OGJ Newsletter

U.S. Industry Scoreboard 1/30 (12670 bytes)

Earnings in 1994 were generally down slightly for a handful of U.S. majors and big independents reporting them last week.

In general, cost cutting measures and a strong showing in chemicals helped stem the profits slide caused by sagging oil prices early in the year and depressed natural gas prices late in the year. ARCO cited a $250 million after tax savings from cost cutting for its earnings improvement that came despite the contraseasonal price slumps. ARCO received an average price for its U.S. crude of $10.44/bbl in 1994 vs. $11.67/bbl in 1993, although its fourth quarter crude price topped the 1993 fourth quarter price by about $1.50/bbl. ARCO's average U. S. gas price was down about 170 for the year at $1.76/Mcf but fell 330 in the fourth quarter to $1.67 from the prior year period. Chevron's 1994 earnings also were buoyed by cost cutting measures that netted it another $150 million, coming on top of about $1 billion in savings in 1992-93.

Refining profits were hit especially hard in the fourth quarter, given the warm winter depressing demand and market disarray over the introduction of reformulated gasoline (RFG) in the U.S.

Most of Sun's earnings collapse came in the fourth quarter - down to $3 million from $64 million in the year ago period - and was largely the result of poor wholesale gasoline margins, an inability to fully recover higher costs of RFG during its roll-out, and lower margins for distillate fuels. Sun figures the opt-out of the RFG program by some counties in New York and Pennsylvania slashed its after tax income by $25 million last quarter.

Petrochemicals proved a major bright spot for earnings, with a strengthening global economy driving up demand and prices for many chemical commodities. Ashland reported record chemical earnings for its first fiscal 1995 quarter ended Dec. 31, 1994, while posting an overall earnings decline to $35 million from $50 million for the prior year period. Ashland logged a 67% jump in chemical earnings in the quarter to $47 million.

Year to year earnings, in millions of dollars, with 1994 listed first and losses in parentheses, were: Exxon 5,100 vs. 5,280, Amoco 1,789 vs. 1,820, Chevron 1,595 vs. 1,265, Mobil 1,079 vs. 2,084, Texaco 979 vs. 1,259, ARCO 919 vs. 269, Conoco 706 vs. 743, Shell 508 vs. 781, Phillips 484 vs. 243, Enron 453.4 vs. 386.5, Sun 101 vs. 196, Diamond Shamrock 75.8 vs. 18.4, Union Texas 67 vs. 27, Amerada Hess 8.7 vs. (133.6), and Oryx (10.53) vs. (1.08).

Despite the somewhat moribund results in 1994, some companies' optimism about 1995 is reflected in capital spending plans.

ARCO last week approved a 15% hike in capital spending to $1.9 billion this year from estimated outlays of $1.65 billion in 1994. Much of the spending focus will be on natural gas E&D in and outside the U.S. It will spend $1.2 billion for E&P, with $600 million earmarked for projects outside the U.S. vs. $445 million in 1994. Much of the non-U.S. focus will be on E&D in the South China Sea and North Sea. ARCO will jump outlays in the Lower 48 to $430 million from $375 million last year and in Alaska to $155 million from $150 million. Downstream, completion of refinery modifications to meet federal Clean Air Act rules and the near-completion of work to meet California air quality rules result in a drop in capital spending to $280 million in 1995 from $375 million in 1994.

Kerr-McGee plans 1995 capital spending flat with 1994s at $420 million. Its budget breaks out as $315 million for E&P-of which about $140 million will go for further development of Liuhua oil field in the South China Sea and projects in the Gulf of Mexico-$80 million for chemicals, and $25 million for coal.

Meantime, Exxon expects this year to exceed capital spending that totaled $8 billion in 1994, although it gave no details.

In a startling development, California's Santa Barbara County, for decades a symbol of opposition to offshore drilling, now is on record as supporting more oil and gas leasing in federal waters.

This comes on the heels of a recent ban on leasing in state waters that took effect Jan. 1. A newly installed county board of supervisors declared "cautious and tentative support" for more leasing in exchange for an expected trickle-down of royalty revenue - requiring legislation - from MMS and a "direct, defined role" in determining when and where oil and gas development will occur.

MMS Regional Manager Lisle Reed agreed to the idea of increased local input and promised no new areas would be leased in the 1997-2003 program. That way MMS can focus on pushing development of existing leases that have not seen a drill bit in more than a decade. There are 91 existing undeveloped leases, of which 64 are in the Santa Barbara Channel and Santa Maria basin, that are exempt from a current moratorium imposed by the Bush administration.

Supervisors insist on limited development from new leases and phased production from existing leases plus electrified platforms and pipeline transportation vs. tankers. Why the change of heart? Local jurisdictions have grumbled about not getting their fair share of oil revenue.

EPA plans in a month or two to toughen its rules governing Class II injection wells, used to dispose of produced fluids.

Involved are more stringent well standards, requirements that owner/operators of Class II wells identify and plug improperly abandoned wells near injection wells, and an increased frequency of well testing.

Canadian companies will drill 10,500 wells in 1995, predicts Nickle's Daily Oil Bulletin, Calgary, a drop from record levels in 1994 owing to soft natural gas prices. That compares with the Canadian Association of Oilwell Drilling Contractors' forecast of 10,900 wells. Industry set records for drilling, footage, and licensed drilling projects in 1994, Nickle's said. Companies drilled 11,870 oil and gas wells, 44.9 million ft of hole, and obtained licenses for 14,292 drilling projects. That tops previous records, set in 1985, of 11,750 wells, 42.9 million ft, and 13,425 licensed projects.

India's ONGC will choose by March among a short list of bidders for its $5 billion Bombay High further development project. Making the cut after the first evaluation of bids are Amoco, ARCO, Chevron, Oxy, and Total. Indian companies Reliance and Essar also are holding talks with the shortlisted companies for a possible tie-up on the megaproject. ONGC issued its tender in 1993, inviting bids from 30 multinationals, with 11 placing bids on the project to boost production and ultimate oil recovery from India's main producing complex.

Involved are workovers, EOR, and reservoir maintenance in Bombay High, which peaked at 404,000 b/d in 1989-90 and has been in decline since.

Dow Chemical could invest as much as $2.5 billion the next 10 years in formerly state owned chemical operations in eastern Germany.

Dow disclosed earlier this year it will sign early in the first quarter an agreement with German privatization agency Treuhandanstalt to acquire 80% of the Buna, Leuna, and Bohlen chemical complexes in the former East Germany (OGJ, Jan. 9, p. 23). Included are a steam cracker at Bohlen - fed by naphtha from the Leuna refinery and possibly later ethane from Russia's Gazprom - a polyethylene/PVC complex at Buna, and polyolefins operations at Leuna. A second cracker may be needed at Bohlen.

Look for weather to be the driver of oil prices this quarter, with crude prices unlikely to rise before the second quarter, when refiners begin to rebuild stocks after the winter. So says London's Centre for Global Energy Studies (CGES), which contends continued mild weather could take OPEC's basket crude price to less than $15/bbl. If temperatures revert to normal patterns, CGES expects the OPEC marker to stabilize closer to $16/bbl. Overall, the CGES outlook is gloomy, with Iraq's return to oil exports and a recovery of production in the former Soviet Union seen as long term dampers. On the upside, however, there remains the prospect of oil demand being higher than predicted or a supply disruption, the think tank says.

Iraq may be willing to settle for partial oil exports under U.N. supervision, diplomats say, if that brings Baghdad closer to removal of sanctions. Iraq in 1993 rejected the U.N.'s proposal to sell $1.6 billion to pay for humanitarian needs, citing violation of its sovereignty. While it still objects to the idea, the sanctions have resulted in acute shortages of food and medicine, and Baghdad reluctantly agreed to the Security Council's formal request to reconsider the proposal in hopes of securing more favorable terms.

The relentless rise in non-OPEC oil supplies will eat up as much as half of the expected strong growth in oil demand the next few years, making it harder for OPEC to accommodate a resumption of Iraqi oil exports.

So says Salomon Bros., which predicts world oil demand will rise by at least 1.5 million b/d each in 1995 and 1996. Although the Saudi led I year quota rollover OPEC endorsed at the November meeting in Bali otherwise will help bolster prices this year, the analyst fears the non-OPEC production juggernaut is likely to offset that trend. Accordingly, Salomon Bros. cut its forecast for WTI to $18.50/bbl and $19.25/bbl in 1995 and 1996, respectively, from $19.50 and $21.