Long delay in starting up Point Arguello field off California hits Chevron, Texaco, Phillips fourth quarter earnings. Exxon Valdez, petrochemical plant blast also factors in profits pinch. ARCO, Sun take charges for environmental expenses.
Environmental and safety woes have spurred a number of U.S. companies to take writedowns totaling more than $2 billion against 1989 earnings.
Chevron Corp. charged $1.203 billion in special items against earnings, Texaco Inc. took charges totaling $355 million, and Phillips took a $280 million after tax write-down-all three moves related in part to reduced value of the long delayed $3 billion Point Arguello field development project off California.
Phillips' fourth quarter 1989 income also was squeezed by extra costs and reduced earnings caused by the explosion and fire that killed 23 persons at its Pasadena, Tex., petrochemical complex last Oct. 23.
ARCO's 1989 earnings reflected a $345 million charge for future environmental expenses amid other provisions and were squeezed by repercussions from the Exxon Valdez oil spill.
Exxon Corp's. costs related to the spill and cleanup forced it to take a charge against second quarter 1989 earnings that slashed the quarter's profits by $850 million to $160 million (OGJ, July 31, 1989, Newsletter). Exxon profits in first half 1989 plunged 46% to $1.43 billion from 1988's first half.
Sun Co.'s fourth quarter charges of $177 million include a provision for environmental matters.
POINT ARGUELLO DELAY
The long delay in bringing on stream giant Point Arguello field, biggest in U.S. waters, rippled through 1989 profits of several companies.
Union Pacific Resources, while not reporting a write-down in its Point Arguello investment, cited the project delay for contributing to its 9% oil output drop in 1989.
The most recent delay came last year when California Coastal Commission overturned a Santa Barbara County permit allowing Chevron to ship Point Arguello crude to Los Angeles by tanker on an interim basis.
Chevron claimed at the time the project was the victim of political fallout from the Mar. 24, 1989, Exxon Valdez oil spill off Alaska.
Chevron sued the commission and resubmitted its application for an interim tanker permit to the county, which has required further environmental studies (OGJ, Oct. 16, 1989, p. 29). Chevron said costs associated with repeated delays for Arguello, outlook for oil prices, and other factors resulted in a book value far greater than the project's economic worth.
"We're extremely disappointed by our experience at Point Arguello, which we have been developing since the early 1980's, when higher crude oil prices and significantly fewer regulatory obstacles were expected," said Chevron Chairman Kenneth Derr. "After enduring a series of adverse rulings from what appears to be an irrational public policy process ... it is prudent to assign a more realistic value to this project.
"We still hope the permitting problems will be resolved so production from this important project can begin this year. It is irresponsible to prohibit production from already developed domestic energy reserves at a time when our nation is importing by tankers nearly half the oil it needs. Instead, the many regulatory agencies involved should be setting and coordinating policies that encourage environmentally responsible and orderly exploration and development of the nation's most promising energy prospects."
CHEVRON'S SPECIAL ITEMS
The biggest special charge in the quarter for Chevron was a $598 million writedown of the company's investment in certain nonproducing oil and gas properties.
It includes a $445 million writedown on Point Arguello.
"Other producing properties, also located mostly off southern California, were written off, as well as certain nonproducing leases where the current controversial climate precludes near term development," Chevron said.
Amid other special items, Chevron made a provision of $325 million for future environmental cleanup costs at certain U.S. refining, marketing, and chemical facilities.
For the fourth quarter, Chevron had a loss of $883 million vs. profits of $175 million in the same 1988 period. The company posted preliminary 1989 earnings of $251 million, compared with $1.768 billion in 1988. Excluding special items, Chevron's 1989 earnings were $1.458 billion vs. $1.691 billion in 1988.
TEXACO CHARGES
Texaco's 1989 U.S. exploration and production earnings included a fourth quarter charge of $164 million to provide for environmental remediation at the time of abandonment of certain producing facilities and for impairment in value of Point Arguello field's Platform Harvest and related facilities in California.
Texaco's U.S. downstream results in 1989 included charges of $153 million for reserves related to environmental improvement programs planned at present and former refinery sites and at some marketing facilities and waste sites.
Texaco's international downstream operations took a comparable charge of $38 million for reserves for various environmental programs.
Texaco fourth quarter income fell to $287 million in 1989 from $296 million in the same 1988 period. For the year, Texaco's net jumped to $2.413 billion from $1.304 billion in 1988, due largely to a $1.552 billion net restructuring gain from the sale of Texaco Canada Inc.
PHILLIPS WRITEDOWNS
Phillips said the overriding negative factor affecting its performance in fourth quarter 1989 and the year was the Point Arguello writedown (OGJ, Jan. 22, p. 30).
Further, Phillips earnings were hurt by the petrochemical plant disaster, which destroyed the company's U.S. polyethylene capacity and slashed sales.
The company met the $50 million deductible for its business interruption insurance in the fourth quarter.
Excluding the writedowns, Phillips' upstream earnings were up significantly on higher world oil and U.S. gas prices and increased gas production. Phillips posted a fourth quarter net loss of $255 million vs. profits of $135 million in fourth quarter 1988. For the year, Phillips earnings were $219 million, compared with $650 million in 1988.
ARCO RESULTS
ARCO's 1989 results reflect a $345 million for future environmental expenses and other provisions, plus extra costs stemming from the Exxon Valdez spill.
ARCO production of crude oil and natural gas liquids fell to 730,100 b/d in 1989 from 737,800 b/d in 1988, mainly because of reduced Alaskan production stemming from Prudhoe Bay field's decline and production curtailments caused by Exxon's spill. The decrease was partly offset by increased Lower 48 production because of the acquisition of Tenneco's California properties in late 1988.
The Exxon spill also trimmed ARCO's transportation earnings. ARCO's aftertax earnings in that sector fell to $266 million in 1989 from $308 million in 1988, reflecting lower revenues from the Trans-Alaska Pipeline System, higher Valdez contingency costs, and increased maintenance costs.
Overall, ARCO posted net income of $1.95 billion for 1989, up 23% from 1988.
In refining/marketing, ARCO added $60 million aftertax to environmental reserves.
SUN CHARGES
Sun's fourth quarter special charges include a $68 million aftertax provision for environmental matters, employee terminations, and other matters, a $74 million aftertax writedown of coal assets in Utah, Virginia, and West Virginia, and a $35 million aftertax writedown of non-U.S. nonproducing oil and gas assets, mainly in the U.K. North Sea.
Sun late last year completed a review of its asset base and reassessed its energy resources development plan and concluded that it was unlikely certain energy assets would be developed and produced.
Sun posted a fourth quarter net loss of $173 million vs. profits of $76 million in fourth quarter 1988.
For the year, Sun reported net income of $98 million, compared with $7 million in 1988.
The 1988 results reflect a $314 million writedown related to the spinoff of its U.S. exploration and production unit, which since has become Oryx Energy Co.
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