Robert J. Beck
Economics Editor
Valerie Sanders
Statistics Editor
Earnings for Oil & Gas Journal's group of 22 large U.S. oil companies jumped sharply last year, increasing 78.6% from 1992.
Profits totaled $16.2 billion in 1993, compared with $9.1 billion in 1992.
This is in sharp contrast to performance in 1992, when group net income fell 47%. That was due mainly to costs related to restructuring, staff reductions, and adoption of new accounting rules. The new rules moved forward some charges stemming from future retirement benefits and caused a substantial slide in 1992 profits for a number of companies.
The absence of similar charges last year was a major reason for the increase in earnings.
Profits were strongest during the first three quarters of the year. On prices were substantially lower during second half 1993 and slid significantly in the fourth quarter.
Performance in 1993 restored group profits to about the 1991 level, when they were $15.7 billion. Net income was as high as $30.2 billion in 1980. Profits plunged to $11 billion in 1987, then rebounded to recent highs of $21.5 billion in 1988 and 1990.
Sixteen companies in the OGJ group had higher earnings in 1993 than in 1992. Five companies had lower earnings, while two posted losses in 1993. However, the loss for USX Marathon Group was less than in 1992. Ten the companies posted losses in 1992.
Even though profits rose markedly, total revenues for the OGJ group fell 3.8% to $436.3 billion in 1993. Lower crude oil and petroleum product prices were the main culprits.
Sixteen companies posted lower revenues in 1993, while six had higher revenues. The sharpest decline was posted by Unocal Corp., down 17.1% at $8.3 billion. Pennzoil Co. booked the biggest percentage increase with revenues up 18.1% at $2.8 billion.
Exxon Corp. accounted for 25.5% of the group's 1993 revenues with $111.2 billion. Exxon revenues were down 5% from $117.1 billion in 1992.
EARNINGS BY SECTOR
Segment earnings were mixed because falling oil prices affected individual companies differently.
In general, refining and marketing earnings were up from 1992 levels. Lower feedstock costs, particularly in the fourth quarter, boosted margins and earnings.
Increased petroleum product demand helped, too, mainly in the U.S. and Far East. Refining earnings also got a boost from past restructuring and a resulting gain in operating efficiency.
But sluggish economic activity in Japan and several major industrial countries in western Europe weakened demand in those areas.
Exploration and production profits were mixed, closely related to oil and gas production volumes and prices.
Higher gas prices and volumes led to increased earnings from U.S. E&P for a number of companies. However, the profits improvement from gas was offset by lower crude oil volumes and prices.
Even though profits rose, the group cut capital and exploration spending from the 1992 level.
Investments tend to be influenced to a great extent by profits in the prior year. In addition, falling oil prices during second half 1993 made companies reluctant to commit funds to some projects.
Group capital and exploration spending was down 5.8% at $38.8 billion. By contrast, outlays averaged $42.2 billion/year during the preceding 5 years.
Of greater long term significance was the group's ability to stem the slide in oil and gas reserves. Liquids reserves inched up 1.7% to 32 billion bbl, while gas reserves were up 0.6% at 140.2 tcf.
However, this may have been only a temporary victory. Group liquids reserves in 1993 were still down 7.8% from 10 years earlier, and gas reserves were off 9.2% from 1983.
The 1993 improvement in reserves may have been partly due to increased drilling. The number of net wells drilled by the group increased to 5,043 from 4,478 in 1992. But this was down substantially from the 12,565 wells the group drilled in 1981.
OIL AND GAS PRICES
The average U.S. field price of crude oil fell to $14.23/bbl in 1993 from $15.99/bbl in 1992. It was the third straight year of declining U.S. prices.
The average price in 1993 was down 29% from 1990. The price jumped to an average $20.03/bbl in 1990, when jittery buyers responded to the Persian Gulf conflict.
There also was a drop in international crude prices in 1993. The average world price of export crude oil fell to $15.81/bbl from $17.95/bbl in 1992.
The average price of export crude shipped by of the Organization of Petroleum Exporting Countries fell 12.5% to $15.45/bbl. OPEC's reference basket of seven crudes fell $2.04/bbl to an average $16.69/bbl for 1993. The price of non OPEC export crude oil fell $2.07/bbl to an average $16.44/bbl for 1993.
The Energy Information Administration (EIA) reported the average U.S. refiner acquisition composite cost of crude oil in 1993 fell to $16.41/bbl from $18.43/bbl in 1992.
This savings was partially offset by lower product prices. The average U.S. refiner price for finished motor gasoline fell 7.7% to 62.5/gal, No. 2 fuel oil slipped 5.9% to 54.5/gal, kerosine jet fuel for commercial aviation fell 4.5% to 57.7/gal, and residual fuel oil dipped 4.2% to 29.4/gal.
Several companies reported their average crude oil sales prices.
For example, Exxon's average sales price for crude oil and NGL slipped to $15.12/bbl in 1993 from $17.05/bbl in 1992, while the average sales price for natural gas fell to $2.26/Mcf from $2.39/Mcf. Increases in gas prices in the U.S. and Canada were more than offset by gas prices declines elsewhere.
Mobil Corp. reported an average 1993 world crude sales price of $15.53/bbl, down from $17.63/bbl for 1992 and $18.19/bbl in 1991. Prices fell in all geographical divisions.
In the U.S., Mobil's average sales price in 1993 was $13.54/bbl compared with $15.73/bbl in 1992. In Europe, the price fell to $17.42/bbl from $19.87/bbl the year before'. In Canada, the price slipped to $14.83/bbl from $16.92/bbl in 1992. And in all other areas, the average sales price fell to $16.51/bbl from $18.37/bbl in 1992.
Phillips Petroleum Co. posted an average 1993 world crude oil sales price of $15.92/bbl, down from $18.01/bbl in 1992. The price in the U.S. slipped to $14.20/bbl from $16.16/bbl the year before. The non-U.S. price averaged $17.30/bbl in 1993 compared with $19.51/bbl in 1992.
Industry's average wellhead price for U.S. gas increased 14.4% in 1993 to $1.99/Mcf. This was the highest average wellhead gas price since 1985, when it was $2.51/Mcf.
For 1987 91 the price remained in a narrow range averaging $1.68/Mcf, with a low of $1.64/Mcf in 1991 and a high of $1.71/Mcf in 1990. Gas prices began to climb out of that range during second half 1992.
Chevron Corp. listed its U.S. natural gas price at an average $1.99/Mcf for 1993 compared with $1.70/Mcf in 1992 and $1.53/Mcf in 1991. For international operations, natural gas averaged $2.08/Mcf in 1993 compared with $2.07/Mcf in 1992 and $2.28/Mcf in 1991.
FINANCIAL INDICATORS
The group's major financial performance indicators advanced in 1993.
However, total assets slipped again. Asset values have been falling for the past 3 years due largely to restructuring and asset sales and reevaluation.
Combined assets for the group fell 1% last year to $385.4 billion, down from $389.3 billion in 1992, $399.3 billion in 1991, and $405.7 billion in 1990.
Other major financial indicators hit recent highs in the late 1970s and early 1980s. In the mid 1980s, profits slid with a decline in crude oil prices. Return on investment also dropped.
The group's return on total assets advanced to 3.9% in 1993. A 2% return in 1992 was the lowest in 15 years. Return on assets was as high as 9.3% in 1980. It later slipped to 2.9% in 1987 but jumped to 5.7% in 1988 before sliding during the next several years.
Return on stockholders equity also rebounded in 1993, increasing to 10.1% from a recent low of 5.3% in 1992. The return was 9.2% in 1991 and 12.2% in 1990. Return was as high as 21% in 1980 but fell to 5.6% in 1987 as industry profits plummeted.
Profits as a percentage of total revenues also increased in 1993, moving up to 3.5% from a recent low of 1.7% in 1992. The recent high was 6.1% in 1979. This indicator fell to 2.4% in 1987 as group profits shrank.
Funds from operations increased 14.3% in 1993 to $40.9 billion, and working capital moved up to a positive $27.1 million from a negative $2 billion in 1992 and a negative $4.8 billion in 1991.
EXPLORATION, PRODUCTION
Group net liquids production fell 2% in 1993 to 8.366 million b/d. This occurred even though the group's net wells drilled increased 12.6% to 5,043 from 1992. The production decline reflects falling U.S. output. Total U.S. crude oil production fell another 4.6% in 1993 to 6.842 million b/d.
The increase in wells drilled was due mainly to a focus on natural gas. Gas production for the group rose 0.7% in 1993 to 30.9 bcfd, consistent with increased U.S. gas demand.
Earnings results from U.S. exploration and production were mixed for the group. Lower crude oil prices and production put downward pressure on profits. But this was offset by increased gas prices and production. Individual company results depended on production mix.
Results from non U.S. operations also were mixed. Some of the companies had higher non U.S. liquids production, and that offset lower crude prices.
Mobil's upstream results benefited from increased production and higher U.S. natural gas prices.
Earnings from U.S. E&P increased to $363 million from $348 million in 1992 and $189 million a year earlier. Non U.S. earnings moved up to $1.289 billion from $1.042 billion in 1992. Net U.S. liquids production slipped 6,000 b/d to 305,000 b/d, while net international production increased 28,000 b/d to 533,000 b/d. U.S. net natural gas production slipped 6.8% to 1.529 bcfd. International production increased 4% to 3.081 bcfd.
Mobil's average U.S. oil sales price dropped to $13.43/bbl in 1993 from $15.73/bbl in 1992, while U.S. sales price for natural gas jumped to $2.22/Mcf from $1.86/Mcf in 1992. The average international sales price for crude oil slipped 11% to $16.99/bbl, and international gas sales price fell 4.4% to $2.62/Mcf.
Exxon's upstream earnings improved in the U.S. but fell elsewhere.
U.S. E&P earnings increased $171 million to $934 million, while non-U.S. earnings fell $233 million to $2.378 billion.
U.S. earnings were up due to an advance in natural gas prices, an increase in U.S. gas production and lower operating expenses. The average sales price for U.S. natural gas was up 14.7% at $2.11/Mcf, but the average sales price for U.S. crude oil slipped to $13.19/bbl in 1993 from $14.59/bbl.
Earnings outside the U.S. were pulled down by lower oil and gas prices.
The average sales price of natural gas in Europe fell to $2.49/Mcf in 1993 from $2.86/Mcf in 1992, and crude oil price dropped to $16.68[bbl from $19.22/bbl.
Exxon's U.S. crude production slipped 6.4% to 553,000 b/d. Crude production outside of the U.S. remained at 1.114 million b/d. U.S. natural gas production increased 9.8% to 1.764 bcfd, while production outside the U.S. was flat at 4.061 bcfd.
Amoco Corp. posted higher earnings from both U.S. and non U.S. E&P. U.S. net income advanced to $811 million in 1993 from $778 million in 1992. Non U.S. earnings increased to $184 million from $93 million.
The U.S. improvement was due mainly to higher natural gas prices and volumes, coupled with lower exploration costs. Average natural gas price increased 13.9% to $1.88/Mcf.
Amoco earnings outside the U.S. were all from Canada, where results shifted to a $338 million profit from an $81 million loss in 1992. The improvement stemmed from a combination of asset sales in 1993 and restructuring charges in 1992. Excluding special charges, earnings in Canada were down $7 million from 1993. Lower crude oil prices more than offset higher natural gas prices and volume.
Amoco's E&P operations in Europe posted a loss of $100 million in 1993 and a loss of $103 million in 1992. Crude oil and natural gas prices and production were lower in 1993.
E&P operations in all other areas showed a loss of $54 million in 1993 compared with a profit of $277 million in 1992. The loss last year was due in part to a $170 million writedown of assets in Congo.
Texaco Inc's E&P earnings fell worldwide. U.S. operating earnings fell 6.1% to $510 million in 1993, while international earnings were down 22.6% at $322 million.
The U.S. decline reflected reduced crude oil prices and production and lower gas flow. This was partially offset by higher natural gas prices and decreased operating costs. Net production of U.S. crude oil and NGL fell 9,000 b/d to 423,000 b/d. Natural gas production slipped 3% to 1.729 bcfd.
Lower international earnings were due to lower crude oil prices. Net. production outside the U.S. increased 1,000 b/d to 305,000 b/d. Net production of natural gas rose 11.7% to 238 MMcfd.
Phillips' E&P earnings slipped to $341 million in 1993 from $352 million in 1993. The boost from higher natural gas prices in the U.S. was more than offset by lower worldwide crude oil prices. The average worldwide sales price of crude slipped to $15.92/bbl in 1993 from $18.01/bbl in 1992. Average U.S. sales price for natural gas increased to $1.99/Mcf from $1.67/Mcf.
REFINING, MARKETING
Group profits from refining and marketing in 1993 reflected changing prices and demand for crude oil and products. Worldwide crude runs to stills rose 1.2% to an average 15.6 million b/d in 1993, while refined product sales increased 1.5% to 21.1 million b/d.
The American Petroleum Institute said industry's U.S. refining runs increased 1.5% in 1993 to 13.6 million b/d, a 1.5% gain over 1992. U.S. refinery utilization rate rose to 91.5%.
Meantime, EIA reported total U.S. petroleum product demand inched up 0.9% in 1993 to 17.193 million b/d. Use of motor gasoline, one of the most profitable products, increased 3% to 7.48 million b/d.
Wright Killen estimates U.S. Gulf Coast refining cash operating margins averaged $1.39[bbl in 1993, up from 93/bbl in 1992.
Worldwide earnings from refining and marketing rose significantly for a number of the OGJ group.
Exxon's total R&M earnings rose in 1993, increasing 28% to $2.015 billion on the strength of higher product margins and reduced operating costs. U.S. earnings jumped 196% to $465 million, while non U.S. R&M earnings increased 10% to $1.55 billion. The increase occurred despite a 1% drop in refinery throughput and only a 0.3% increase in product sales.
R&M earnings at Mobil soared 283% in 1993 to $705 million. U.S. operations posted profits of $151 million following a loss of $145 million the year before. Outside the U.S., operations showed a profit of $554 million, up 68.4% from 1992.
Mobil's worldwide refinery runs rose 5.6% to 2.1 million b/d, while worldwide petroleum product sales increased 6.9% to 2.934 million b/d. The average price received for U.S. petroleum products slipped to 61.5/gal in 1993 from 65.6 in 1992.
Amoco's earnings from R&M moved up to $826 million in 1993 from $462 million in 1992. This was the second best year for this Amoco segment. Its total refined product sales increased 3.7% to 1.312 million b/d, input to U.S. crude units increased 2.4% to 958,000 b/d, and refinery utilization rate increased to 96.9% from 95.3% in 1992.
Amoco's average U.S. selling price for refined petroleum products slipped 3.4/gal to 57.5, while the average cost of crude input fell 5/gal to 39.6.
By contrast, Chevron's results from U.S. R&M dropped in 1993, due mainly to restructuring charges. U.S. R&M posted a loss of $170 million compared to a 1992 profit of $297 million. This was offset in part by an increase in international R&M earnings.
CHEMICALS
Earnings from chemical operations improved for a number of companies, but several in the group listed lower profits for 1993. Industry overcapacity, coupled with weak worldwide economics, reined prices.
Chevron reported 1993 chemical earnings of $143 million, up from $89 million in 1992. But in both years most of the earnings were from special items, mainly asset sales, of $112 million in 1993 and $53 million in 1992. Excluding special items, results reflected the continuing depressed state of the petrochemical industry, especially olefins.
Exxon's world earnings from chemicals fell 8.9% to $411 million in 1993. Margins were lower on average than in the previous year. This was partially offset by lower operating expenses.
Mobil posted chemical earnings of $44 million in 1993, down from $136 million in 1992 and $217 million the year before.
Amoco posted a $249 million profit from chemicals compared to a loss of $94 million in 1992. The loss was due to charges of $265 million related to anticipated losses on dispositions, workforce reductions, and restructuring.
Phillips booked chemical earnings of $75 million in 1993, up from $41 million in 1992. The increase was mainly due to the sale of fibers operations and improved ethylene margins. This was partly offset by low polyethylene margins and a writedown stemming from a decision to withdraw from the catalyst business.
CAPITAL SPENDING
The group's capital and exploration spending as a percentage of net income fell to 239.4% in 1993 from a record high of 453.9% in 1992.
Spending in 1993 was the group's second consecutive cut in capital and exploration outlays. Spending hit a high of $66.9 billion in 1981. Outlays then plummeted to $30.8 billion in 1987. During 1988 92, group capital spending was more than $40 billion in each year, averaging $42.2 billion.
Last year 13 companies on the OGJ fist trimmed spending, while nine logged increases. Seven out of the 10 largest companies, ranked by assets, reduced spending in 1993,
Exxon remained the big spender with outlays of $8.2 billion, down 6.7% from 1992. Spending in the U.S. totaled $2.4 billion, or 29.2% of the company's total. Spending on E&P fell 12% to $4.5 billion for 1993. R&M outlays were down 8% at $6.8 billion.
Among the 10 largest companies in the OGJ group, Mobil had the sharpest decline in capital spending, reducing outlay's 18.2% in 1993 to $3.7 billion. U.S. spending in 1993 was $1.3 billion, or 36.4% of the total.
Mobil's biggest drop was in R&M outlays, which were down 36.1% to $1.3 billion. U.S. R&M outlays were reduced 43% to $575 million. Worldwide E&P spending fell only 3.2% to $2 billion.
ARCO's spending slipped 9.1% in 1993 to $2.1 billion. The reduction was mainly in chemical and coal operations. Spending on coal was down $214 million, and chemical outlays were off $114 million. Spending on oil and gas resources moved up $134 million to $1.4 billion. R&M outlays rose $30 million to $345 million.
Texaco also cut spending in 1993 - down 3.7% at $2.9 billion. U.S. spending was off 6.1% at $1.3 billion. Spending outside the U.S. was down a marginal $25 million at $1.56 billion.
Amoco boosted spending 11.7% to $3.3 billion. E&P spending was up $498 million at $1.59 billion. However, R&M outlays were down $121 million at $685 million. U.S. spending was 57.6% of its total.
THE OUTLOOK
It is difficult to predict the group's profit performance for 1994. So far this year average crude oil prices are down significantly from the level a year earlier. And natural gas prices have been trailing year ago levels. This is offset by an increase in world demand for petroleum products and natural gas.
The price of world export crude oil averaged $13.49/bbl for the first 4 months of this year, down 20.8% from the same period last year.
For the first 5 months of the year the U.S. natural gas price on the futures market was $2.15/MMBTU, up 8.6% from the same period a year earlier. However, during April and May the price averaged $2.03/MMBTU, down 9.8% from that period in 1993.
Recent worldwide and U.S. forecasts look for increased demand for petroleum products and natural gas in 1994.
The International Energy Agency forecasts world demand for petroleum products will increase 800,000 b/d to an average 68 million b/d this year. Excluding the C.I.S., where demand is expected to fall another 700,000 b/d, demand will be up 1.5 million b/d, an increase of 2.4%.
For industrial countries in the Organization for Economic Cooperation and Development (OECD), demand is expected to increase 600,000 b/d to 39.7 million b/d.
IEA also predicts that crude oil and NGL production outside of OPEC, C.I.S., and China will increase 1 million b/d to 29.3 million b/d in 1994. Part of the increase will help offset an expected 900,000 b/d drop in C.I.S. production.
OPEC liquids production will rise to meet increased demand. OPEC output is expected to be up about 400,000 b/d at 27.3 million b/d.
However, because OPEC is a swing producer, its level of production will depend in part on the extent of stock additions and withdrawals.
EIA predicts 1994 U.S. petroleum demand of 17.66 million b/d, which would be up 2.7% from last year.
The agency also forecasts a 1.5% increase in U.S. natural gas consumption in 1994 to 20.56 tcf. U.S. dry gas production is expected to climb marginally, with much of the increase in supply coming from imports. This forecast is based on an economic growth rate of 3% in 1994 and lower crude oil prices.
IEA also predicts that world demand for natural gas will rise 1.8%/year during the 1990s. The rate of growth will be higher in Europe and the developing areas than in North America.
Copyright 1994 Oil & Gas Journal. All Rights Reserved.
