
FERC is juggling the schedule on pipeline issues.
It has extended for a year requirements that pipelines report on marketing affiliates activities. The rules, issued in July 1988, were to expire Dec. 31, 1990. FERC said it "believes the potential for discriminatory behavior by pipelines in favor of their marketing affiliates continues to exist."
Responding to an Ingaa request, FERC also rescheduled for Jan. 25 a conference on gas pipeline rate reform, scheduled earlier for Jan. 8. FERC said the hearing will focus on such new rate related issues as open access contract storage services, incremental facilities of existing pipelines, and new pipelines.
Parker Drilling reports a flurry of deep gas drilling contracts in recent weeks: a 25,000 ft well each for Park Avenue Exploration and Exxon in the Anadarko basin, a 25,000 ft well to spud in January for LL&E in Wyoming, and a 20,000 ft well spudded recently for Mobil in Colorado.
They join a 26,000 ft well for Coastal in the Delaware basin of West Texas, a 19,000 ft well for TEX/CON in the Anadarko, and a 17,500 ft well for Chevron in Lincoln County, Wyo.
Texaco and Eastern Virginia Gas Co. hope to secure approval to drill a 10,000 ft wildcat near Washington, D.C., as part of a Taylorsville basin exploration program. Drillsite is to be 1/2 mile south of Faulkner in Charles County, Md., about 25 miles south of the White House.
Texaco and Exxon in 1989 drilled 1 Wilkins, 10 miles east of King George in Westmoreland County, Va. (OGJ, May 29, 1989, p. 36). They plugged the well at about 10,000 ft. The drillsite and the new location are less than 15 miles apart.
The Gulf of Suez off Egypt is shaping up as an exploratory hotspot again (OGJ, Dec. 10, Newsletter).
Amoco Egypt is producing 9,500 b/d from a new pool discovery in the October fields area. Amoco GS-172-2 well, drilled from October J platform in North October field, flowed 10,370 b/d of 28 gravity oil with 225 psi wellhead pressure from ASL sands member of Miocene Rudeis at 10,280-590 ft. Amoco is drilling an appraisal well from October D platform 3 miles south of the discovery. It also plans two more wells from J platform to further delineate a Cretaceous Nubia reservoir in the field.
Mobil reports two discoveries off Southeast Nigeria. Preliminary estimates of potential reserves for Etoro and Ekiko fields are a combined 130 million bbl.
ARCO has signed preliminary agreements with two local governments covering E&P in the Soviet Far East.
ARCO's protocols with regional councils of Magadan and the Chukotka Autonomous Area pave the way for ARCO to negotiate for exclusive rights for onshore and offshore E&D.
Target areas will be identified in subsequent negotiations. The councils will help ARCO obtain required legal approvals of the Soviet and Russian Federation governments.
Indonesia may eventually phase out crude exports as it beefs up its downstream capability.
President Soeharto, inaugurating the new Parasylen refinery at Cilacap, said his country may reserve its crude for domestic needs and focus more on supplying Southeast Asia and the rest of the Pacific Rim with refined products. He invited foreign private companies to participate in Indonesia's campaign to boost capacities in refining, gas processing, and petrochemicals.
Work was to begin this month on a four pipeline, 928 km products network linking Seoul with refineries in three South Korean port cities. The $792.3 million project is to be complete in 1993. Installation was to begin in mid-December on a 31 km gasoline/gas oil pipeline and a 27 km jet fuel line between Seoul and Inchon, both due for completion by 1992 at a cost of $85.6 million. Plans also call for 870 km of products lines linking Seoul with Yochon and Onsan at a cost of $706.7 million.
More big outlays for meeting tougher environmental standards are on tap for refineries worldwide.
Royal Dutch/Shell Group plans major investments in refining capacity in France and Switzerland to meet product and environmental needs in the 1990s.
Shell France is studying outlay of $200 million on its 128,000 b/d Berre refinery in the south of France. About one fourth of that will go for environmental protection, the rest for upgrading process, logistics, and storage/handling facilities.
Shell Raffinerie Cressier, just completing a $4.4 million program to meet local air quality rules, will spend another $40 million to upgrade environmental protection systems by 2000.
Venezuela's Pdvsa has budgeted about $2 billion for expanding and upgrading the Citgo refinery at Lake Charles, La., and Champlin refinery at Corpus Christi, Tex., the next 5 years.
Pdvsa earlier this year merged Champlin into Citgo, which will leave Citgo with revenues of more than $7 billion/year and about 6% of the U.S. gasoline market.
Pdvsa also plans to expand its tanker fleet by 22 vessels for a total of more than 1 million dwt. At yearend 1989, Pdvsa had 19 tankers with a total 768,000 dwt. The company plans to refurbish some vessels and take others out of service.
The French government has earmarked 125 million francs ($25 million) the next 5 years for a research program into development and use of electric vehicles.
In addition, the 1991 draft budget includes fiscal incentives for companies that purchase electric vehicles.
Hungary will end its state monopoly on oil imports and let market forces set gasoline prices as of Jan. 1.
The government's pledge came after taxi and truck drivers paralyzed traffic for 3 days with a blockade to protest drastic price hikes. The government then halved a 65% price hike until a free market could take effect. Officials look to private oil and gasoline imports to sustain the country in 1991 when the U.S.S.R. slashes deliveries of previously subsidized crude supplies to only 20,000 b/d from the 130,000 b/d agreed for 1990 and 90,000 b/d expected to be delivered.
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