MAJORS CITE SIGNS OF INDUSTRY REVIVAL

Major U.S. petroleum companies are highlighting key indicators that point to a gradually reviving industry.

At annual shareholders' meetings this month:

Chevron Corp. noted sharply higher earnings and an improved competitive position through aggressive cost cutting.
ARCO focused on its buoyant upstream operating performance, citing big strikes in Alaska and growth in non-U.S. sectors.
Phillips Petroleum Co. plans sharply higher upstream spending to capitalize on North Sea development and the Alaskan strikes it shares with ARCO.

CHEVRON COST CUTTING

Chevron Chairman Ken Derr said the company's initiatives in 1992 slashed costs by almost $570 million in 1992, which added more than $1/share in after tax earnings.

Before accounting changes, Chevron's earnings jumped 71% in 1992 from 1991, and operating income rose by 15%. With cost cutting continuing in 1993, Chevron's first quarter income increased 47% to $501 million from first quarter 1992.

Cutting costs also boosts cash flow to support capital spending, Derr said, noting Chevron's 1993 capital and exploration budget of about $4.9 billion is up 11% from last year.

Latest spending forecasts reflect the continuing shift in upstream operations to arenas outside the U.S. Vice Chairman J. Dennis Bonney told stockholders almost 75% of the company's upstream capital and exploration outlays will be outside the U.S., compared with a 50-50 split as recently as 1990.

U.S. E&P generated more than $1.1 billion in cash flow in 1992, Bonney said, citing dramatic success in trimming U.S. operating costs. The company has sold or traded about 2,800 high cost and nonstrategic oil and gas properties since 1986, including exchange of 266 fields in return for 15.75 million shares of Chevron stock Pennzoil Corp. held.

Vice Chairman Jim Sullivan also pointed to cost cutting measures and increasing globalization in company strategies for downstream operations.

"One of our top priorities is to take advantage of refining and marketing growth opportunities in the Far East, an area where economies are growing at a rate of 3-10%/year," he said.

Cost cutting steps under way in Chevron refining/marketing include:

A 90 cents/bbl reduction in operating expenses in the U.S.
Proposed divestiture of about 200 marketing outlets in Central America.
An 80 cents/bbl decline in costs by Chevron's Canadian refining/marketing unit.

ARCO UPSTREAM

ARCO Chairman Lodwrick Cook emphasized the importance of the company's recent Alaska discoveries--Kuvlum in the Beaufort Sea and Sunfish in Cook Inlet--to its spending plans (OGJ, Apr. 12, p. 20).

Its 5 year capital budget of $13.5 billion (OGJ, Apr. 26, p. 27) includes a "completely arbitrary" $1.2 billion for development of exploration successes in Alaska, Cook said. "If our hopes there are realized, this will prove to be inadequate, but only time and the drill bit will tell."

Retiring ARCO Pres. Robert Wycoff told shareholders of the company's changing focus as an international oil and gas producer, citing current non-U.S. production of about 120,000 b/d of oil equivalent (BOE).

"Our goal is to reach the 300,000 BOE/day mark by 2000," Wycoff said. "Over the next 5 years, our production emphasis will shift from oil to gas. Right now, gas represents less than 35% of our foreign production. But we will pass the 50% mark in 1994, and we'll be at 60% in 1997, when China's Yacheng field comes on stream."

Goal of ARCO's international exploration program is to increase proved and potential reserves to 1.5 billion BOE by 2000 with a targeted finding cost of less than $3/bbl.

"In 1992, we were on target with new proved and potential reserves totaling 160 million BOE at a finding cost of $1.55/bbl."

Wycoff also expects ARCO's key Alaskan fields to continue to be strong performers for many years.

"From our existing Alaskan fields, net cumulative production the next 5 years should exceed earlier expectations. Net liquids production is estimated at 422,000 b/d in 1993 and 360,000 b/d in 1997. Net liquid reserves stood at 1.8 billion bbl at yearend 1992, not far off our reserve estimates for Prudhoe Bay when we started up in 1977."

ARCO plans to participate in as many as 14 wildcats in Alaska this year-nine on the North Slope and four or five in the Cook Inlet area.

While the company expects a worldwide economic recovery by 1994, "It's certainly not yet obvious that 1993 is a year in which significant earnings growth will be realized by either us or the industry," Cook said.

Cook said ARCO's outlook for U.S. natural gas and crude oil prices remains close to what it has been the past several years.

"Despite the runup in natural gas prices in 1992, we haven't changed the view expressed here last year that domestic gas prices will continue to be volatile and capped by prices for residual fuel oil," he said. "As for crude oil, we continue to look long term for prices that are $21-22/bbl in 1992 dollars for West Texas intermediate and a little lower in the near term."

PHILLIPS' UPSTREAM SPENDING

Phillips plans to jump upstream spending in 1993 by about 30% to about $865 million, said Chairman C.J. Silas, noting the company's oil and gas operations are performing well.

Phillips Pres. W.W. Allen highlighted the Sunfish and Kuvlum projects in Alaska in his talk to shareholders. Phillips, with a 40% interest in Sunfish, is drilling the third well on the prospect it owns with ARCO. And the combine plans a second and third well this summer to delineate the Kuvlum discovery, where Phillips holds a 12.56% interest.

Allen noted Phillips is exploring in 17 countries and logged finding and development costs of $2.74/bbl in 1988-92.

Among key non-U.S. upstream projects in the near term, he cited development of Ann field and the J Block in the U.K. North Sea, Embla field in the Norwegian North Sea, the Nigerian condensate project, and development off China.

Downstream, plagued by low profit margins, Phillips is moving to improve efficiency and cut costs in refineries and chemical plants, Silas said.

Silas blasted the Clinton administration's proposed BTU tax as a discriminatory plan that could prove very costly to Phillips and consumers.

Although the tax will increase Phillips' utility costs, "That's nothing compared with the extra tax we'll pay for the products we make such as gasoline," Silas said. "That figure is estimated to be well over $1 million/day--or about $460 million/year."