Four more U.S. companies fix budgets for 1996 operations

Spending Budgets (46302 bytes)

Three more U.S. petroleum companies have stepped up spending plans for 1996.

A fourth has trimmed its budget.

Mobil Corp. laid out a total budget that exceeds $5 billion, while Union Texas Petroleum Holdings Inc., Houston, hiked its planned outlays to more than $200 million. Operating strictly downstream, Lyondell Petrochemical Co., also of Houston, advanced its spending plans to $225 million this year from $193 million in 1995, not counting acquisitions.

Meantime, Tesoro Petroleum Corp., San Antonio, plans 1996 capital outlays of about $51 million, down from $64 million in 1995.

Mobil said its spending this year will continue to focus outside the U.S., "where opportunities to find and develop resources are the greatest and product demand growth is the highest." Non-U.S. spending will account for about 75% of Mobil's total outlays, including investments in partially owned companies, up from about 65% in 1995.

Union Texas earmarked the biggest share of its 1996 budget-$152 million-for oil and gas development projects in the U.K. North Sea, Indonesia, and Pakistan, up from $102 million in 1995.

Petrochemical projects account for $79 million of Lyondell's budget, while $46 million is budgeted for projects at the company's affiliate, Lyondell-Citgo Refining Co. Ltd. (LCR).

In addition to the capital budget, Lyondell will provide about $100 million toward LCR's upgrade of its 265,000 b/cd Houston refinery.

Lyondell capital spending in 1995 totaled $168 million, excluding acquisition of the Alathon high density polyethylene business. Lyondell's portion of spending for the LCR upgrade project in 1995 was an additional $25 million.

Tesoro's exploration and production (E&P) segment accounts for almost $41 million, or 80%, of the 1996 budget compared with $53 million, or 84%, in 1995. Refining and marketing (R&M) spending is planned at about $9 million, the same as in 1995.

Among other companies, recent budget action involved increases by Texaco Inc. and Murphy Oil Corp. and a decrease by Diamond Shamrock Inc. (OGJ, Jan. 29, p. 39).

Mobil budget

Mobil expects its 1996 capital and exploration (capex) outlays to rise to $4.6 billion from the 1995 level of $4.3 billion. In addition, cash investment in equity companies will be about $600 million this year, up from $200 million in 1995.

The budget is flexible and can be changed if the business environment warrants changes or if "unusual opportunities" crop up during the year.

Mobil Chairman Lucio A. Noto said, "The program reflects a strategy to accept and manage more risk through a portfolio of megaprojects, nonrecourse financing, staged development, and joint ventures. The increased level of spending this year recognizes an excellent earnings performance and a strong balance sheet, while deploying funds from selling noncore assets to areas of growth."

For example, Mobil estimated its pretax proceeds from 1995 asset sales at $2 billion.

The capex budget for E&P is $2.8 billion for 1996, up $100 million from 1995. The program aims to step up the pace of development of existing resources, while upgrading the asset base through investments, trades, and acquisitions.

In the U.S., spending is expected to be $500 million, down $300 million from 1995. The lower spending is due to fewer opportunities in the U.S. and the purchase last year of interests in two deepwater Gulf of Mexico leases.

Outside the U.S., spending will increase $400 million to about $2.3 billion. The program reflects "significant expenditures" in Nigeria, Equatorial Guinea, Indonesia, Norway, and Hibernia oil field off eastern Canada.

Exploration spending is expected to account for $500 million of worldwide expenditures. That's up about $100 million from last year on the strength of greater focus on proved hydrocarbon basins with "substantial undiscovered potential" in areas such as Norway, Africa (including deepwater), Viet Nam, Kazakhstan, and off Canada's east coast.

In M&R, spending in 1996 will be $1.4 billion, up $100 million from 1995.

Mobil said its program "aggressively pursues profitable growth and new market entry opportunities" in the Pacific Rim, Latin America, and Africa. Mobil included funds to increase lubricant production and sales to make itself "the world's premier lubricant company."

U.S. M&R spending will be about $400 million, down $100 million from 1995. Increased spending in marketing will be more than offset by lower spending in refining required to meet environmental rules.

International M&R will claim about $1 billion, up $200 million from last year. Major projects include a catalytic cracking unit for the Altona, Australia, refinery, a lubricant manufacturing plant at the Jurong, Singapore, refinery, capacity additions at several overseas lubricant blending plants, and marketing opportunities in high growth areas around the world.

Mobil Chemical will spend $400 million, up $200 million from last year, as outlays accelerate on projects to double production of paraxylene using proprietary, low cost technology.

The $600 million in 1996 for cash investment in equity companies includes funds for a liquefied natural gas project in Qatar and large projects under consideration in Latin America, Middle East, Pacific Rim, and former Soviet Union countries.

Union Texas

A highlight in Union Texas' 1996 budget is participation in the U.K. North Sea's Britannia gas field development project, in which it holds a 9.42% unit interest. The largest undeveloped gas field in the U.K., Britannia is to go on stream in late 1998.

The company earmarked about $60 million for more development drilling and construction of the Britannia platform and facilities in 1996. During 1995, Union Texas' share of Britannia development costs was about $31 million.

Union Texas' total share of capital required to develop Britannia from 1994 through the end of 1998 is about $200 million.

Of the remaining $42 million Union Texas earmarked for development projects in the U.K. North Sea during 1996, about $16 million is allocated for development of the producing Alba oil field, which overlies a portion of Britannia. Union Texas acquired a 15.5% working interest in Alba last July.

Alba development plans for 1996 include drilling a number of extended-reach wells in the field's southern portion and debottlenecking on the Alba platform. During 1995, Union Texas spent about $4 million on Alba development projects.

The company allocated about $37 million for development projects in Indonesia, where Union Texas and partners supply natural gas to an Indonesian-owned LNG plant. During 1996, the venture plans more development drilling in its fields, including Nilam, Semberah, and Badak.

In 1995, Union Texas spent about $40 million on Indonesian development projects.

In Pakistan, development also is a focus for a venture operated by Union Texas. The company budgeted about $13 million for development projects there during 1996, which will include drilling more wells and installing compression equipment. During 1995, Union Texas spent about $6 million on development activities in Pakistan.

Union Texas also earmarked about $2 million in its 1996 budget to assess opportunities in liquefied petroleum gas and power generation projects in Pakistan.

As part of its 1996 capital plans, the company budgeted a total of about $21 million for exploration in the U.K. North Sea, Pakistan, and Indonesia. It also allocated $18 million for activities in Alaska, including the Western Colville area on the North Slope.

Union Texas also plans to participate in new exploration programs in Tunisia, Italy, Ireland, and Argentina.

Overall, the company plans to spend about $50 million for exploration during 1996. In 1995, Union Texas spent a total of about $63 million on worldwide exploration.

Union Texas allocated about $10 million for 1996 at its petrochemical operations in Louisiana, which will include a number of projects to increase production and enhance efficiency at its jointly owned ethylene plant. During 1995, Union Texas spent about $6 million on petrochemical capital projects.

Tesoro's plans

Tesoro's 1996 E&P budget calls for $36 million in U.S. programs and about $5 million in Bolivia, where the current drilling program includes two wildcats, one of which is drilling. E&P 1995 capital spending last year included $49 million for U.S. operations and $4 million in Bolivia.

Planned U.S. expenditures include $21 million, a 100% increase, for exploration, development, and acquisitions outside Bob West Eocene Wilcox gas field in South Texas.

Spending for Bob West development is planned at $15 million, down from about $39 million in 1995. Tesoro expects to substantially complete its development of the field this year.

Tesoro E&P Pres. Robert Oliver said, "Our drilling focus has definitely shifted away from development of this one field, which accounted for 80% of domestic E&P capital spending in 1995 but only 40% of planned 1996 expenditures.

"However, we plan to remain in the same general area of South Texas within the Wilcox trend."

About 15% of the R&M segment's $9 million 1996 capital budget is earmarked for installation of units that will allow the company to begin producing and selling asphalt in Alaska, where Tesoro hopes to capture a 20% market share by yearend. The rest of the planned spending is targeted mainly toward maintenance and upgrades of Tesoro's refinery and 7-Eleven convenience stores in Alaska, about the same as in 1995.

Lyondell

About 25% of Lyondell's 1996 petrochemical budget is for completion of three capacity increases on the U.S. Gulf Coast: about 7% in olefins at Channelview, 33% in polypropylene at LaPorte, and a near doubling of alkylation capacity at Channelview. Other major petrochemical projects include process control upgrades at several operating units.

As in previous years, most of the spending at LCR other than the upgrade project is for environmental, health, and safety projects. Lyondell expects to provide about half of the $46 million budgeted for LCR from cash flow, with the rest funded from a restricted cash reserve and from Citgo's reinvested earnings during 1996.

The refinery upgrade project, which will increase LCR's ability to process very heavy crude oil from Venezuela, is expected to start up in early 1997.

The cost estimate for the upgrade, previously $980 million, is undergoing further study.

Spending from project inception in 1993 to yearend 1995 was $602 million, including $458 million last year. Citgo contributions and external borrowing have provided most of the project funding to date.

Present funding is 50% borrowing and 25% each from Citgo and Lyondell.

This current funding plan will apply for a total upgrade cost of as much as $1 billion and results in a Lyondell share of about $100 million for 1996. If total spending on the upgrade tops $1 billion, Lyondell expects to fund half of the additional costs.

Copyright 1996 Oil & Gas Journal. All Rights Reserved.