OGJ300: SMALLER LIST, BIGGER FINANCIAL TOTALS
Robert J. Beck
Economics Editor
Joan Bonfield Biggs
Statistics Editor
Oil & Gas Journal's list of the largest, publicly traded oil and gas producing companies in the U.S. is both smaller and larger this year than it was in 1990.
It's smaller because it covers fewer companies. Industry consolidation has slashed the number of public companies.
As a result, the former OGJ400 has become the OGJ300, which includes the 30 largest limited partnerships.
But the assets-ranked list is larger because important financial totals--representing 1990 results--are significantly higher than those of a year ago, despite the lower number of companies.
Consolidation of the U.S. producing industry gained momentum throughout the 1980s. Unable to sustain profitability in a period of sluggish energy prices and, for many, rising costs, companies sought relief through mergers or liquidation of producing properties.
As this year's list shows, however, surviving companies have managed to grow.
Assets for the OGJ300 group totaled $499.3 billion in 1990--up 6.3% from the 1989 total of last year's OGJ 400. Stockholders' equity moved up 5.3% to $170.7 billion. Stockholders' equity was as high as $233.8 billion in 1983.
Total 1990 net income for this year's group was $23.2 billion in 1990, up 14.2% from last year's OGJ400 group, which reflected 1989 profits down 8.6% from the previous year. The recent low point in profits: 1986 at $5.2 billion.
Several other measures of group financial performance showed improvement in 1990 despite the smaller number of companies.
Capital and exploration spending moved up along with net income. Outlays in 1990 totaled $56.2 billion--up 14.3% from last year's OGJ400 outlays of 1989. Net wells drilled in the U.S. by this year's group gained 28.5% to 10,870.
Part of the increase in earnings resulted from an increase in total revenues. Group revenues in 1990 totaled $536.5 billion, an increase of 16.8% from last year's OGJ400 total for 1989. Sharply higher crude oil and petroleum product prices during the latter part of the year, due to the conflict in the Persian Gulf, were the main reason for the increased revenues.
1990 PRICES UP
Earnings from U.S. and worldwide exploration and production activities were up in 1990 for many of the companies, reflecting the sharp rise in crude oil prices. Increased natural gas production in the U.S. and worldwide also helped boost earnings in this segment. However, lower crude oil production in the U.S. offset some of the improvement.
The average wellhead price of crude oil in the U.S. moved up 26.3% in 1990 to $20.03/bbl. The average wellhead price of natural gas increased 1.8% to $1.72/Mcf. U.S. gas production rose 2.4% to 18.469 tcf. U.S. crude oil production was down 3.4% to 7.355 million b/d.
Earnings from downstream operations were squeezed in 1990, particularly later in the year, when refinery feedstock costs moved up faster than product prices.
This was especially true for U.S. operations. The U.S. refiner acquisition cost of crude oil moved up 23.7% in 1990 to an average $22.23/bbl. By comparison, the average pump price for all types of motor gasoline increased 14.8% to $1.217/gal. The average price of No. 2 distillate for home heating increased 18% to an average $1.062/gal for 1990.
Downstream earnings in the U.S. were also hurt by a 2% reduction in petroleum product demand to 16.988 million b/d. Petroleum product demand outside the U.S. moved up in 1990, increasing 200,000 b/d to 48.8 million b/d.
CAPITAL SPENDING
Capital and exploration spending has increased in line with an overall improvement in earnings the past 3 years.
During 1988-90, net income for the OGJ400 and OGJ300 groups averaged $21.9 billion/year. That compares with $9.4 billion in 1987 and the $5.2 billion of 1986.
When OGJ400 earnings jumped to $22.3 billion in 1988, capital and exploration spending increased 20.3% to $50.1 billion. The spending total dipped to $49.2 billion in 1989, when earnings slipped to $20.3 billion, before last year's strong recovery for the OGJ300 group.
OGJ400 group spending had been as high as $66.5 billion in 1983, when net income totaled $28 billion. Group capital outlays exceeded $65 billion/year throughout 1982-85.
U.S. drilling activity hasn't kept up with earnings growth since 1986. During that year, with its low OGJ400 group profits, group net wells drilled totaled 10,993.
Last year, when profits for the OGJ300 group totaled 329% more than for the OGJ400 group total in 1986, there were 123 fewer net U.S. wells drilled.
The U.S. average active rig count set record lows of 964 in 1986, 936 in 1987, and 869 in 1989.
Last year the rig count averaged 1,010.
PRICE VOLATILITY
Volatile crude oil prices and low gas prices are helping to suppress U.S. drilling. The average wellhead price of U.S. crude oil fell from $24.09/bbl in 1985 to $12.51/bbl in 1986, when key members of the Organization of Petroleum Exporting Countries flooded the market with oil.
Excess production capacity in OPEC helped keep prices low during the next several years. U.S. wellhead prices moved up to $15.40/bbl in 1987, fell to $12.58/bbl in 1988, and moved back up to $15.86/bbl in 1989. Last year conflict in the Persian Gulf boosted crude oil prices to an average of $20.03/bbl.
Natural gas prices have followed oil prices down. The U.S. average wellhead price for gas fell from $2.51/Mcf in 1985 to $1.67/Mcf in 1987. The price has moved up only marginally since then, to $1.69/Mcf in 1988 and 1989 and $1.72/Mcf in 1990.
Generally depressed crude oil prices also have restrained drilling outside the U.S. but not as much. The number of active drilling rigs outside the U.S. and Canada averaged 1,289 in 1985 and fell to 1,079 in 1986 following the price collapse. The average slipped to 981 in 1987, rebounded to 1,023 in 1988, and fell again to 922 in 1989 and 907 last year.
There was some optimism that drilling activity would improve again this year in the U.S. and elsewhere. The war in the Persian Gulf temporarily removed some of the excess worldwide crude oil production capacity from world markets. This was expected to help stabilize crude prices at levels higher than in recent years, renewing interest in exploration and production investments.
World crude oil prices dipped immediately following the conflict but have remained relatively stable since February. And prices have remained somewhat higher than in recent years. However drilling activity, particularly in the U.S., has not responded.
The U.S. rig count through the first 8 months of 1991 has averaged only 920 rigs, down from 963 rigs last year. The weakness in the U.S. has been attributed mainly to low natural gas prices.
Outside the U.S. and Canada, the count during the first 7 months of 1991 has averaged 900, down from 926 in the same period a year earlier.
There is still some optimism in the industry due to expectations of increasing demand for petroleum products and natural gas. Companies continue to reorganize and restructure, cutting costs and improving operating efficiencies, positioning themselves to take advantage of opportunities and turn them into profits.
How future investment money is spent depends upon whether the profits are seen coming from upstream or downstream operations.
FINANCIAL RESULTS
Of the 300 companies on this year's list, 208 reported profits for 1990.
With higher total net income, some of the indicators of financial performance showed improvement for the year.
Return on assets for the group moved up to 4.7% from 4.3% the year before. Return on assets had slumped to only 1% in 1986. The best year was 1982 at 5.7%.
Total return on revenue slipped to 4.3% in 1990 from 4.4% in 1989. The highest return on revenue posted for the group was 5.1% in 1988. The lowest return on revenue was 1.2% in 1986.
Return on stockholders' equity also moved up, increasing to 13.6% from 12.6% in 1989. The high for this measure of performance was 13.8% in 1982 and the low was 3% in 1986.
The OGJ400/300 group of companies has constantly been changing since the first report for fiscal 1982, so year to year comparisons are not for identical groups. However, the group does represent a large portion of the domestic oil and gas industry and therefore reflects changes and trends in industry activity and operating performance.
OPERATING PERFORMANCE
Worldwide liquids production of the OGJ300 fell 10.2% in 1990 to 3.092 billion bbl. Worldwide production fell 6% in 1989.
U.S. liquids production of the group fell 5.4% to 2.029 billion bbl. This is the fifth consecutive year that group worldwide and U.S. liquids production totals have fallen.
The group's gas production moved up in 1990. Worldwide production was up 0.7% to 14.1 tcf. U.S. gas output increased 2.8% to 10.6 tcf. Group worldwide production has been moving up since 1985.
Total liquids reserves fell. Worldwide reserves were down 8% to 31.9 billion bbl at yearend 1990. U.S. liquids reserves fell 2.4% to 21.9 billion bbl.
Worldwide natural gas reserves of the OGJ300 fell in 1990, while U.S. gas reserves moved up. Worldwide natural gas reserves totaled 165.1 tcf, down 0.6%. U.S. reserves moved up 3.6% to 113.8 tcf.
GROUP CHANGES
This year's OGJ300 group contains 26 companies that were not on last year's list.
There are 27 companies that are subsidiaries of non-U.S. energy companies or of companies operating in another industry.
The 30 limited partnerships on this year's list compares with 95 last year, 71 in 1989, and 63 in 1988. Under OGJ300 selection criteria, corporations are added to the list before partnerships.
Publicly held limited partnerships were first included in the OGJ400 in the 1988 report.
The number of limited partnerships may decline further in future years. Some investment firms that formed public oil and gas partnerships in recent years plan to consolidate assets into larger but fewer entities.
The largest limited partnership on the list, in terms of assets, is Mesa--No. 32 with assets of $2.2 billion. The smallest LP is Columbian Energy Co. LP, No. 220 with assets of $8.7 million.
The list has five royalty trusts, compared with six last year and seven the year before.
Mergers and consolidations and other changes in reserves ownership continued throughout 1990 (see table).
To be included in this year's OGJ300 list required assets of $71,000, down sharply from $455,000 last year. This is the lowest cutoff point since the OGJ400/300 was started.
Consolidations, acquisitions, mergers, and liquidations all contributed to the reduction in the number of companies and the lowering of the asset cutoff. Exclusion of some limited partnerships because of the priority for corporations in the selection criteria also contributed to the lowering of the asset requirements.
This cutoff asset number has fluctuated from a previous low of $149,000 in 1986 to a high of $2.366 million in 1983.
The asset value cutoff for the top 100 companies increased to $128.5 million this year from $94.7 million last year.
The number of companies posting net income exceeding $100 million in 1990 moved up to 30 from 28 in 1989 and 1988 and 21 in 1987. A total of 90 companies reported net losses for 1990, one reported neither income nor loss, and one didn't report earnings.
Five companies lost $100 million or more. Last year none of the companies lost more than $100 million.
One company on this year's list, Occidental Petroleum, posted a loss of $1.7 billion in 1990.
TOP 20
There is one new company in the top 20 this year. Oryx Energy moved up to No. 19 from 21 last year. Consolidated Natural Gas fell to No. 22 from 19.
Some companies changed positions within the top 20 this year; however, no other company in the top 20 moved more than one position up or down.
The 20 largest companies had total assets of $408.9 billion in 1990, compared with $390.3 billion a year ago.
This represents 81.9% of the total assets of the OGJ300. Last year's top 20 assets total was 83.1 % of the entire OGJ400 list.
This year's top 20 reported 1990 revenues of $483.8 billion, 90.2% of the OGJ300 total. Their net income was $20.7 billion, 89.2% of the total. And their stockholders' equity totaled $136.8 billion, 80.1% of the entire OGJ300.
Capital and exploration expenditures by the top 20 group in 1990 amounted to $43.1 billion, 76.7% of OGJ300 spending. The group drilled 6,475 net U.S. wells in 1990, 59.6% of all U,S. wells drilled by the OGJ300,
The top 20 accounted for 89.7% of the OGJ300's worldwide liquids production, 87.7% of U.S. liquids production, 74.4% of worldwide gas production, and 68.8% of U.S. gas production.
The 20 biggest firms held 91.1% of the OGJ300's worldwide liquids reserves and 90% of U.S. liquids reserves.
They also had 76.2% of the worldwide gas reserves and 70.7% of U.S. gas reserves.
OGJ300 SHARES
The OGJ300 group's total revenue of $536.5 billion in 1990 was 9.8% of U.S. gross national product (GNP). This compares with 8.8% of GNP the year before. The group's revenues were as much as 18.4% of GNP in 1983.
The OGJ300 companies also posted a substantial share of total U.S. oil and gas production and reserves in 1990. Their liquids production was 61.8% of the U.S. total, and natural gas production was 57.5% of the U.S. total. They had 64.5% of total U.S. liquids reserves and 68.5% of U.S. gas reserves.
On a worldwide basis, OGJ300 shares of reserves and production totals aren't as impressive because OPEC countries and national oil companies control so much outside the U.S. The group held 2.7% of worldwide liquids reserves and 3.9% of natural gas reserves. In 1990, the group's production shares were 13.1 %for worldwide liquids and 18.7% for worldwide natural gas.
In the future these percentages may move up. New production sharing opportunities for private companies have been developing in the U.S.S.R., East Europe, Latin America, and Africa. The need for investment capital is the major reason behind the changing terms and conditions in these areas. Some OPEC countries may also be moderating their former opposition to outside investment as they search for capital to finance production projects.
FAST GROWERS
Rankings on the list of the fastest growing companies are based on growth in stockholders' equity. Companies also must have positive net income for 1990 and 1989 and increases in net income in 1990. Subsidiary companies, newly public companies, and limited partnerships are not included.
Most of the companies posted substantial increases in net income in 1990. Fifteen of the 20 companies in the fastest growing list had increases of 100% or more.
Long term debt positions of companies on the fast-growth list were mixed. Twelve of the companies reduced long term debt, five increased long term debt, and three were unchanged with no long term debt.
Lomak Petroleum Inc. led the list this year. Its stockholders' equity moved up 518.1%, and net income increased 176.7% to $285,000 in 1990. The company ranked 204 in assets.
Five of the companies were on the fast-growth list last year. One company, Plains Petroleum, made the list for the fourth year in a row. Whiting Petroleum is on the list for the third consecutive year. American Exploration, Tide West Oil, and Nucorp were on the list for the second year in a row. Nucorp led the list last year.
Copyright 1990 Oil & Gas Journal. All Rights Reserved.