Robin Buckner Price
Staff Writer
Financial results for a sample of large private and public sector petroleum companies outside North America were mixed in 1991.
In general, state oil companies fared better. Venezuela's Petroleos de Venezuela SA (Pdvsa) estimated 1991 net earnings rose about 28%, and Spain's Repsol SA increased profits almost 4%. In contrast, a number of private European oil companies had a rough year in 1991. Low oil prices forced many of them to write down asset value, and losses related to such writedowns were a significant factor in their earnings decline.
Overall, production increases could not offset effects of low oil prices, and lack of demand due to economic recession slashed downstream margins.
Virtually all companies in the sampling reported poor performance from chemicals operations.
One company without downstream operations, giant integrated gas company British Gas plc, logged a slight increase in profits.
A number of Japanese companies posted higher profits despite decreased sales and lower prices for petrochemicals.
Oil & Gas Journal earlier reported 1991 earnings for a sampling of Canadian companies and groups of major integrated U.S. companies (OGJ, Mar. 2, p. 16, and p. 19) and U.S. independents it tracks (OGJ, June 29, p. 23).
ROYAL DUTCH/SHELL
Earnings declines in all sectors sliced Royal Dutch/Shell Group's net income to 2.4 billion ($4.56 billion) in 1991 from 3.6 billion ($6.84 billion) in 1990, with North American results particularly depressed.
Upstream earnings fell 21% in 1991 to 1.4 billion after 2 years of substantial improvement. The company mainly blames lower oil prices, which it saw fall $3/bbl from 1990 levels and $4.50/bbl from 1989 levels.
The company noted the effect of the price drop was greatest in the U.S., where a lower tax burden compared with other countries meant price movements more directly affected earnings. Shell noted higher production costs in 1991 combined with low prices to more than offset increased oil and gas production volumes. Most of the increased production costs were outside North America and were associated with volume increases in the Middle East, Europe, and Africa. Unit costs were higher in the U.K. North Sea as well, as continuing maintenance and safety programs caused production shutdowns for part of the year. Downstream earnings fell sharply to 1.2 billion in 1991 because of large losses in inventory holdings, reversing the upward trend of the prior 3 years. Downstream operations also posted a charge of about 40 million, mainly for environmental provisions and refinery writedowns that more than offset benefits of assets sales and tax credits.
Inventory holding losses in 1991 slashed downstream earnings by 457 million, reflecting the large decline in crude prices. The company said if the effect of inventory gains and losses were removed, a comparison based on current cost of supplies shows 1991 earnings up 41% on the prior year.
Total oil product sales volumes increased 2% in 1991, mainly from increases in Europe, but Shell also saw its first increase in U.S. volumes in several years. It also reversed its previous trend of declining export sales volumes. The company said for the downstream sector as a whole, the outlook for profits remains positive because demand growth in the Far East continues to support high utilization rates. That could be given a significant boost by economic upturn in North America and Europe. Chemicals earnings fell to 23 million in 1991, the group's lowest level since the early 1980s. Restructuring yielded net charges of about 60 million, and inventory losses totaled 33 million.
BRITISH PETROLEUM
British Petroleum Co. plc reported replacement cost profit of 1.04 billion ($1.98 billion) in 1991, compared with 1.20 billion in 1990.
BP was also hit with inventory holding losses due to the price slide in first half 1991, yielding historical cost profit of 415 million ($788.5 million) vs. 1.68 billion in 1990.
Robert Horton, ousted as BP chairman last month (OGJ, July 6, p. 35) earlier this year said the company's 1991 results were affected by the severe downturn in market conditions as well as low oil prices in the second half. In spite of the difficult operating environment, BP Exploration increased its combined oil and gas production, excluding divestments, and reduced its crude finding costs.
BP Oil, the refining and marketing unit, had its best year since 1986, benefiting from high refining margins early in the year and divestment profits.
"During the first quarter of 1991 our downstream businesses benefitted from good margins as cold weather affected an already tight market," he said. "However, during the second and subsequent quarters the impact of the recession on U.S. gasoline demand put increasing pressure on rapidly falling margins. Similar pressures are beginning to emerge in Europe."
BP Chemicals reported a loss in 1991 due to market deterioration, mainly in olefins and polyethylene, but Horton noted the unit is building a strong position in East Asia with completion of an acetic acid plant in South Korea and a polyethylene project in Indonesia under construction.
BRITISH GAS
British Gas plc logged an after tax replacement cost profit of 921 million ($1.75 billion) for the 12 months ended Dec. 31, 1991, an increase of 3 million from the 12 months ended Mar. 31, 1991. BG changed its fiscal yearend to Dec. 31 from Mar. 31 on Dec. 31, 1991.
Revenues rose 10.5% to 10.5 billion in a comparison of the two periods and included for the first time a full year contribution from BG's Consumers Gas subsidiary in Canada.
The acquisition of Consumers Gas also boosted BG operating costs by 12%, or 754 million. BG operating profit increased by 18 million to 1.673 billion with the sale of its stake in Spanish gas company Catalana de Gas. Capital outlays for 9 months ended Dec. 31, 1991, totaled 1.35 billion. Of that total, 39% was allocated for the U.K. gas business and 50% for U.K. and non-U.K. E&P.
LASMO
Big U.K. independent Lasmo plc reported 1991 after tax profit of 18 million ($34.2 million), compared with 38 million ($72.2 million) the prior year. Revenues totaled 281 million in 1991 vs. 333 million in 1990.
Lasmo said results reflect its heavy involvement in oil and gas exploration during the year.
"The current low level of oil prices means that Lasmo has decided to make substantial reductions in its exploration program. In 1991 Lasmo and Ultramar plc spent 200 million on exploration and appraisal activities. In 1992 the comparable figure is forecast at 135 million."
Lasmo completed the acquisition of Ultramar in 1991 and has sold its downstream business (OGJ, July 13, p. 30). The combined companies' hydrocarbon production in 1991 was 198,000 barrels of oil equivalent (BOE)/day, compared with Lasmo's 83,000 BOE/day in 1990. Lasmo hydrocarbon reserves rocketed to 1.12 billion BOE in 1991 from 455 million BOE in 1990 following the acquisition.
TOTAL
France's Total is one of the few companies in the OGJ sampling that reported a strong year in 1991.
Net income increased to 5.81 billion French francs ($1.14 billion) in 1991 from 4.06 billion francs ($800 million) in 1990, and revenues rose to 143 billion francs from 128.4 billion francs.
Total's E&P unit maintained fairly stable operating income due to a significant increase in production outside the Middle East to 312,000 BOE/day from 273,000 BOE/day in 1990. Its Middle East oil production increased to 322,000 b/d from 284,000 b/d in 1990. Total expects production outside the Middle East to be 50% higher in 1995 than it was in 1990. Total received an average crude price of $20/bbl in 1991, vs. $23.50/bbl in 1990.
Refining and marketing contributed 47% of Total's overall operating income in 1991 compared with 38% in 1990, reflecting high utilization and favorable margins in Europe. Refinery throughput rose 7% in 1991, and product sales increased 11%, as did crude sales. The refining and marketing unit increased its market share, particularly in France, but U.S. earnings suffered from the recession. For Total's chemical unit, earnings increased and margins were stable despite weak demand.
ENI
Italy's state controlled ENI Group reported net profits in 1991 of 1.083 trillion lira ($942 million), down from 2.023 trillion lira ($1.76 billion) in 1990.
The company blamed the slide on low crude prices and a steep increase in debt, which reached 5.748 trillion lira. Capital investment in exploration increased 62% during 1991, which ENI Pres. Gabriele Cagliari said reflects the company's commitment to securing a sizable share of the world crude market for Italy.
The company's Agip SpA unit reported net consolidated profits of 1.101 trillion lira, compared with 1.4 trillion lira in 1990. Cash flow totaled 3.728 trillion lira in 1991, up almost 200 billion lira from 1990.
Agip's production reached 794,000 BOE/day and reserves totaled 4.438 billion bbl at yearend 1991. The company drilled 161 wells last year, 33 more than the prior year. Agip noted the largest of its new confirmed reserves are in Algeria, Angola, China, Congo, and the North Sea.
PETROFINA
Belgium's Petrofina SA reported consolidated profit of 16.3 billion Belgian francs ($521.6 million) in 1991, compared with 21.7 billion francs ($694.4 million) in 1990. Total pretax operating profit, before financial charges, totaled 29.9 billion francs, of which upstream operations contributed 13.8 billion, refining and marketing 9.4 billion, and chemicals 7.8 billion.
Petrofina's production in 1991 averaged 115,616 b/d of liquids, down 6% from 1990, while gas production increased 3.5% to 627.4 MMcfd.
The company said in Europe and the U.S. its refineries operated at full capacity in 1991, processing about 562,000 b/d of crude vs. about 554,000 b/d in 1990. Petrofina noted margins were exceptionally profitable in the first quarter of 1991, then narrowed during the year as product prices fell.
STATOIL
Norway's state oil company Den norske stats oljeselskap AS reported operating profit in 1991 of 13.55 billion kroner ($2.29 billion) in 1991, compared with 16.03 billion kroner ($2.7 billion) in 1990.
After tax profits of 5.40 billion kroner included a nonrecurring gain of 1.2 billion kroner from changes in Norway's corporate tax system.
Statoil's exploration and production unit reported an operating profit of 9.29 billion kroner, down 1.53 billion from the prior year, mainly due to lower oil prices.
The company's exploration costs totaled 1.69 billion kroner, a 50% increase from the year before. In spite of the increased effort, the company's oil and gas reserves decreased in 1991. Oil reserves fell by about 7% to 2.09 billion bbl. Refining and marketing operating profit was 647 million kroner, down 582 million kroner from 1990 because of a fall in the value of stocks, costs related to the change in brand name for the Norwegian marketing group, and reduced throughput at the Mongstad refinery.
Statoil's petrochemicals operations lost 17 million kroner in 1991, compared with a profit of 718 million kroner in 1990.
NORSK HYDRO
Norsk Hydro AS posted a net loss of 498 million kroner ($84 million) in 1991, compared with net income of 2.9 billion kroner ($489.5 million) in 1990.
The private sector Norwegian company cites charges of 2.9 billion kroner related to rationalization and restructuring, particularly in its agriculture and magnesium products businesses.
Lower crude prices and increased costs spawned a drop in Hydro's oil and gas segment operating income to 2.5 billion kroner in 1991 from 3.3 billion kroner in 1990. Operating revenues increased to 12.9 billion kroner in 1991 from 11.6 billion kroner in 1990, bolstered by greater sales of crude and products. Operating income from exploration and production also fell in 1991, offset somewhat by increased crude production and a stronger U.S. dollar vs. the Norwegian kroner during the year.
Hydro's production in 1991 averaged 152,000 BOE/day, compared with 140,000 BOE/day in 1990. The company's Oseberg field is the largest contributor to its oil production, followed by Gullfaks field, both in the Norwegian North Sea.
The company's refining and marketing operating income was also weaker in 1991, due to a loss on inventories. Hydro noted total demand for gasoline in Norway declined in 1991 because of sales tax increases and the generally weak economic climate. Consumption in Sweden stabilized during the year and rose in Denmark. Refining and marketing costs increased in 1991, and the company said efforts to streamline marketing operations continued throughout the year.
DONG
Denmark's national oil and gas company, Dansk Olie og Naturgas AS (DONG) reported a profit of $50.2 million in 1991, compared with $17.2 million in 1990.
DONG's Dansk Naturgas AS unit led the gain. The unit supplies all natural gas consumed in Denmark and exports gas to Sweden and Germany. Total gas sales increased to 116.5 bcf in 1991 from 95.4 bcf in 1990.
Exports accounted for 41% of volume in 1991, compared with 37% in the previous year.
Its crude purchasing unit increased sales by about 8 million bbl to 21 million bbl, finding larger exports to markets in Germany and Scandinavia and new markets around the Baltic Sea. Its E&P unit posted a loss of $7.8 million in 1991, compared with a $12.3 million loss in 1990. Dansk Olieror AS, which owns and operates the oil pipeline from the North Sea across Jutland to Fredericia, transported about 51 million bbl of crude in 1991, compared with 42 million bbl in 1990, realizing a profit of $5.7 million vs. $5.5 million in 1990.
NESTE
Finland's state owned Neste Oy reported a net profit of $113.7 million in 1991 vs. $227.1 million in 1990 on revenues that rose to $12.85 billion in 1991 from $11.30 billion in 1990.
Neste Chief Executive Officer Jaakko Ihamuotila said, "Our performance during 1991 cannot be termed even satisfactory. The sharp fall in the international price of chemical products undermined the performance of Neste Chemicals to such an extent that it had a significant impact on the corporation's overall result."
Neste's operations were also affected by the changes in the former Soviet Union, as Russian crude supplies to Neste refineries fell to about 64,000 b/d in 1991 from about 100,000 b/d in 1990. Ihamuotila said the North Sea and Middle East are now the most important sources of supply for Neste's refining operations. Neste's oil related activities were also strengthened following acquisition of the remainder of the U.K. company Sovereign Oil & Gas plc.
PDVSA
Pdvsa pegged net earnings for 1991 unofficially at about $1.8 billion, compared with 1990 profits of $1.3 billion.
Revenues in 1991 totaled $22.3 billion, down 3% from 1990. Pdvsa's average price for exports of crude and products last year was $15.92/bbl, down from $20.33/bbl in 1990. Despite the 22% drop in prices, the company was able to compensate by increasing production, refining, and exports.
Several operating sectors logged record performances in 1991:
- Average production of crude, condensate, and natural gas liquids reached 2.49 million b/d, broken out as 2.34 million b/d of crude, 37,000 b/d condensate, and 113,000 b/d NGL.
- Yearend crude production capacity was 2.83 million b/d.
- Proved crude reserves were 62.65 billion bbl, up 4.3% from 1990.
- Natural gas reserves increased to 127 tcf, up 5 tcf from 1990.
- Average throughput at Pdvsa's domestic and overseas refineries was 1.93 million b/d.
- Global sales of crude and crude products averaged 2.76 million b/d.
Direct investments by Pdvsa in the petroleum sector last year totaled $3.68 billion, more than twice the average yearly investment in 1976-89.
Production of Orimulsion, an emulsion of extra heavy Orinoco crude, water, and surfactant marketed as a boiler fuel, reached 1.1 million metric tons in 1991, and exports increased to 885,000 tons. Pdvsa exports of crude and refined products averaged 2.12 million b/d in 1991, up 237,000 b/d from 1990.
REPSOL
Spain's government controlled Repsol SA reported net income up 3.6% in 1991 at 70.17 billion pesetas ($736.8 million), and its operating revenue increased 7.6% to 1.691 trillion pesetas ($17.8 billion).
That marked the company's fifth consecutive increase in profits since its creation in 1987. In spite of realizing an average 7.5% decline in oil prices, the company's operating revenues from exploration and production increased 10% to 125.4 billion pesetas largely because its strategy of acquiring reserves with associated exploration acreage allowed the company to replace high cost reserves with low cost reserves. Repsol's E&P operating income increased 94% to more than 10.5 billion pesetas.
Upstream spending in 1991 totaled 32.6 billion pesetas, a 14% increase from 1990, with exploration investments totaling 13.2 billion pesetas.
Repsol drilled 75 wildcats in 1991, 17% more than in 1990. Repsol produced 189,200 BOE/day in 1991, 8.5% more than the prior year, and increased production outside Spain by 8% to more than 162,000 BOE/day.
The Spanish market in 1991 saw the first full financial year in which the maximum fixed price mechanism for the sale of fuels and heating oil was in full force, better reflecting the vagaries of international oil price fluctuations as Spain ends its downstream monopolies. Repsol's operating revenue in refining and marketing reached 1.35 trillion pesetas in 1991, up 12% from 1990, in part because its Campsa subsidiary did not conduct direct sales in the first half of the year but rather acted as a distributor with revenues coming from tariffs. Refining and marketing operating income increased 45% to 103.5 billion pesetas due to strong refining margins in first half 1991. The company's operating income from chemicals followed the negative trend experienced by other international companies in that business, falling by 22.8 billion pesetas in 1991 to 1.2 billion pesetas.
BHP
Broken Hill Propriety Co. Ltd. posted a record profit of $1.423 billion (Australian) ($1.06 billion U.S.) in fiscal 1990-91, ended May 31, on revenues of $16.9 billion.
Record operating income from the Australian holding company's Petroleum and mineral businesses offset reduced profits from steel.
BHP Petroleum Pty. Ltd. (BHPP) posted operating income of $650 million (Australian) in fiscal 1990-91, up 64% from 1989-90 mainly because of higher world oil prices stemming from the Middle East crisis. Among other special items, BHPP took a charge of $373 million (Australian) in writing down its North American oil and gas leases to current market value.
The average price the company received for Australian oil production increased 27% in fiscal 1990-91, while its crude and condensate production slipped 1% to 211,000 b/d and gas production fell 7% to 603 MMcfd.
During its 1991 fiscal year BHPP sold a 30% interest in Woodside Petroleum Ltd.'s gas production for $525 million (Australian), a key factor in BHPP's gas production decline in fiscal 1990-91. Bass Strait oil fields held 50% by BHPP remained the company's major source of revenues despite a 3% fall in production to 308,000 b/d during fiscal 1990-91. For fiscal 199192, ended May 31, however, BHPP profits tumbled to $381.1 million (Australian) because of lower oil, natural gas, and LNG prices, depressed refinery margins, reduced oil production, and a jump in exploration expenses.
JAPANESE COMPANIES
Eight of Japan's major oil companies' combined revenues fell 6.3% to 9.185 trillion yen ($73.5 billion) in fiscal 1991 ended March 31, 1992, from the previous period. It was the first decline for the group since fiscal 1986, Kyodo News Service reported.
Lower foreign exchange rates dragged down operating income for Nippon Oil Co. by 5.9% and for Kygnus Sekiyu KK by 28.5%.
But Cosmo Oil Co., Idemitsu Kosan Co., Kyodo Oil Co., Kyushu Oil Co., Mitsubishi Oil Co., and General Sekiyu KK realized higher pretax profits because of increased sales of light products, mainly gasoline.
Nippon Oil posted more than a twofold increase in net profit to 32.9 billion yen due to land sales, but operating income fell 5.9% to 44.1 billion yen because of increased distribution and marketing costs. Nippon's revenues fell 7.5% to 2.029 trillion yen due to low product prices.
General Sekiyu's net profit increased 11.5% to 10.01 billion yen in 1991, while operating income increased more than 250% to 23.1 billion yen despite a 5% drop in revenues to 525.22 billion yen in 1991.
Mitsubishi's profit gains occurred despite decreased revenues in 1991 because of a lower interest burden and appreciation of the yen in the latter part of the year. Operating income increased 22.9% to 13.59 billion yen compared with the prior year, and net profit increased 9.7% to 23.49 billion yen. Revenues fell 4.4% to 1.041 trillion yen.
Five of Japan's seven major petrochemical companies reported sharply lower operating income for fiscal 1991, Kyodo reported. Declines of 33.353.4% were posted by Mitsubishi Kasei Corp., Ube Industries Ltd., Mitsui Toatsu Chemicals Inc., Mitsubishi Petrochemical Co., and Mitsui Petrochemical Industries Ltd. Sumitomo Chemical Co., and Showa Denko KK had not released results as of last month.
Copyright 1992 Oil & Gas Journal. All Rights Reserved.
