OGJ GROUP PROFITS OFF 12% FROM FIRST HALF 1989

Robert J. Beck
Economics Editor

First half 1990 profits for the Oil & Gas Journal group of 22 large U.S. oil companies totaled $10.876 billion, down 12% from the same period of 1989.

Twelve of the companies posted a drop in earnings, nine showed an increase, and one was unchanged. Only one, Amerada Hess, posted a loss this year. None showed a loss for first half 1989.

The major cause of the slide in group earnings was a sharp drop in profits from chemical operations. Last year those operations posted record high earnings. But this year, smaller margins due to lower product prices and higher feedstock costs cut profits.

Earnings from U.S. refining operations also were generally lower for first half 1990 than last year. This was due to provisions for future environmental cleanup costs and increased spending for plant maintenance and repair. In addition, demand for petroleum products was lower for first half 1990 due mainly to warm weather in the first quarter. Outside the U.S., increased product demand helped boost refining earnings.

Group revenues for the first half of this year totaled $212 billion, up 6.3% from a year ago. Higher product prices and crude oil prices at about the same level as a year ago gave the boost to revenues.

Earnings from upstream operations were mixed, with U.S. profits generally lower and non-U.S. profits somewhat higher. Earnings from U.S. operations reflected lower production for many companies.

Due to overproduction by members of the Organization of Petroleum Exporting Countries, crude oil prices fell during the first half of this year. The pattern last year was just the opposite. Average prices for the first 6 months were very close to the level of a year ago, with U.S. prices slightly higher and average world export prices slightly lower.

Twelve companies reported capital and exploration expenditures for first half 1990. Their spending of $13.7 billion was down 17% from the same period a year ago.

The decline was due entirely to a sharp drop in spending by Exxon Corp., whose outlays were down $4.122 billion at $3.490 billion. During the first half last year Exxon spending totaled $7.612 billion, including $3.781 billion to buy Texaco Canada Ltd. Ten of the remaining companies reported greater spending during first half 1990.

REFINING, MARKETING

Falling crude oil prices and higher product prices bolstered refining margins during the first half of this year. However, other costs came into play and caused the group to post mixed results from refining and marketing.

Exxon posted earnings of $48 million from U.S. refining and marketing for first half 1990, down from $132 million in first half 1989. Earnings from non-U.S. operations moved up $438 million to $717 million.

In the U.S., Exxon's higher margins were offset by refinery shutdowns for maintenance and repairs. World product sales moved up 3% to 4.599 million b/d.

Mobil Corp. posted earnings of $97 million from U.S. refining and marketing for the first 6 months of 1990, down sharply from $171 million in the same period of 1989. Earnings from international R&M jumped to $273 million from only $17 million in 1989. Results in the U.S. included an $87 million provision for future cleanup costs, mainly at service stations. Outside the U.S., profits stemmed largely from higher margins in Europe and Australia.

The oil products division at Shell Oil Co. posted earnings of $52 million in the first half, down from $245 million last year. Shell blamed an unusually heavy schedule of refinery maintenance and increased environmental spending.

Net income from U.S. R&M for Texaco Inc. moved up to $201 million for the first half this year, an increase of $85 million. Outside the U.S., earnings increased $33 million to $263 million.

Amoco Corp.'s worldwide R&M and transportation booked a loss of $14 million for first half 1990, compared with net income of $327 million last year. Included in second quarter costs this year was a $417 million provision for environmental remediation. Excluding that provision, earnings were up due to higher margins.

EXPLORATION, PRODUCTION

U.S. exploration and production earnings were generally lower this year because of declining production. Outside the U.S., increased production helped boost earnings.

Exxon's earnings from U.S. E&P fell to $436 million from $646 million in first half 1989. Non-U.S. earnings moved up to $1.194 billion from $898 million last year. U.S. liquids production fell 8.7% to 648,000 b/d. Outside the U.S., liquids production advanced 4.4% to 1.123 million b/d.

Mobil posted U.S. exploration and production earnings of $47 million for first half 1990, down from $128 million last year. International E&P earnings moved up $158 million to $592 million.

U.S. E&P earnings for first half 1990 fell $32 million to $265 million at Texaco. Outside the U.S., earnings increased $63 million to $185 million. The decline in U.S. earnings was concentrated in the second quarter when prices fell.

Texaco's U.S. liquids production fell 38,000 b/d to 454,000 b/d for the first half. The improvement in earnings from operations outside the U.S. came from an increase of 46,000 b/d in liquids production, mainly from new fields in Australia and Indonesia and from fields in the North Sea which returned to more normal production levels after a curtailment in 1989.

Amoco posted an improvement in worldwide E&P earnings.

U.S. profits advanced to $308 million from $242 million in first half 1989. Non-U.S. operations posted earnings of $456 million, up $310 million. This year's profits included $439 million from settlement of claims arising from Iran's seizure of Amoco assets after overthrow of the shah.

Phillips Petroleum Co. had lower net income for worldwide E&P in first half 1990. U.S. net income fell to $67 million from $70 million last year. Non-U.S. net dipped to $110 million from $145 million in first half 1989 because of lower foreign currency gains-only $9 million in 1990, compared with $54 million during the first half of 1989.

Phillips' U.S. liquids production fell to 97,000 b/d from 105,000 b/d last year, while non-U.S. production moved up to 120,000 b/d, an increase of 5,000 b/d.

CHEMICALS

The greatest change occurred in the chemicals segment, where reduced margins resulted in much lower profits for most companies. The lower margins were a result of higher feedstock costs and lower sales prices because of increased worldwide petrochemical capacity.

Mobil's chemical earnings fell 51% to $174 million for first half 1990. Earnings in first half 1989 included a gain from the sale of Mobil's interest in Octel Associates.

Petrochemical earnings for Texaco fell to $46 million from $184 million in 1989. This year's earnings declined in part because of downtime for maintenance and repairs of a light olefins unit at Port Arthur, Tex.

Amoco's first half chemicals earnings fell to $135 million in 1990 from $282 million for the same period of 1989. The decrease reflected lower olefins margins and provisions for future environmental remediation costs. There was a benefit of $32 million from the Iranian settlement.

Shell's chemical products earnings dipped to $189 million from a record $409 million in first half 1989.

Exxon's chemical operations posted profits of $355 million for first half 1990, down $339 million from the record $694 million in first half 1989.

Chemical earnings at Phillips stood at $169 million for first half 1990, down from $297 million in the same period of last year. Earnings this year included income from business interruption insurance related to last year's Houston Chemical Complex accident.