OGJ NEWSLETTER
Higher natural gas prices in 1993 and the benefits of extensive cost cutting in 1992 have fueled a surge in first half petroleum company earnings vs. a year ago.
Here's a sampling of first half net earnings, in millions of dollars, with current period listed first and losses in parentheses: Amoco 716 vs. (1,118), Texaco 587 vs. 383, ARCO 531 vs. 97, Conoco (after tax operating income) 410 vs. 191, Statoil 260 vs. 246.5, Phillips 182 vs. (49), Imperial (Canadian $) 141 vs. 98, Sun 110 vs. (276), Anadarko 105.2 vs. (3.5), Unocal 99 vs. 106, Murphy 61.9 vs. 57.2, Kerr-McGee 58 vs. 45, Coastal 51.3 vs. 6.1, Questar 50.4 vs. 45.5, USX-Marathon Group 49 vs. (129), Shell Canada (Canadian S) 12 vs. (7), Diamond Shamrock Offshore Partners 11.8 vs. 7.1, LL&E 8.5 vs. (21.1), Noble Affiliates 8.5 vs. 26.6, Quaker State 7.8 vs. (59), Cabot Oil & Gas 5 vs. (0.4), Santa Fe 3.6 vs. (7), Howell 1.1 vs. (1), Oryx (3) vs. (44), and Maxus (3.7) vs. (41.9).
Depressed margins in petrochemicals and certain U.S. refining/marketing operations meant poor first half results for some companies.
Amerada Hess posted a loss of $112 million in the period vs. a $19 million loss a year ago stemming from writedowns related to price declines of crude and products in inventory. Lyondell cites depressed margins in petrochemicals and Gulf Coast refining for a loss of $19 million before accounting changes vs. a $4 million loss last year.
Marathon's recent decision to temporarily idle its 48,000 b/cd Indianapolis refinery was due in large part to the cost of meeting new Clean Air Act rules, says USX Corp. Chairman Charles Corry.
Marathon bought the plant before CAA amendments were passed, and under the spending level imposed by the legislation, the refinery "can't make it," said Corry. But Marathon has no plans to idle or shut down additional refining capacity in the U.S. When the Indianapolis plant will be brought back on stream "depends on market conditions." The company is basically through upgrading its plants to meet CAA specs, said Marathon's Jimmy Low. A new hydrotreater was being brought on stream at Marathon's Robinson, Ill., plant last week. Higher margins boosted Marathon's refining, marketing, and transportation operating income to $118 million in the second quarter, up $63 million from 1992. Retail and branded margins were very good in recent months, says Low, but almost half of Marathon's product sales are wholesale, where margins have been tighter.
The corporate surgery continues.
Union Carbide raised its cost cutting target to $575 million/year, in 1990 dollars, by yearend 1994. The company expects to reach its earlier target of $400 million by yearend 1993, a year ahead of schedule. Carbide posted first half income of $83 million vs. a $216 million loss last year.
Surges in gas drilling in the Midcontinent and Wyoming have fueled the biggest 1 week jump in Baker Hughes tally of U.S. active rigs in almost 3 years. For the week ended July 23, the count jumped 45 units to 765, up 11% from a year ago. That's the biggest 1 week increase since Nov. 26, 1990's boost of 72.
Look for more of the same: Salomon Bros. notes U.S. drilling permits rose 4.4% in June for the 29 states it monitors, on top of the 23% month to month surge in May. Permits were up in June by 13.9% from a year ago.
Here's another sign of a U.S. gas industry in transition: More gas moved in 1992 under firm transportation than under interruptible transportation, Ingaa reports, the first time that's happened since Ingaa began tracking contract carriage. Firm transportation was 45% of the gas delivered for market vs. 42% for interruptible.
Ingaa also notes a decline in seasonal variations in the use of carriage from an average 10% between peak and off peak seasons just 2 years ago to an average of 3% in 1992. That indicates pipeline customers now rely on firm open access transportation even during peak seasons.
U.S. Trade Representative Mickey Kantor predicts environmental and labor side agreements to the North American Free Trade Agreement will be completed in early August.
A key remaining problem is how much power should be given commissions that would resolve environmental and labor disputes between the U.S., Canada, and Mexico, that might arise under Nafta.
Summary findings of the U.K. government's Monopolies & Mergers Commission report on the future role of British Gas are to be published Aug. 17. MMC's year long inquiry ended with the submission of reports due July 30 to the Department of Trade & Industry and industry regulator Ofgas. Ofgas' recommendations to carve up BG's transmission system and curb tariff rises for third party pipelines users led to hitter disputes between Ofgas and British Gas last year (OGJ, Dec. 21, 1992, p. 36).
"British Gas welcomes signs that a long period of uncertainty is coming to an end," said Chief Executive Cedric Brown. "We sought this MMC investigation to provide a stable basis for the future of the gas industry in Britain and end piecemeal regulatory change."
More nations queue up to join the list of petroleum privatizers.
Taiwan's Vice Economics Minister Yang Shih-chien says the government hopes to enact its new oil industry law by 1996 (OGJ, July 12, Newsletter) to coincide with privatization of state owned Chinese Petroleum Corp. (CPC). The new law will allow private companies to import crude and operate refineries. Prior to privatizing CPC, Taiwan's government plans to split the company into separate units for import/export, refining, shipping, and petrochemicals. First up will be shipping and petrochemicals.
Ghana plans to privatize its 28,000 b/d Tema oil refinery east of Accra as part of a general divestment of state enterprises. Although extensively revamped in 1988, the refinery's output falls well short of Ghana's petroleum products demand, providing substantial scope for expansion.
Algeria continues to press efforts to export more NGL from its gas fields. Sonatrach let a contract valued at more than $170 million for work on the northern part of an NGL pipeline linking Alrar gas field along the Libyan border with giant Hassi R'Mel gas field (see map, OGJ, Oct. 26, 1992, p. 19) to France's Entrepose 70% and Sofregaz 30%. Work will include three pump stations, two telecommunications systems, automatic control/monitoring system, and a cathodic protection system. The 140,000 b/d system is to be complete in 3 years and will gather NGL from fields along its route, including Total's Hamra field development and gas processing plant project that's under construction and due on line next year.
Ukraine has one of its biggest gas strikes in recent years in Poltava province. A step-out in Mochekhovskoye field flowed 70.6 MMcfd. The field's discovery well flowed 63.5 MMcfd from a zone at 17,060 ft in mid-June.
Field reserves are pegged at 176.5 bcf. Ukraine recently stepped up gas exploration after Russia said it would hike the price of gas it exports to that country to world market levels. Ukraine hopes the expanded exploration will double its recent production of about 777 bcf/year.
Foreign investment in Russia's petroleum industry will continue to fall short of its needs "until changes are made in short sighted taxation policies and excessive oil export duties," warns the Russian Ministry of Fuel and Energy. Currently, a Russo-foreign joint oil venture may garner revenues of about $120/metric ton by selling crude but Moscow swallows $108.70/ton in taxes, the ministry says. More than 40 foreign petroleum JVs have been registered in Russia, with foreign investment pegged at $200-300 million and participation at 30-50%.
The currently dire straits and potential of Russia's petroleum industry are underscored by the latest estimates from the Siberian branch of Russia's Academy of Science. The academy sees government initiatives not helping the industry out of its slump before 1995, when western Siberian crude production is expected to plummet to 2.9 million b/d from 4.4 million b/d expected this year and 3.5 million b/d in 1994. Long term, however, the academy sees western Siberian oil output climbing to 5.5 million b/d in 2000 and 7.4 million b/d in 2010, assuming "dynamic" restructuring of the industry, domestic prices reaching world levels, and conversion of Russia's defense infrastructure to petroleum equipment manufacturing. One analyst sees a potential for 10 million b/d long term.
McDermott International has visited Russia's far eastern city of Komsomolsk-on-Amur to help develop technical and economic plans for converting a predominantly military shipyard to construction of commercial vessels and offshore petroleum production equipment, reports Russian news agency PAL Inform.
Much of the facility's output will be sold on foreign markets.
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