OGJ NEWSLETTER

Talk of oil company profiteering seems to have evaporated now that most profits have plunged.

Companies posting losses or profit declines in the first half cite reduced crude and gas sales and lower gas prices in the U.S. and weaker refining, marketing, and chemical margins. The second quarter was especially depressed, as many companies reported lower profits despite an overall increase for the half.

Reporting lower earnings in the first half vs. a year ago were ARCO, down 39% to $597 million, Amoco (earnings from operations) down 13.6% to $730 million, Total North America $2.4 million loss vs. $900,000 profit, LL&E down 35% to $12.8 million, Phillips down 51.2% to $176 million, Sun down 55% to $84 million, Kerr-McGee down 30% to $40 million, Freeport McMoRan Resource Partners down 60% to $76 million, Grace Energy down 11% to $7.3 million, and Ashland (9 months) down 33% to $82 million. Texaco first half earnings were flat at $684 million.

There were notable exceptions to the trend, largely involving accounting changes, special charges, or the lead-in from an exceptional first quarter. Mobil first half earnings rose 29% to $1.155 billion despite flat second quarter profits. Exxon first half earnings jumped 41% to $3.3 billion, largely on the strength of a remarkable non-U.S. downstream performance in the first quarter. Elf cited strong downstream results in posting a gain to 5.2 billion francs vs. 4.9 billion francs a year ago. Amerada Hess logged a big turnaround, largely on the strength of a big take or pay settlement and a $54 million tax refund, posting a profit of $67.7 million vs. a loss of $72 million.

Producers not weighted too heavily toward gas tended to fare better. Citing higher oil prices offsetting lower gas prices and sales, Santa Fe Energy's first half net was $12.6 million vs. a year ago loss of $500,000, Key Production profits rose 20% to $1.8 million, and Noble was up 6% to $12 million.

Big gains from asset sales underpinned earnings growth for Oxy, Union Texas, and Oryx, up 44% to $283 million, 421% to $245 million, and 81% to $67 million, respectively.

Depressed gas and relatively strong oil prices helped Valero maintain a record pace in profits growth in the first half, with higher NGL margins and sales prices and the company's focus on refining high sulfur resid into premium products. Valero first half profits jumped 55% to $45.9 million.

Conoco also cited its ability to process heavy crude, coupled with the widening price differential between light, sweet crude and heavy, sour crude as sustaining continued strong refining margins worldwide and spurring a 52% jump in first half profits to $551 million

Canadian companies; profits were squeezed by depressed gas markets (see story, p. 40).

Canadian Oxy was down 43% to $48.9 million (Canadian). Shell Canada, posting a loss of $219 million after including discontinued operations, slashed its E&D budget by $75 million in expectation gas prices will continue to remain weak this year.

Du Pont plans to slash costs by at least $1 billion the next 1-2 years in a major restructuring. All businesses will be affected, but the focus will mainly be on support activities within its U.S. chemicals and specialties operations. The action could mean a $500 million charge to 1991 earnings. Chairman Edgar Woolard cites a similar restructuring in the Conoco unit in the 1980s that buoyed the oil company's competitive position.

Kuwait's oil exports have reentered the market, albeit modestly. Late last week Kuwait Petroleum Corp. was to load 2 million bbl of crude at a makeshift loading terminal at Mina al-Ahmadi's north pier, likely for shipment to Europe. Kuwait's oil ministry still insists exports will reach 400,000 b/d by yearend and all well fires will be out by March. Meantime, firefighters have doused 242 of Kuwait's well fires, say Kuwaiti officials, with a kill rate of about 2/day (OGJ, July 22, p. 112).

Chevron U.K. soon will begin one of the largest 3-D surveys seen in the North Sea.

It will shoot 540 sq km of 3-D over Kilda/Lapworth gas field, one of the biggest undeveloped ga /condensate fields in U.K. waters. It underlies Alba oil field, currently being developed by Chevron. The $5.7 million survey, by Halliburton Geophysical using the R/V Sea Star vessel, is to take 6 months. The first complete interpretation will take as much as a year, but interim results will help locate new appraisal wells on the structure and development well locations later.

Japan's Science and Technology Agency announced plans for the world's most advanced deepsea, core sampling survey vessel.

The 15,000 dwt drillship will be designed to take cores in water depths of 23,000 ft. The agency has budgeted $1.5 million for preliminary design work on the vessel, expected to cost almost $300 million. The ship could be operational before 2000 and will be available for joint international research projects.

Mobil Canada's scouting truly virgin territory with plans for a 30 day seismic program off western Newfoundland beginning Aug. 1. Western Sea Services of Panama's MV Western Inlet seismic vessel will handle the job.

Mobil last year acquired two parcels covering 1.19 million acres between Bonne Bay and Fort-au-Port in the Bay of Islands area. No wells have been drilled in the area, but Mobil contends onshore geology indicates potential for large prospects offshore. It will evaluate data the next year or so.

The Soviets are seeking Japanese participation in Yakut and Sakhalin E&D, Kyodo News Service reports. The 20 year Soviet Far East campaign calls for a 3.8 trillion yen investment, with a first phase calling for development of three oil and gas fields in Sakhalin and a second phase involving three gas fields with a combined resource of more than 1 tcf in Yakut, Kyodo reports. Also involved are a 3,200 km gas line from Sakhalin across Soviet territory and North Korea to Seoul by 1995 and a 3,600 km line from Yakut to Khabarovsk by 2000. Kyodo says the project would provide by 2005 about 812 bcf/year for the Soviets, 318 bcf/year to Japan and South Korea, and 70 bcf/year to North Korea. Soviets also are mulling a subsea line to Japan from South Korea to Kyushu and an LNG terminal at Sakhalin.

Meantime, the Kremlin is giving Soviet republics a freer hand in exporting products. Prime Minister Pavlov earlier this month approved a new rule allowing republics to license sale of oil, gold, and other items abroad without Kremlin permission.

Will Mexico's appetite for Texas gas bolster U.S. gas markets? Reuters reports Pemex officials as saying Mexico will continue to step up imports of gas from Texas, notably into Northeast Mexico. Those volumes have jumped to 200 MMcfd in June from 30 MMcfd in 1990. Pemex plans to import an extra 40 MMcfd to Cuidad Juarez and perhaps later another 225 MMcfd to fuel a big thermoelectric/desalination plant planned in Baja California.

Spurring growth are environmental concerns, low prices, and Texas supply access vs. domestic supplies in Mexico's south.

Iroquois Gas Transmission System denies reports construction of that major S. Northeast pipeline is at least behind schedule and a Nov. 1 start-up is threatened. Iroquois contends work is ahead of schedule on the St. Lawrence-Hudson portion and says contracts for Connecticut work, originally scheduled to be awarded in June, will be awarded in days to come.

Iroquois also denied delays were due to three work stoppages against project contractors, claiming two were initiated by Iroquois and one by the New York Department of Transportation.

AAPG says the U.S. government has significantly under-estimated potential oil reserves underlying the ANWR Coastal Plain.

Robert Gunn, a Fort Worth geologist and producer testifying before a House merchant marine committee hearing on ANWR, said AAPG's estimate of mean recoverable reserves of 7 billion bbl compares with BLM's 1.69 billion bbl and DOE's 3.45 billion bbl.