A weak profits picture for petroleum companies in the first quarter has set the stage for a likely strong rebound in the second half.
A double whammy of lower year to year oil and gas prices and crimped refining margins in the second quarter squeezed first half profits for many integrated companies.
Mobil, citing a 17% drop in upstream earnings and a 10% slide in refining/marketing income in the second quarter, noted that while crude prices recovered from the 5 year lows seen earlier in the year, they still were down $2/bbl from second quarter 1993 - accompanied by a 40cts/Mcf drop in gas prices. At the same time, Mobil refining margins weakened worldwide, especially outside the U.S., when product prices failed to keep pace with a rapid runup in crude prices late in the half. The sagging dollar and special charges tied to restructuring/downsizing moves also helped undercut profits for U.S. companies. Earnings improved for chemicals, where a rebounding economy is bolstering sales volumes and margins.
Another round of cuts and efficiency improvements currently.under way, in tandem with projections of firming oil, gas, and products prices and continued strong sales volumes in response to a surging world economy, add up to a bright profits picture in the second half. Union Texas says its production cost fell to about $4/bbl of oil equivalent (BOE) in the first half from about $5/BOE in first half 1993 and looks for profits to rise in the second half courtesy of higher oil, LNG, and ethylene prices the rest of the year.
Here's a roundup of first half earnings, with 1994 listed first, amounts in millions of U.S. dollars, and losses in parentheses: Exxon 2,045 vs. 2,420, Mobil 733 vs. 1,069, Chevron 645 vs. 551, Conoco 416 vs. 410, Norsk Hydro 266.8 vs. 364.8, Texaco 230 vs. 587, Phillips 203 vs. 182, Marathon 182 vs. 29, ARCO 173 vs. 531, TransCanada 138 vs. 130, Ashland (9 months) 136 vs. 76, Kerr-McGee 129.3 vs. 126.4, Coastal 124.2 vs. 51.3, Panhandle Eastern 107.7 vs. 103.0, Unocal 104 vs. 99, Amerada Hess 66.9 vs. (112), Imperial 63 vs. 102, Tosco 53.3 vs. 36.9, Murphy 51.2 vs. 61.9, Diamond Shamrock 39.7 vs. 16.5, Sun 39 vs. 110, Union Texas 35 vs. 35, Suncor 33.4 vs. 16.7, Canadian Oxy 24 vs. 56.6, Pennzoil 22.6 vs. 51, Apache 19.6 vs. 23.1, Seagull 15.5 vs. 7.5, LL&E 6.8 vs. 8. 5, and Oxy (59) vs. 155.
U.S. producers and refiners have reason to cheer some recent developments in Washington, D.C.
U.S. Sen. David Boren (D-Okla.) and other members of Congress plan soon to establish a bicameral oil and gas caucus for legislators. Boren said nucleus of the caucus will be the 117 congressmen who recently drafted an oil industry relief bill. Energy Sec. Hazel O'Leary said last week, "It sounds to me like a good idea, an idea whose time has come.
Rep. Bill Bradley (D-N.J.) has filed a bill to phase out the 60/gal tax credit for ethanol fuels in 3 years. He said the tax break is "nothing more than a gift from the taxpayers" to ethanol producers. Chances of passage this session of Congress are not good.
Sen. Bennett Johnston (D-La.) plans to offer an amendment banning EPA from proceeding with a rule requiring use of ethanol in reformulated gasoline. President Clinton and some environmental groups have urged the Senate not to accept the amendment. API and NPRA recently filed suit to block the rule (OGJ, July 18, p. 29).
The U.S. refining industry is one of six EPA wants to participate in a program to revamp its system of regulations. EPA's Common Sense Initiative is designed to achieve greater environmental protection at less cost by creating pollution control and prevention strategies on an industry by industry basis rather than the current pollutant by pollutant approach.
Total wants tax rebates, reduced port fees, or other economic aid from the French government to mitigate cost of a $915 million deep conversion unit (DCU) for its Gonfreville refinery. A less expensive option would be to install a DCU at Total's Flessinger, Netherlands, refinery, which has a hydrocracker. Paris is keen on having the project at Gonfreville. A decision is needed this summer to meet European Union product specs by 2000. Technology options include a gasification unit with gas feeding a nearby cogeneration power plant or a hydrocracker installed in the refinery.
A drought is forcing some Japanese refiners, including Cosmo, Idemitsu, Japan Energy, and Showa Shell, to consider cutting operating rates and even shutting down desulfurization units. Water supplies are especially tight in western Japan's Shikoku area, where rainfall is 40% less than a year ago, and rationing has siphoned off water needed for cooling plant operations. Hardest hit are Cosmo's 140,000 b/d Sakaide refinery and Japan Energy's 190,000 b/d Mizushima refinery. Industry sources speculate some plants' runs could he cut as much as 20%.
Italy's new government is taking pot shots at state owned ENI, which continues its privatization effort. New Vice President Giuseppe Tatarella last month called for ENI Managing Director Franco Bernabe to resign and attacked what he called "the level of mediocrity" at ENI. That came after Bernabe named a new managing director of ENI subsidiary Italgas without consulting the new government. The Berlusconi administration wants to nominate its own managers at ENI, as it has done in other state companies, but first must outline its stance on privatization.
ENI, which has shut down or sold 57 subsidiaries and will shut
down another 43 by yearend, projects it will cut total debt of $18.645 billion in 1993 by $1.935 billion in 1994 and estimates 1994 profits at $6,15 million, up from $270 million in 1993 and a loss of $525 million in 1992.
Turkey is next up to join the petroleum privatization bandwagon.
Prime Minister Tansu Ciller said that after privatizing Turkey's telecommunications industry, Ankara will consider privatizing Turkey's refineries, state hydrocarbon agency, and a number of pipelines.
The first Russian association of producing regions has been formed, paving the way for Russia's proposed entry into OPEC.
The Russian Association of Oil & Gas Producing Territories (Raogpt) recently adopted a charter and named Russian Fuel and Energy Minister Yuri Shafranik association president. Apart from lobbying Moscow, Raogpt will seek to coordinate hydrocarbon production, processing, prices, and sales--in the process dropping domestic monopoly pricing in exchange for bigger state budget allocations. Raogpt plans to join OPEC first as an observer. The Ministry for Foreign Economic Relations approved Raogpt's formation as a means to replace its state foreign trade monopoly, which is overrun by chaotic and often contradictory rules that contributed to heavy losses by producers in 1993. The ministry will support independent trading associations and even endow them with some of its functions if it can monitor their activities.
China and Viet Nam are rattling sabers again over oil exploration in the South China Sea, and this time it could get ugly. China has deployed two warships to blockade a Vietnamese drilling rig working in the Tu China area in waters also claimed by Viet Nam. The warships turned back a supply boat, and Beijing issued a harshly worded warning that Hanoi immediately halt drilling on the block, which the Chinese call Wan'an Bei 21, awarded in 1992 to Denver independent Crestone. Hanoi earlier protested preliminary exploration by Crestone, and Beijing termed illegal Hanoi's award of the nearby Dragon block to a Mobil group. ARCO and Oxy also are working on Vietnamese blocks in waters claimed by China.
Meantime, Petrovietnam Chairman Ho Si Thoang late last week said foreign companies will disclose as many as five commercial discoveries off Viet Nam in the near term. That would include finds in June and July by a Mitsubishi group and Petronas. Ho cited more disclosures pending further drilling by BP, South Korea's Pedco, and Japan's AOC Energy.
Units of Bechtel and China International Trust & Investment Corp. (Citic) have formed a 50-50 venture to speed development of a $3-6 billion superport gateway into Central China. The master plan for Xinde Joint Development Co.'s deepwater port and container transport center on Daxie Island in Zhejiang province includes 40 berths for container ships and oil tankers of 200,000 dwt or more; petroleum and chemical processing, storage, and transshipment facilities; and industrial, manufacturing, commercial, and residential sites. About 85 miles south of Shanghai and 25 miles east of Ningbo, 12 sq mile Daxie Island is 2,000 ft off the Chinese mainland yet offers sheltered harbors and coastline water depths of 65-150 ft. Bechtel and Citic by second quarter 1995 expect to conclude first phase agreements with companies interested in developing facilities on the island.
Copyright 1994 Oil & Gas Journal. All Rights Reserved.
