OGJ GROUP'S 1990 PROFITS UP 14.1% AT $21.3 BILLION

April 15, 1991
Robert J. Beck Economics Editor Joan Bonfield Biggs Statistics Editor Oil & Gas Journal's group of 22 U.S. oil companies posted 1990 earnings of $21.3 billion, up 14.1% from 1989. Earnings in 1989 were down 12% from the year before. The increase last year occurred in spite of a loss of $1.7 billion by Occidental Petroleum Corp. because of restructuring charges of $2 billion in the fourth quarter. The group's fourth quarter 1990 earnings were $5.1 billion, a resounding 188.8% increase
Robert J. Beck
Economics Editor
Joan Bonfield Biggs
Statistics Editor

Oil & Gas Journal's group of 22 U.S. oil companies posted 1990 earnings of $21.3 billion, up 14.1% from 1989.

Earnings in 1989 were down 12% from the year before. The increase last year occurred in spite of a loss of $1.7 billion by Occidental Petroleum Corp. because of restructuring charges of $2 billion in the fourth quarter.

The group's fourth quarter 1990 earnings were $5.1 billion, a resounding 188.8% increase from the same period the year before.

Third quarter earnings for the group were up 19.3% from the previous year at $5.5 billion. This contrasts with first half 1990, when earnings were down 12% from 1989 at $10.9 billion.

Total 1990 revenues for 21 of the OGJ group were up 18.3% at $464.3 billion. Fourth quarter revenues were $142.8 billion, a 35.9% advance from the same period of 1989.

Earnings were higher in 1990 than the year before for 16 companies. Five companies posted lower earnings, and one had a loss. Only first quarter results are available for Ashland Oil Inc. because of its fiscal year. It also had a loss in the quarter.

The rise in crude oil and product prices in the wake of Iraq's Aug. 2 blitz of Kuwait helped boost earnings in second half 1990. Prices slipped after peaking in September, but they were still up from the first half of the year and up from year earlier levels.

Part of the increase in earnings due to the rise in prices was offset by a slump in demand for petroleum products in the last part of the year.

Price increases tended to favor the upstream sector where higher crude prices resulted in higher earnings.

Downstream, higher crude oil prices boosted feedstock costs. Product prices in the U.S. did not advance as sharply as feedstock costs, and U.S. downstream earnings fell. Outside the U.S., refining and marketing earnings tended to do better.

Chemical earnings were down for all of the OGJ group companies reporting that item. Higher feedstock costs, combined with weak demand growth due to a slowing in economic activity, depressed earnings.

Twelve of the companies in the group reported capital and exploration spending of $34.5 billion in 1990, down 0.9% from in 1989. However, the 1989 total included $3.9 billion spent by an Exxon Corp. unit to buy Texaco Canada. Excluding that acquisition in 1989, total capital and exploration spending for the 12 companies was up 11.5% in 1990.

Capital spending amounted to 233.6% of net income in 1990, compared with 230.8% in 1989, again excluding the Exxon purchase.

OIL PRICES, DEMAND

Oil prices rose swiftly in the wake of Iraq's takeover of Kuwait and the United Nations embargo of oil shipments from those two countries early in August. Oil prices had risen only gradually in July, due in part to production discipline by some members of the Organization of Petroleum Exporting Countries.

The average price of world export crude oil was $13.49/bbl last June and $14.93/bbl in July. The average price jumped to $24.32/bbl in August, $30.85/bbl in September, and $33/bbl in October, peaking at $36.11/bbl the week of Sept. 28. At yearend, however, reduced market demand and increased production from remaining OPEC members had dropped the average price to $24.72/bbl.

The average wellhead price of U.S. crude oil followed the world price.

The price dropped from $18.50/bbl in January 1990 to $12.79/bbl in June and $14.02/bbl in July. The price then rose sharply and averaged $30.87/bbl in October.

The sharp improvement in upstream earnings of the OGJ group reflected the price increase in the second half of the year. For the first half of 1990 the average price of world export crudes was $16.33/bbl, down 1% from the same period of 1989. For the second half of the year the average price was $26.37/bbl, up 57% from the year before.

One offsetting factor was slumping crude production in the U.S.

Average U.S. production in 1990 was down 4.1% from the year before at 7.301 million b/d. Increased production from non-U.S. operations helped make up for the drop in U.S. flow for some companies.

An economic downturn in the U.S. reduced demand for petroleum products and contributed to the slump in downstream earnings.

Lower demand was one of the reasons refiners found it hard to boost product prices to meet higher feedstock costs. In addition, some refiners decided to combat unfavorable publicity from sharp product price increases during the Middle East crisis and placed a ceiling on their product sales prices.

For 1990 the average U.S. retail price of all types of motor gasoline rose 14.8% to $1.217/gal. The U.S. average retail price of home heating oil also jumped 14.8% to an estimated $1.038/gal for the year.

By contrast, the average refiner crude oil acquisition cost increased 24.4%- to $22.36/bbl in 1990 from $17.97/bbl in 1989.

Total U.S. product demand fell 2.4% to 16.916 million b/d. Motor gasoline demand was down 1.6% in 1990 at 7.213 million b/d, while distillate demand was off 4.3% at 3.02 million b/d.

The International Energy Agency pegs total product consumption in the world's market economies at 52.9 million b/d, up 600,000 b/d or 1.1% from 1989. Consumption in Europe moved up 100,000 b/d, and consumption in Pacific industrialized countries increased 200,000 b/d. The greatest increase was in developing countries, where consumption was up 600,000 b/d at 15.3 million b/d. These increases more than offset a decline of 400,000 b/d in North America.

U.S. EXPLORATION, PRODUCTION

Among the larger companies in the OGJ group, Chevron Corp. posted 1990 earnings from U.S. exploration and production operations of $772 million, compared with a loss of $346 million in 1989. The 1989 results included a $724 million asset writedown for dispositions and other special items.

Chevron said, "The significant improvement in 1990 operating earnings was due mainly to higher average oil prices, up more than $4/bbl to about $20.65/bbl, although all of the price increase occurred in the second half of the year.

"Earnings also benefited from a strong first quarter, when natural gas prices and volumes were high due to an unusually cold January."

Chevron's U.S. net liquids production fell 5% to 458,000 b/d in 1990. Net natural gas production rose 9.8% to 2.65 bcf d.

Mobil Corp. reported 1990 U.S. exploration and production earnings of $193 million, up 65% from 1989.

In 1990 there were special charges of $155 million for the writedown of uneconomic properties, an environmental provision, and losses on property sales. In 1989 there were special charges of $76 million. Excluding special items, earnings advanced $155 million. The improvement stemmed from a $4/bbl increase in crude prices.

Mobil's U.S. liquids production inched up 1.7% to 367,000 b/d. Its gross natural gas production fell 10.5% to 1.908 bcfd.

Exxon earnings from U.S. exploration and production increased 11% to $1.258 billion in 1990, largely on the strength of a $3.80/bbl increase in average crude realizations. U.S. liquids production fell 7.6% to 640,000 b/d, while gas production slid 2.7% to 1.778 bcfd. - Amoco Corp.'s 1990 U.S. exploration and production earnings were $783 million, compared with $380 million in 1989. Its U.S. net liquids production fell 7.2% to 362,000 b/d. Net production of natural gas dipped slightly-0.3%-to 2.065 bcfd.

Shell Oil Co.'s 1990 earnings from exploration and production operations were $714 million, an increase of $168 million from 1989. Fourth quarter earnings were $361 million, up $217 million from the same period the year before.

Shell's average U.S. crude oil price was $26.19/bbl in the fourth quarter, compared with $16.29/bbl for the same 1989 period. The average price for the year was $19.65/bbl, an increase of $4.08/bbl from 1989.

Net U.S. crude oil production for the year averaged 401,000 b/d, down 26,000 b/d. The lower production in 1990 was due to natural declines in older fields and temporary operating conditions. Net natural gas production averaged 1.441 bcfd, down from 1.485 bcfd in 1989.

Shell expects its production of U.S. oil and gas to increase this year, mainly from fields being developed in the Gulf of Mexico.

Texaco Inc. also posted a big increase in earnings from U.S. exploration and production, which leaped to $816 million from $373 million in 1989. Excluding special charges, 1989 earnings were $537 million.

Improved results were due to higher crude oil prices. In addition, Texaco said the reorganization of upstream operations, essentially completed in 1989, continued to provide operating and expense improvements. Partially offsetting that was lower crude oil production. U.S. net liquids production fell to 458,000 b/d, down 22,000 b/d.

Net gas production increased 1.9% to 1.996 bcfd.

Phillips Petroleum Co. posted 1990 U.S. exploration and production earnings of $187 million, compared with a loss of $91 million in 1989. Its U.S. liquids production fell 7,000 b/d to 98,000 b/d.

NON-U.S. UPSTREAM

Non-U.S. exploration and production earnings also got a boost from higher crude oil prices.

Phillips' profits in this category amounted to $363 million in 1990, up from $193 million in 1989. Fourth quarter earnings were $157 million vs. only $32 million in the same period of 1989. Worldwide crude prices were more than $13/bbl higher than in fourth quarter 1989.

Total liquids production outside the U.S. rose to 133,000 b/d from 128,000 b/d in 1989.

Texaco posted 1990 non-U.S. E&P earnings of $532 million, up from $301 million in 1989. Higher crude oil prices and production from new fields in Australia and Indonesia contributed to improved results. Total liquids production outside the U.S. was essentially unchanged, averaging 352,000 b/d in 1990 and 353,000 b/d the year before.

E&P earnings from non-U.S. operations at Exxon moved up 44.3% in 1990 to $2.778 billion. Liquids production outside the U.S. declined 3.5% to 1.072 million b/d because of temporary outages on North Sea leases operated by others. Gas production of 3.561 bcfd was about the same as the 3.558 bcfd in 1989.

Mobil posted earnings of $1.399 million from non-U.S. E&P. This was up from $955 million the year before. The 1990 results included $281 million from special items, including the sale of an interest in Beryl field in the U.K. North Sea, settlement of a prior year's tax issue, liquidation of an interest in a producing venture, and settlement of a dispute with Iran.

Higher prices of about $5/bbl for crude oil and 600/Mcf for gas accounted for the improvement other than the special items. Liquids production slipped 1.6% to 500,000 b/d, but gas production rose 3.3% to 2.954 bcfd.

Chevron's earnings from non-U.S. E&P advanced to $771 million from $492 million in 1989. Net liquids production moved up 2.1% to 477,000 b/d as increased production in Australia and Indonesia more than offset declines in Canada and the U.K. Natural gas flow was up 26.4% at 417 MMcfd, mainly on the strength of increases in Canada and Australia.

Sun Co. reported a substantial improvement in Canadian oil sands operations, where profits rose to $47 million from $20 million in 1989. The increase came from a 58% increase in average synthetic crude oil prices to $30-58/bbl and a 20% increase in synthetic crude oil production to 64,700 b/d.

U.S. REFINING, MARKETING

Earnings from U.S. refining and marketing operations for 1990 were mixed for companies in the OGJ group.

Most of them posted earnings lower than the year before during second half 1990. However, strong margins in first half 1990 enabled some of the group to show gains for the full year. Special provisions for environmental programs also ate into 1990 earnings for some of the companies.

Chevron's operations in U.S. refining, marketing, and transportation turned around to a $376 million profit in 1990 from a loss of $82 million in 1989. In 1989 there were special charges of $352 million, mostly for environmental programs. Special charges in 1990 totaled $120 million.

Chevron said, "Operating earnings improved on higher product sales margins in the first half of the year, especially in the second quarter when tight product supplies and strong demand held product prices firm. Margins fell to near breakeven in the third quarter, however, when crude oil prices increased at a much higher rate than product prices.

"Margins improved somewhat in the fourth quarter, but had begun to erode by year end."

Sales of refined products rose 20,000 b/d to 1.489 million b/d in 1990. However, fourth quarter sales were down 7% from the same period of 1989 at 1.402 million b/d. This reflected a slowdown in U.S. economic activity late in the year and a decline in total U.S. petroleum product demand.

Exxon's U.S. refining and marketing earnings fell to $78 million in 1990 from $370 million in 1989. Exxon blamed the steep slide on increased refinery maintenance and repairs during the first half, depressed margins following Iraq's invasion of Kuwait, and fourth quarter provisions for environmental upgrading of marketing properties.

For the fourth quarter Exxon posted a loss of $24 million vs. a profit of $114 million in 1989. U.S. petroleum product sales for 1990 fell 38,000 b/d to 1.109 million b/d.

Mobil booked U.S. refining and marketing profits of $96 million in 1990, a drop of $223 million from 1989. Results in 1990 included a $127 million environmental provision.

Mobil said the decline in operating earnings mainly reflected the underrecovery of crude and purchased product costs during August-October. U.S. petroleum product sales fell 36,000 b/d to 903,000 b/d for 1990.

Shell's earnings in the same category were $88 million in 1990, down from $361 million the year before largely due to substantially higher environmental costs and increased refinery maintenance and scheduled shutdown costs. Environmental costs incurred during 1990 were about $160 million after taxes. Petroleum product sales were down 19,000 b/d to 1.188 million b/d.

Texaco's earnings from U.S. manufacturing, marketing, and distribution advanced sharply to $244 million in 1990 from only $78 million in 1989. But the fourth quarter saw a loss of $65 million, compared with a loss of $112 million in the same period of 1989. Special charges in the fourth quarter of $85 million in 1990 and $153 million in 1989 contributed to losses. Charges were for reserves related to environmental programs planned at certain present and former operating sites.

Texaco's refined product sales in the U.S. moved up to 858,000 b/d from 809,000 b/d in 1989.

NON-U.S. REFINING, MARKETING

Outside the U.S., petroleum product demand held up better in 1990. Profits in this category were generally up from a year earlier. In addition, charges for environmental programs don't yet have a major effect on non-U.S. earnings.

Exxon posted earnings from non-U.S. refining and marketing of $1.239 billion in 1990, up from $728 million in 1989. The increase was attributed to higher product margins in the first half. Product sales volumes were up 2.1% at 3.55 million b/d.

Mobil also recorded a substantial increase in non-U.S. refining and marketing earnings in 1990, up $197 million to $533 million. Fourth quarter earnings were $233 million, up $198 million. Fourth quarter earnings in 1990 got a boost of $74 million from major asset sales, mainly a refinery in Wilhelmshaven, Germany, and land in Tokyo.

The improvement in earnings stemmed from better margins and improved refinery performance, mainly in the U.K., Japan, and Singapore. Product sales outside the U.S. fell 1.1% to 1.638 million b/d.

Chevron's earnings from non-U.S. refining and marketing moved up 79.2% in 1990 to $387 million. Earnings improved on higher sales margins, all of which occurred in the first half. Margins declined significantly in the second half when increased crude oil costs could not be fully recovered in product prices in many countries due to competitive conditions or government price controls. Refined product sales increased 5% in 1990 to 777,000 b/d, mostly in Caltex operating areas.

Texaco's earnings from non-U.S. manufacturing, marketing, and distribution slipped slightly in 1990, falling $8 million to $374 million. Product sales outside the U.S. moved up 4.3% in 1990 to 1.392 million b/d.

CHEMICALS

The operating sector that saw the largest year to year decline in earnings in 1990 was chemical operations. All of the OGJ group companies that reported chemical sector earnings listed a decline in 1990, when increased feedstock costs and increased competition due to capacity expansions reduced margins.

Exxon's earnings from worldwide chemical operations were $518 million in 1990, down $564 million from the year before.

U.S. chemical income fell to $354 million from $682 million in 1989. Operations outside the U.S. showed profits of $164 million, compared with $400 million the year before.

Mobil's chemical operation earnings fell to $323 million, a drop of $235 million from 1989 earnings.

Shell's chemical products segment posted earnings of $333 million, down from the record high of $630 million in 1989. Shell said the drop was mainly because of lower selling prices and higher raw material costs across nearly all product lines, "reflecting the continued downturn in the chemical cycle."

Chevron's chemicals earnings fell to $34 million in 1990 from $342 million in 1989. The 1990 results reflect special charges of $169 million.

Worldwide petrochemical operations at Texaco posted earnings of $48 million, down from $268 million in 1989. The decline was all in U.S. profits, which fell to $24 million from $247 million the year before. Outside the U.S. earnings moved up $3 million to $24 million in 1990.

Amoco's chemicals segment booked earnings of $171 million in 1990, down from $481 million the year before. Phillips had net income from chemicals of $291 million in 1990, compared with $439 million in 1989.

Oxy posted a loss of $212 million from chemicals operation in 1990 vs. a profit of $1.056 billion in 1989. Included in 1990 results is an after tax charge of $848 million to provide for future environmental costs in remediation of past operating and disposal sites and the writedown of certain chemical plants.

CAPITAL SPENDING

Ten of the 12 companies that reported capital and exploration spending increased outlays in 1990.

Exxon's spending decline was because of the $3.9 billion spent in 1989 to purchase Texaco Canada. Excluding that transaction, Exxon's capital and exploration spending was up $409 million in 1990 at $8.322 billion.

Amerada Hess Corp. reduced outlays in 1990 by $368 million. This was due to a $702 million cut in spending to buy oil and gas reserves.

All of the other companies posted increases in spending that ranged from 2.5% for USX's oil and gas segment to 58.6% for Phillips.

Some companies plan to boost spending again in 1991.

Chevron, for example, projected 1991 capital and exploration spending at about $5.1 billion, up from $4.3 billion in 1990.

Shell plans 1991 spending at $3.3 billion, compared with 1990 outlays of $2.8 billion. About $2 billion is earmarked for exploration and development, $800 million for petroleum products, and $280 million for chemicals.

Copyright 1991 Oil & Gas Journal. All Rights Reserved.