OGJ Newsletter

U.S. Industry Scoreboard 4/29 [71098 bytes]

U.S. petroleum company first quarter earnings are buoyant, led by an upstream surge. Upstream earnings for a group of majors Merrill Lynch tracks hit a 5 year high as a result of increased oil and gas prices and a boost in gas production, especially outside the U.S. Spot WTI averaged $19.75/bbl in the quarter, up $1.40 from a year ago, while spot gas rose almost 50%, or 75/Mcf, from last year. The Merrill Lynch group's upstream income for the quarter was up about 25% from a year ago. Overall earnings were estimated at 8% higher than a year ago. The analyst notes while first quarter refining/marketing earnings were up from a year ago, they continue to be lackluster. U.S. downstream earnings were exceptionally weak, while strength in Asian markets was offset somewhat by a margin squeeze among European refiners. Chemical earnings continued to slide in the first quarter but are probably poised for an upturn this year.

Merrill Lynch predicts overall 1996 earnings will be up slightly from 1995 as improving refining/marketing results more than offset a decline in chemical profits. For 1997 and beyond, the analyst says majors will be able to increase profits by at least 10%/year on the strength of improving industry conditions, reduced operating costs, and increased oil and gas production.

Some unusual windfalls accounted for big income jumps. Phillips' record profits were a staggering 525% jump from a year ago on the strength of a favorable tax ruling on sales on Alaskan LNG. Typical of integrated companies was Chevron, logging a 34% rise in profits. In addition to higher oil and gas prices, Chevron's output of liquids outside the U.S. rose 4% from fourth quarter 1995, its chemical earnings fell from a year ago because of softer demand and higher feedstock costs, and its U.S. R&M profits were a big improvement from last year's losses but still a very poor return on capital of about 1%.

Most independent producers have no downstream operations to drag down profits. Pogo's profits almost doubled year to year despite a decline in oil and gas production, as its average oil price climbed 12% and average gas price jumped 53%. MESA posted its first profit since 1989.

Also noteworthy is a continuing revival of long moribund financial results for contractors as day rates rise and utilization approaches capacity.

Reading & Bates reports 100% utilization for its fourth generation semi fleet, helping it log a $5 million jump in operating income from fourth quarter 1995.

Here are first quarter earnings, in millions of dollars, with the most recent quarter listed first and losses in parentheses: Exxon 1,885 vs. 1,660, Mobil 736 vs. 636, Amoco 728 vs. 523, Phillips 695 vs. 111, Chevron 616 vs. 459, Shell 483 vs. 340, ARCO 370 vs. 322 Occidental 134 vs. 178, Unocal 124 vs. 74, ARCO Chemical 106 vs. 126, PanEnergy 101.8 vs. 84.1, Coastal 82.5 vs. 57.6, Amerada Hess 66 vs. 25.2, Vastar 55.6 vs. 23.7, Union Texas 48 vs. 47, FINA 38 vs. 33.5, Lyondell 24 vs. 27, Murphy 24 vs. 9, Freeport-McMoRan 20.1 vs. 19.4, Pennzoil 15.8 vs. 2.7, Apache 15.7 vs. 4.1, Reading & Bates 13.5 vs. 0.4, Sonat Offshore Drilling 11.8 vs. 7.3, Diamond Shamrock 7.2 vs. 5.4, Pogo 6.3 vs. 3.4, Cabot Oil & Gas 5.3 vs. (3.9), MESA 1.1 vs. (7.9), Dual Drilling 1 vs. (6), Ashland (2) vs. (29), and Sun (5) vs. (94).

Other yardsticks measuring the health of the U.S. petroleum industry are generally good.

Last week's Central Gulf of Mexico lease sale drew a record 1,381 bids for 924 tracts. High bids totaled $520.9 million. In all, 78 companies submitted bids totaling $716,059,864. MMS offered 5,649 tracts totaling 30.3 million acres off Louisiana, Alabama, and Mississippi. The highest number of bids for a tract was 10 for South Marsh Island North Addition Block 261.

MMS Director Cynthia Quarterman said, "We are very pleased. This signals a new era for the Gulf of Mexico. If this sale sends any message at all, it is that both independents and majors will be playing significant roles in the future of the Gulf of Mexico. It also means the U.S. is in a better position to reverse the trend of declining production and create economic benefits for the gulf region and the rest of the country. Deepwater royalty relief also appears to be a factor in the success of this sale, with 442 bids on tracts in 400-800 m of water."

API reports U.S. oil and gas completions were down slightly in the first quarter. It estimates 5,278 oil and gas wells and dry holes were completed in the first quarter, down 2.4% from a year ago. Oil well completions fell 8.4% to 1,696, gas completions rose 2.4% to 2,388, and dry holes slipped 2.5% to 1,194.

Operators drilled 31,816,000 ft of hole, down 1.5% from a year ago. Exploratory well completions plunged 21.9%, while exploratory footage drilled declined 13%. Oil development wells were down 8%, while gas development wells increased 4.1% and development footage rose 0.6%.

AGA estimates U.S. additions to proved gas reserves in 1995 at 100-125% of production. It pegs reserve additions, including discoveries and revisions, at 18.3-23 tcf, with only 21% from revisions.

API reports total U.S. petroleum products supplied to market in the first quarter jumped 4% to 18,322,000 b/d, the biggest year to year gain in almost 2 years. U.S. crude production continued to slide, averaging 6,483,000 b/d, or 2.5% less than a year ago. Imports of crude and products increased 5% to 8,867,000 b/d.

Gasoline demand inched up 0.5% to 7,514,000 b/d, while bigger jumps were seen for kerojet 7% to 1,613,000 b/d, distillate 6% to 3,654,000 b/d, and resid 7.6% to 959,000 b/d. Refineries operated at 90.3% of capacity vs. 88.5% a year ago. At the end of March, crude and product stocks were 893,600,000 bbl, down 1.5% from February and 11.3% from a year ago.

NOVA says two new proposals for gas pipelines to U.S. markets would result in severe changes to Alberta's gas and petrochemical industries.

NOVA, which operates Alberta's intraprovincial pipeline and is a major petrochemical producer, criticized the two projects that would remove gas available for NOVA to transport and process. PanCanadian's Palliser pipeline and the NATS pipeline from Alberta to Chicago supported by a producers group each would move 1 bcfd of gas to export markets. NOVA CEO Ted Newell says if the projects proceed, the unit cost of moving gas on NOVA's system will be much higher for hundreds of Alberta producers, particularly if the gas is from northern Alberta.

Newell also contends the NATS will send NGL out of Canada and remove incentive for chemical companies to invest in Alberta. PanCanadian claims the Palliser line from north of Calgary to Empress, Alta., could move gas at about half the cost NOVA charges. NOVA uses a "postage stamp" toll policy that charges about 25 (Canadian)/Mcf to move gas over any distance in the province. Newell said the postage stamp tariff will not survive if it is undermined by a series of bypass pipelines. NOVA is considering alternatives to the NATS and Palliser projects but declines to give details. The Alberta Energy and Utilities Board is considering the postage stamp tariff policy and is to rule soon.

While new LNG export projects in the Middle East seem to be capturing so much industry attention, expansions of export capacity by the biggest current LNG exporters should not be overlooked. Bank of Taiwan will finance the $1 billion H train of Pertamina's Bontang LNG complex in East Kalimantan. The project is needed to fulfill Indonesia's LNG contracts to supply South Korea with 1 million metric tons/year and Taiwan 1.84 million tons/year in 2000-2020. Construction could begin early in 1997 and be complete in 36 months. A 2.6 million ton/year seventh train, G, is under construction and slated for start-up at yearend 1997.

Meanwhile, Petronas and partners have signed a $1.4 billion accord with Japan's Shizuoka Gas Co. for supply of 452,000 tons/year of Malaysian LNG for 20 years beginning in June from the new three train LNG Dua complex at Bintulu. Petronas also will supply LNG carriers for the venture.

Negotiations between Iraq and the U.N. over limited oil sales appear to be going nowhere, with both sides refusing to give way over which should distribute aid under U.N. Resolution 986. This impasse has caused oil prices to surge once more, with Brent for June reaching a recent year peak of $20.87 Apr. 24 before sliding back to close at $19.92/bbl. Dated Brent closed down 50 on the day at $20.42/bbl. A U.N. official said talks were meant to resume in New York at noon Apr. 24, after cancellation of a meeting the previous day.

U.N. Secretary General Boutros Boutros Ghali says some flexibility is necessary for the deal to go through, but the U.S. and U.K. maintain there is no room for maneuver under Resolution 986 terms. Tight crude oil supply/demand has been squeezing oil prices higher in recent weeks, despite the threat of Iraq's return to the markets (OGJ, Apr. 22, Newsletter).

Geoff Pyne, oil market analyst at UBS Ltd., London, said, "Traders have simply put the idea of imminent Iraqi oil exports in the back part of the cupboard again, and they have got back to business in what is still a tight market."

Have oil sanctions against another OPEC stalwart been narrowly avoided?

Britain and its 52 former colonies have decided to impose an embargo on sales of arms to Nigeria's government but stopped short of an oil embargo.

Ministers of Britain's Commonwealth excluded Nigeria from the group last November, following the execution of Ken Saro-Wiwa and eight other protesters against the government (OGJ, Nov. 20, 1995, p. 37). New Zealand's Foreign Minister Don McKinnon said, "We realized an oil embargo was totally impractical. We are trying to target members of the regime and not hurt 100 million Nigerians."