INTERNATIONAL, REFINING RESULTS LEAD U.S. FIRMS' 1ST QUARTER PROFITS RISE

First quarter profits jumped sharply for an OGJ sampling of U.S. oil and gas companies. Total profits of the companies sampled rose 37% in first quarter 1991 to $6.277 billion from $4.597 billion in first quarter 1990. Exxon Corp.'s profit accounted for almost $1 billion to the increase. Total revenues for the group increased 11%. Registering the strongest performance among oil company sectors were refining and non-U.S. operations. Upstream operations, notably in the U.S., suffered from

May 6, 1991

7 min read

First quarter profits jumped sharply for an OGJ sampling of U.S. oil and gas companies.

Total profits of the companies sampled rose 37% in first quarter 1991 to $6.277 billion from $4.597 billion in first quarter 1990.

Exxon Corp.'s profit accounted for almost $1 billion to the increase. Total revenues for the group increased 11%.

Registering the strongest performance among oil company sectors were refining and non-U.S. operations.

Upstream operations, notably in the U.S., suffered from flat or lagging oil and gas prices and production in the quarter.

Average crude prices were 1% higher in the 1991 first quarter vs. the year ago period, although the spread between lowest and highest crude prices among companies in the sampling was about double that in first quarter 1990. Crude production dipped about 2% year to year for the quarter.

Total natural gas production for the group was up 0.5% despite average gas prices almost 11% lower than 1990's first quarter.

Increased production, price hedging, and long term contracts were strategies used to stabilize income during a period of volatile oil prices.

DOWNSTREAM

Refining/marketing operations generally fared well in first quarter 1991, particularly those outside the U.S.

Falling crude prices and a cold winter in Europe led to higher refinery margins and increased demand outside the U.S.

"Falling crude oil prices coupled with the loss of industry refinery capacity in the Middle East caused petroleum product margins to be higher than usual, particularly in Europe and the Far East," Exxon Chairman L.G. Rawl said.

Higher worldwide refinery runs and petroleum product sales also contributed to earnings growth during the period. Exxon's earnings from non-U.S. refining and marketing operations were $1.097 billion for first quarter, up from $219 million first quarter last year.

Exxon's U.S. refining/marketing operations registered a net profit of $256 million in the first quarter compared with a $28 million loss in the first quarter last year.

U.S. refining margins also were high but demand was down because of economic recession and a warm winter.

Tough competition spurred by low inventories pared retail margins, but companies voiced optimism retail margins will improve as the summer driving season arrives.

Sun Co. earnings from U.S. refining/marketing climbed to $38 million in the first quarter from $25 million in the 1990 first quarter.

Commenting on the increase, Robert McClements Jr., Sun's chairman and chief executive officer, said, "Margins increased despite the fact we had to purchase gasoline due to an unusually high level of refinery turnarounds in our East Coast refineries. During the past 6 months, we have completed more turnarounds than in any other 6 month period in our history, and this caused a decline in our average utilization rate from 97% in the first quarter 1990 to 78% in the 1991 first quarter."

John R. Hall, Ashland Oil Inc.'s chairman and chief executive officer, noted refinery margins were higher in the quarter, reflecting low U.S. gasoline inventories, but Superamerica, Ashland's retail gasoline marketing subsidiary, recorded lower operating income due to intense competition.

"Refinery margins currently are favorable and, based on current supply and demand for gasoline, these margins should strengthen as we approach the driving season," Hall said.

Valero Energy Corp. noted its refining operating income increased mainly because of aggressive marketing that included preselling most of its refinery's first quarter production in expectation of a sharp drop in oil prices with the onset of hostilities in the Persian Gulf. This resulted in significantly better margins than last year's first quarter for the company.

On the petrochemical side, first quarter earnings were sluggish as volatile feedstock costs and weak demand owing to recession crimped margins.

Texaco Inc.'s petrochemical earnings climbed to $17 million in the first quarter 1991 from $16 million in last year's first quarter. Higher utilization of its light olefins unit in Port Arthur, Tex., contributed to improved U.S. earnings.

Texaco noted that margins for all petrochemical products in the U.S. and internationally continue to be weak.

PRICES

Mobil Corp.'s first quarter exploration and production earnings were virtually unchanged from the year ago period.

Mobil Chairman Allen E. Murray said, "In exploration and producing, the runup of world crude prices stemming from the Middle East crisis, which had benefited fourth quarter results, reversed in the first quarter. Worldwide crude prices declined to a level about equal to last year's first quarter and about $10/bbl below last quarter."

He also noted the first quarter 1991 drop of 17% in Mobil's U.S. natural gas prices vs. a year ago. However, a 10%, or 51,000 b/d of oil equivalent, increase in international gas production helped Mobil offset the U.S. price slide.

Murphy Oil Corp. noted its average U.S. natural gas price for the first quarter was lower than for any first quarter since 1979. Spot prices for Gulf of Mexico sales averaged $1.50/Mcf in February and $1.30/Mcf in March.

U.S. volumes were down 35% from last year due to withholding of discretionary volumes because of low prices.

Murphy Pres. Jack W. McNutt said, "Posted price for West Texas intermediate crude, which was $27.25/bbl at the beginning of the year, dropped significantly immediately following the bombing of Iraq, and then fluctuated between $16.75 and $21.75 for the remainder of the quarter. WTI posting closed the first quarter at $18.50."

Oryx Energy Co. increased earnings in first quarter by about 15% from last year's first quarter by exercising put options on 6 million bbl of crude production.

The move effectively raised its realized price by 58/bbl. Oryx bought average put options in October last year covering 12 million bbl of production in first half 1991 with a net realized price of about $23/bbl.

Without the put options, Oryx would have realized an average crude oil price of $22.15/bbl in the first quarter. Net income attributed to use of the options was $5 million in the first quarter.

Santa Fe Energy Resources Inc. received lower crude prices during the quarter, but its oil price hedging program boosted its average recognized price to $17.13/bbl for 1991's first quarter.

Key Production Co. Inc. realized a 7% higher average price of $20.09/bbl despite lower spot market oil prices by locking in a $25.30/bbl benchmark price for the equivalent of about one third of its production through August 1991.

PRODUCTION

Apache's natural gas production rose 10% and oil production increased 20%, due to property acquisitions made in second half 1990 and to new wells brought on line in the first quarter.

Oil made up about 20% of Apache's total equivalent production during the quarter but nearly 30% of total production revenues.

Freeport-McMoRan Inc.'s gas sales of 18.9 bcf during the first quarter were up from 15.9 bcf the same time last year.

The company attributes the increase to start of production from two offshore Gulf of Mexico properties.

Freeport-McMoRan noted natural gas sold under long term agreements continued to bring higher prices than the spot market.

ARCO recorded increased crude oil and natural gas production for first quarter 1991 but not enough to offset unseasonably low natural gas prices, lower average crude prices, and higher operating costs compared with 1990 first quarter.

Purchase of Midway-Sunset field properties in California and increased output in U.K. contributed to ARCO's production hike.

ARCO's Alaskan production was unchanged as increased output stemming from its hydraulic fracturing program at Prudhoe Bay and expanded gas handling systems offset natural field declines and Kuparuk field redetermination.

A decrease in ARCO's domestic volumes was attributed to natural field declines in the Gulf of Mexico, but that was partially offset by new coal seam gas production.

ARCO's non-U.S. gas production rose to 344 MMcfd in 1991 first quarter from 218 MMcfd in first quarter last year, owing to new production in the North Sea and stronger market demand.