OGJ NEWSLETTER

Weak results affecting several key industry sectors have squeezed third quarter earnings for many U.S. petroleum companies.

Although cost cutting measures continued at many companies, and a number cited increased production and slightly improved oil prices, those factors generally were not enough to offset lagging gas prices, widespread gas shutins, and slumping refining margins. Among the bright spots were strength in gas processing and a rebound in demand and prices for petrochemicals.

Valero noted, "(NGL) margins should continue to be supported by strong product demand, particularly in the petrochemical markets, as well as relatively lower natural gas feedstock costs." Several companies cited increased sales volumes and rising margins for ethylene and methanol.

Chevron, whose U.S. E&P earnings fell to $63 million in the quarter from $125 million a year ago, cited its average natural gas price of $1.62/Mcf, down 44cts from 1993's third quarter, and decreased liquids production.

Refining/marketing results were largely mixed, depending to a large extent on where a company's downstream business is concentrated. ARCO cited poor margins on the U.S. West Coast, and Mobil noted sagging margins worldwide, especially in the Asia-Pacific region.

Ashland said, "Refinery margins were very volatile for most of 1994, but our average margin for the year was up 79cts/bbl. Refinery margins were generally stronger in the Midwest than in the larger New York and Gulf Coast markets. Ashland's strong performance was due to these relatively higher Midwest margins and our actions to improve competitive position through cost reductions, improved crude oil selection, and other profit enhancement efforts."

A number of refiners expect improvement in margins for the fourth quarter because of the introduction of reformulated gasoline (RFG) into much of the U.S. market. Valero intends to produce 100% of its gasoline as RFG. Diamond Shamrock says it will have adequate RFG supplies for its Dallas-Fort Worth and Houston markets but notes, "While we anticipate margins to improve in the fourth quarter, uncertainties remain in the industry concerning the availability and distribution of RFG, which is mandated in certain ozone nonattainment areas beginning Jan. 1, 1995."

Earnings for the quarter ended Sept. 30, in millions of dollars, losses in parentheses, and 1994 results listed first are: Exxon 1,155 vs. 1,054, Mobil 503 vs. 340, Amoco 445 vs. 520, ARCO 435 vs. 68, Chevron 425 vs. 420, Shell 313 vs. 187, Texaco 281 vs. 317, Phillips 119 vs. 41, Marathon Group 102 vs. 30, Union Pacific Resources 76 vs. 68, Lyondell 66 vs. 9, Panhandle Eastern 49.5 vs. 25.6, Sun 48 vs. 114, Murphy 37.3 vs. 20.2, Vastar 30.9 vs. 32.5, Coastal 26.6 vs. (11.4), Oxy 23 vs. 71, Diamond Shamrock 20.6 vs. 9.3, Kerr-McGee 17.7 vs. 18.8, Valero 15.5 vs. 11.3, Total North America 15.2 vs. 13.3, Union Texas 15 vs. (13), Santa Fe Energy 11 vs. 2.4, Tosco 9.7 vs. 27.9, Pogo 7.4 vs. 7.1, Freeport McMoRan 6 vs. 26.8, Wainoco 2.6 vs. 0.1, Equitable 2.4 vs. 8.6, Noble Affiliates 2 vs. 4.3, Amerada Hess (1.9) vs. (22.4), Reading & Bates (4) vs. 5.1, Cabot (4.4) vs. (3.6), Transco (4.6) vs. (18), Seagull (6.3) vs. 7.3, Parker & Parsley (9) vs. 7.4, LL&E (11.3) vs. (1.8), and Enserch (14.5) vs. (22.8).

More petroleum company staff cuts are in store.

Mobil plans significant reductions in its worldwide support staff by yearend 1995, likely many of those at its Fairfax, Va., headquarters. Studies are under way, with decisions expected next spring and implementation by the end of 1995. Mobil notes its staff support costs total about $2.5 billion/year.

It's certain 1994 will be another record year for U.S. oil imports.

Total imports of crude and products averaged 9.021 million b/d during the first 9 months, API reports. That's the highest level in history for the first 3 quarters, surpassing the period in 1977, when U.S. crude and products imports averaged 8.792 million b/d for the year. Imports were up 6.1% from the first 9 months of 1993. During the third quarter, U.S. petroleum imports shot up 11.1% from the 1993 period to average 9.684 million b/d, a record quarter.

U.S. crude production fell 3.1% in the first 9 months to an average 6.625 million b/d. Total domestic products shipped in the first 9 months averaged 17.572 million b/d, up 2.8% from a year ago, and U.S. refinery utilization averaged 92.5% vs. 91.4% in the 1993 period.

EPA notes U.S. air quality continues to improve in major urban areas-notably those targeted for RFG. Of 91 areas designated as nonattainment for smog, 48 now have air quality meeting the standard. In addition, 28 of the 38 nonattainment areas for carbon monoxide now have air quality meeting the standard. Another plus: 1993 was the second consecutive year in which no U.S. cities violated the nitrogen oxides standard.

By taking control of the U.S. environmental agenda and finding a more efficient method of environmental protection, the U.S. petroleum industry could save itself ultimately $100 billion.

So says Colorado researcher Charles McLean. He points to a 1993 study by Center for Resource Economics, Washington, D.C., that found EPA spends only 20% of its budget on the most serious pollution problems while the rest goes for lower risk contamination. McLean says the study estimates potential environmental costs to the petroleum industry at $17-25 billion/year by 2000.

He contends hazardous waste cleanups are notorious money wasters, estimating total hazardous waste cleanup costs under the current regulatory system at more than $1.3 trillion. Application of an approach that ties cleanups to long term land use and public health protection could save more than 40% of that cost and speed the cleanup process, McLean says.

Statoil has a sizable gas/condensate strike near infrastructure off Norway.

The find, on Block 34/11 adjoining the block containing Gullfaks and South Gullfaks fields, has reserves tentatively pegged at 2 tcf and 125 million bbl of condensate. The wildcat, drilled to 4,556 m, found gas in Middle Jurassic sandstone. An appraisal well is under study for next year. Operator Statoil holds 65% interest in the block with Norsk Hydro 20% and BP Norge 15%.

Algeria plans to enlist more foreign investment and restructure Sonatrach in efforts to hike its oil productive capacity to 1 million b/d from the current 750,000 b/d.

Also on tap are plans to double exports of natural gas to 60 billion cu m/year by 2000. ARCO recently signed an agreement with Sonatrach to implement an EOR project in Rhourde el Baguel field and develop other Algerian oil fields, with outlays that ultimately could reach $1 billion.

Malaysia expects to spend $11.5 billion on gas projects during 1994-2000. That compares with a total of $10 billion spent to date on gas industry infrastructure and facilities and includes a possible third LNG export complex currently under study. Malaysia, with about 80 tcf of gas reserves, earns about $12 billion/year from LNG exports and $130 million/year from pipeline gas exports to Singapore. Domestic gas use is growing as well, with gas expected to double its share of Malaysia's energy mix to 40% by 2000.

Russian gas giant Gazprom plans to set up a new company, Gazflot, for offshore arctic gas E&P and transportation.

Plans include building arctic class icebreaking drillships and other specialized equipment by 2000. The first such vessel is to be built at southern Ukraine's Kherson shipyard as an in-kind payment for Russian gas supplies.

Agip and Russia's Lukoil have signed an outline agreement to set up a joint venture that would spend as much as $400-500 million to boost crude oil production in western Siberia's Kogalym province and participate in E&P in Egypt and Tunisia.

In addition, Lukoil, Agip Petroli, and ABB will join forces to build a 180,000 b/d refinery near Novorossiisk and develop a service station network in Russia, the Baltic republics, and eastern Europe. The first such outlet is about to be commissioned in Moscow.

Competition among Taiwan's proposed naphtha based petrochemical complexes is heating.

Chang-Chun Petrochemical Group is reported to be preparing to pull out of Chinese Petroleum Corp.'s (CPC) naphtha cracker project and throw its support behind the competing project backed by Formosa Plastics Group (FPG).

Chang-Chun is said to be unhappy with the slow pace of the CPC project, noting CPC has not developed a final plan or taken steps to assure land acquisition, while the FPG project is moving ahead as scheduled. Analysts warn that the CPC project could be in danger of collapsing if more of the 19 petrochemical firms that signed on as partners opt to follow Chang-Chun's example.

Meanwhile, Tuntex Group is threatening to move its proposed naphtha cracker project to Thailand if it encounters heated opposition from residents near the project site.