OGJ INDEPENDENTS GROUP EARNINGS PLUMMET

Oct. 22, 1990
Generally weak oil and gas prices contributed to depressed earnings of U.S. independent producers in first half 1990. Flat or lower prices were the main factor in 6 months' earnings dropping about 67% from the year before for a group of 50 independents Oil & Gas Journal tracks. Although the average prices for oil and gas for the whole group were up slightly from a year ago, many companies did not report prices for the half. Several cited a sizable drop in oil and gas prices in the second

Generally weak oil and gas prices contributed to depressed earnings of U.S. independent producers in first half 1990.

Flat or lower prices were the main factor in 6 months' earnings dropping about 67% from the year before for a group of 50 independents Oil & Gas Journal tracks.

Although the average prices for oil and gas for the whole group were up slightly from a year ago, many companies did not report prices for the half. Several cited a sizable drop in oil and gas prices in the second quarter vs. the previous year.

Companies that performed well in the period generally had substantial increases in oil or gas production to offset the depressed prices.

WRITEDOWNS, DEPRESSED PRICES

Big writedowns by a handful of midsized to large companies were the biggest factor in the OGJ independents group earnings slide.

Pacific Enterprises Oil Co., Los Angeles, took a second quarter charge of $175 million on its oil and gas properties to reflect low oil and gas prices in effect June 30. Before the writedown, PEOC had earnings of $29 million in the first half vs. $32 million in first half 1989.

Depressed gas prices and lower production plunged the earnings performance of Mesa Limited Partnership, Dallas, from a small net profit in first half 1989 to an almost $70 million loss in first half 1990. Mesa's second quarter 1990 average gas price of $1.39/Mcf was its lowest for that quarter in 11 years.

Revenues of Oryx Energy Co., Dallas, jumped 38.9% in a comparison of the two halves, despite the relatively flat oil and gas prices the company received. Largely because of added production from non-U.S. properties acquired from British Petroleum Co. plc, Oryx's liquids production soared 53.4% in first half 1990 from a year ago. Oryx cited weak oil prices in the second quarter in posting a second quarter loss of $3 million vs. $17 million in second quarter 1989. However, Oryx received a net benefit of $85 million in first half 1989 for changes in accounting principles. Excluding those changes, Oryx earnings from operations would have been up $3 million, or 10%, in first half 1990 from a year ago.

Maxus Energy Corp., Dallas, said its average world oil price fell to $15.70/bbl in the second quarter from $17.65/bbl the year before. In the same period, its average U.S. gas price fell to $1.58/Mcf vs. $1.67/Mcf last year.

EARNINGS IMPROVEMENT

Earnings increases among some of the companies in the group often resulted from unusual items instead of improved market fundamentals.

Meridian Oil Inc.'s jump in operating income reflected increased sales and an $11 million rise in gas contract take or pay recoveries.

Helmerich & Payne Inc., Tulsa, got a 6 months' earnings boost from a large settlement of natural gas contract litigation and earnings from the unsolicited exchange of equity securities associated with a cut in debt.

Ocean Drilling & Exploration Co.'s impressive turnaround included an after tax gain of $28.4 million on the sale of its diving business.

CHANGES

Mergers, acquisitions, and restructuring again changed the face of the OGJ group of independents.

Leaving the group are Transco Energy Co., Dyco Petroleum Co., Hershey Oil Corp., and Energy Development Partners Ltd. (EDP). Replacing them are DeKalb Energy Co., Denver, Geodyne Resources Inc., Tulsa, Mission Resources LP, Walnut Creek, Calif., and Wiser Oil Co., Sistersville, W. Va.

Transco is in the process of pulling out of U.S. upstream oil and gas operations (OGJ, May 29, 1989, p. 34). Dyco's parent Diversified Energies Inc. is in the midst of a merger with Arkla Inc. (OGJ, Aug. 6, p. 34). Hershey is being acquired by American Exploration Co., Houston (OGJ, Sept. 17, p. 44). Hallwood Energy Partners LP, Dallas, agreed to acquire EDP general partner Quinoco Energy Inc. with plans to merge EDP into Hallwood (OGJ, May 7, p. 25).

In addition, OGJ is now tracking the performance of only the upstream unit of Enron Corp., Enron Oil & Gas Co., because the pipeline giant's huge revenues skewed the group's profile too much.

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