Unocal, Marathon, ChevronTexaco earnings deflated by lower prices

Jan. 29, 2002
Fourth quarter revenues plunged for Unocal Corp., Marathon Oil Corp., and ChevronTexaco Corp., the companies reported Tuesday. The companies blamed the losses on sharply lower prices for oil and gas, compared with the last period of 2000.

By the OGJ Online Staff

HOUSTON, Jan. 29 -- Fourth quarter revenues plunged for Unocal Corp., Marathon Oil Corp., and ChevronTexaco Corp., the companies reported Tuesday.

Unocal had a net loss of $29 million, or 13¢/share for the period, compared with net income of $173 million or 70¢/share a year earlier.

Unocal said adjusted aftertax earnings (excluding special items) for 2002 would be $1.10-1.20/share. It said production would be up to 520,000 boe/d this year, down from the previous estimate of 535,000 boe/d, largely because of faster-than-expected declines from Muni field on Ship Shoal Block 295 in the Gulf of Mexico and reduced capital spending for short-term production projects.

Charles Williamson, Unocal chairman and CEO, said, "Given continued weakness in commodity prices, especially in New York Mercantile Exchange natural gas, and our imperative to maintain a strong balance sheet, we are reducing our expected capital spending by $100 to $150 million from the previously announced $1.7 billion plan (OGJ Online, Jan. 7, 2002). We are prepared to make additional cuts if the commodity price environment weakens further."

Williamson said Unocal would continue with high-value, long-term development projects and shift its Gulf of Mexico exploration focus to deeper, more subtle plays. It plans to drill 8-10 net deep shelf exploration wildcats in 2002.

Unocal said the capital cuts are mainly focused on development and exploitation activities in North America that would yield near-term production increases. "Given the current weakness in commodity prices, we will not aggressively invest in short-term production projects in areas such as the Gulf of Mexico."

The company said it expects adjusted aftertax earnings (excluding special items) of 10-15¢/share in the first quarter, assuming NYMEX prices of $19.35/bbl and $2.25/MMbtu.

In the first quarter 2002, the company expects net worldwide production to average between 490,000 and 500,000 boe/d.

Fourth quarter net income for Marathon, adjusted for special items and losses related to the separation of the United States Steel Corp., was $98 million or 32¢/share, compared to adjusted net income of $386 million, or $1.25/share, in the fourth quarter of 2000.

Pres. and CEO Clarence Cazalot Jr. said, "Marathon's 2001 record earnings of $1.485 billion were the result of maintaining our strategic focus on increasing production, improving downstream performance, and controlling expenses. While our full-year results were very strong, the fourth quarter was negatively impacted by lower crude oil and natural gas prices, as well as lower downstream margins resulting from decreased demand for refined products caused by the general downturn in the global economy and warmer than normal weather."

Marathon said its production will be 430,000 boe/d this year.

Cazalot said Marathon Ashland Petroleum LLC (MAP), of which Marathon holds 62%, had a strong year but its earnings also dropped in the fourth quarter.

Late in the year MAP brought on line a new delayed coking unit at the 232,000 b/d Garyville, La., refinery. MAP and its partners expect the Centennial pipeline project to be operational by the end of the first quarter. MAP also completed the acquisition of rights-of-way for its Cardinal pipeline.

Losses in the fourth quarter for ChevronTexaco were $2.522 billion, or $2.36/share, compared with earnings of $2.039 billion a year earlier.

It said excluding net charges for special and merger-related items, fourth quarter 2001 operating earnings were $498 million or 47¢/share, compared with $2.293 billion or $2.15/share in the 2000 quarter.

For the full year, ChevronTexaco reported net income of $3.288 billion or $3.08/share, vs. $7.727 billion or $7.21/share in 2000. Operating earnings were $6.810 billion in 2001, compared with $8.105 billion in 2000.

Chairman and CEO Dave O'Reilly said, "Our operating earnings in the fourth quarter suffered from weakened market fundamentals in all of our major business sectors. Our average US crude oil realization of $16.95/bbl in the 2001 quarter was down 39%. The average US natural gas realization was off 60% to $2.27/Mcf. Likewise, margins in our refining and marketing businesses declined sharply, reflecting reduced demand from a slowdown in the world economies."

Net charges for special items in the fourth quarter were $1.9 billion, of which $1.4 billion was for the impairment of upstream producing properties, resulting from a writedown of proved oil and gas reserves. They included $1.022 billion at Midway Sunset field in California due to lower-than-projected oil recovery from a steam injection process, and $247 million for LL-652 field in Venezuela, where slower-than-expected reservoir repressurization has cut projected oil recovery.

Charges for the merger of Chevron Corp. and Texaco Inc. reduced fourth quarter earnings by almost $1.2 billion.

The merged company added 1.2 billion boe of reserves during 2001, or about 120% of production.