OGJ Newsletter

As global energy projects and mergers proliferate, company financials continued to show strength in the second quarter.

Among majors and large companies, Chevron reports the highest quarterly operating earnings in its history-$837 million, up 20% from the same period in 1996. Chevron's second quarter 1997 net income totaled $823 million vs. $872 million as a consequence of a $66 million charge arising from a performance stock option program for employees.

Shell Oil's second quarter net operating income was $531 million, up $70 million from 1996. After adjustments, net income was $476 million, up 7%.

Conoco had earnings of $246 million, up 39% compared with the same period in 1996, and Phillips's second quarter net income was $307 million vs. $221 million in 1996, before special items.

A sampling of second quarter profits follows, in millions of dollars, with 1997 results listed first and losses in parentheses: Pennzoil 35.6 vs. 24.8, Ashland 126 vs. 80, Coastal 79.3 vs. 66.1, Murphy 27.6 vs. 24.8, Citgo 72.7 vs. 31.2, Union Texas 25 vs. 31, Triton Energy (14.8) vs. 12.3, Belco 9.6 vs. 12.4 pro-forma, LL&E 6.2 vs. 17.2, Apache 25.7 vs. 24.4, Mesa (14.24) vs. 4.55, Cross Timbers 4.18 vs. 1.8, Wainoco 18.1 vs. 1.7, UMC 1.8 vs. 5.2, Mapco 10.7 vs. (21), NGC 32.1 vs. 13.8, and Williams Cos. 107.8 vs. 80.4.

Canadian companies also fared well.

A sampling of their second quarter 1997 vs. 1996 net income is shown in millions of Canadian dollars: PanCanadian 68 vs. 66; CanOxy 20 vs. 47, reflecting primarily higher depletion costs associated with the Wascana Energy acquisition and the inability to deduct them for tax purposes; Imperial Oil 183 vs. 115; TransCanada PipeLines 205.2 vs. 187.2; and Westcoast Energy 32 vs. 19.

The U.S. State Department says a government decision not to oppose construction of a planned natural gas pipeline linking Turkmenistan and Turkey-via Iran-does not signal a U.S. policy change toward Tehran, under U.S. economic sanctions for alleged support of terrorism (OGJ, May 5, 1997, p. 37).

Iran is pressing pipeline projects linking its supplies to markets in Turkey (OGJ, Apr. 7, 1997, p. 40) and Pakistan (OGJ, Feb. 24, 1997, Newsletter) as its gas output is expected to exceed 4 tcf in 2000 vs. about 2.83 tcf currently.

Among the numerous pipeline schemes envisioned for the Caspian area, an accord has been signed for a gas pipeline that would connect major fields in Turkmenistan with Pakistan (see story, p. 25).

Meanwhile, Kazakhstan is accusing Russia of holding up construction of the planned Caspian Pipeline Consortium (CPC) project (see related article, p. 20).

CPC officials are having to negotiate further with regional authorities in the Russian provinces of Kalmykia, Stavropol, and Krasnodar, along the planned route of the pipeline, on such issues as jobs, land, and infrastructure.

"All of the work may be considerably delayed because of the position of local Russian authorities and their intractable stand regarding the route," said Kairgeldy Kabyldin, vice-president of Kazakhneftprovod oil pipeline company.

Russia holds a 24% interest in CPC.

In another development, Russia's Rosneft is on the auction block, generating significant worldwide investment interest.

Officials say 51% of Rosneft will be sold in September, and as much as 97% may be sold ultimately.

And U.S. gasoline marketers are in an uproar over plans by Russia's giant Lukoil to team with four U.S. supermarket chains to sell gasoline in the U.S., raising fears of an all-out gasoline price war.

Lukoil's 50%-owned Nexus Fuels, Irving, Tex., says it plans to soon disclose deals giving Lukoil access to about 5,000 sites adjacent to Food Lion, Richfoods, Shaws Supermarkets, and Supervalu stores.

Gasoline will be branded under the stores' names, as well as Lukoil's.

In the U.S., refining margins have firmed somewhat but are expected to weaken through the summer as downward pressure mounts.

That is part of the Purvin & Gertz monthly crude oil and refining outlook for July. The consultant says U.S. petroleum demand in April showed a strong 3.5% gain, and it estimates growth in gasoline demand likely exceeded 2%.

Houston's Lyondell Petrochemical and Millennium Chemicals Inc., Cincinnati, have formed a joint venture to combine their olefins and polymers businesses.

A new venture company, to be operated as a partnership and based in Houston, will be owned 57% by Lyondell and 43% by Millennium. It will encompass 13 Gulf Coast and Midwest plants, producing ethylene, propylene, polyethylene, polypropylene, ethyl alcohol, and associated products.

The combined entity will have an ethylene capacity of 8.85 billion lb/year, indicating that it will be able to supply its own monomer requirements, according to Bonner & Moore Associates, Houston.

The consultant says the deal will also make the new entity the largest polyethylene producer in the U.S. and likely result in supply and distribution efficiencies, but resin buyers may see their supply options constrained somewhat.

The Senate appropriations committee has joined the House in proposing a sale of crude from the Strategic Petroleum Reserve in fiscal 1998-over strong objections by Energy Sec. Federico Pena.

The Senate bill would raise $207.5 million, and the House bill would glean $209 million. A conference committee will decide the final number.

Rep. Tom Bliley (R-Va.), House commerce committee chairman, says electricity decontrol would save the federal government $250 billion during the next decade, based on a study by the National Taxpayers' Union.

Bliley says retaining the current electricity regulatory mode would amount to "a monopoly tax" on the nation's economy.

But prospects are dimming for action in this congressional session.

FERC has approved the planned merger of Houston Industries, parent of Houston Lighting & Power, and NorAm Energy, Houston, a large, multistate gas distribution company (OGJ, Mar. 24, 1997, p. 27).

FERC says the new configuration "is unlikely to reduce competition in the wholesale generation market" within the Electric Reliability Council of Texas, adding it finds "no cause for concern regarding the effect of the merger on rates or regulation." Closing is expected Aug. 6.

In a deal valued at about $1 billion (Canadian), Gulf Canada Resources plans to acquire all of the outstanding shares of Calgary's Stampeder Exploration Ltd. The boards of both companies have approved the deal, which is subject to shareholder and regulatory approvals.

One Canadian natural gas pipeline strategy has been modified.

TransCanada PipeLines says its Nexus plan, which involved building a high-pressure line as part of a project to move gas to the U.S. and eastern Canada (OGJ, June 2, 1997, p. 41), isn't economic as a high-pressure scheme.

TransCanada has filed a revised application with the National Energy Board, opting for a low-pressure line in phase one of the project.

The company says the change will result in 20% lower capital costs-about $878 million (Canadian) vs. $1.1 billion-as well as lower tariffs.

Plans still call for a 456 MMcfd firm transportation capacity increase, slated for completion in November 1998.

The expansion would serve markets in the U.S. Midwest, Northeast, and eastern Canada.

Mobil wants to build a floating offshore liquefied natural gas plant to serve undeveloped Gorgon gas field on Australia's North West Shelf.

The plan calls for a 6-million metric ton/year complex-barge-mounted for stability-to be built for about $6 billion (Australian).

Salomon Bros. has successfully placed almost 34 million shares of Argentina's privatized YPF, that country's largest company, at a price of $29.25/share. Shares were distributed among institutional investors in the U.S. (70%), Europe (15%), and Argentina (15%).

The transaction, valued at $1 billion, is reported to be the largest such offering in Latin America by a single financial institution.

Proceeds will be used to cancel 100% of the balance of the debt incurred by YPF personnel to the Argentine government in connection with privatization.

Pdvsa has signed 17 agreements emanating from its third marginal and inactive fields round (OGJ, June 16, 1997, p. 27).

But the apparently successful bidding combine for the Mata area, PBE Trading and Productos Industriales Venezolanos, was disqualified for not meeting requirements, Pdvsa said.