OGJ Newsletter

U.S. petroleum company earnings seem more mixed than ever.

Special items in 1995 such as writedowns related to restructuring or changes in accounting standards or the ripple effects of sales and/or acquisitions caused significant swings in net income for a number of companies.

Texaco recorded a loss of $251 million in the fourth quarter owing largely to a $639 million charge related to an accounting change. Before special items, its profit in the quarter was $367 million. Gains from property sales, favorable tax items, and inventory liquidation enabled Shell Oil to post its highest annual earnings in a decade, a spectacular threefold jump from 1994. But before special items, Shell's 1995 earnings logged a much more modest 26% gain on the year.

Generally, companies with a strong exposure in petrochemicals fared well, although profits in that sector weakened in the fourth quarter. ARCO Chemical logged an 89% income gain vs. 1994. That helped majority interest owner ARCO post an impressive 50% jump in profits last year, although ARCO also benefited from a $330 million after tax gain from cost cutting.

Refining margins depressed downstream earnings for most of the majors despite generally higher sales volumes. Exxon's worldwide refining products sales were the highest in 15 years, with most of the growth in the Asia-Pacific region, but its refining/marketing profits slipped more than 8% from 1994.

A yearend surge in crude prices helped buoy upstream earnings despite slightly depressed natural gas prices in 1995. Oryx finally turned things around, posting a profit last year vs. a $1 billion loss in 1994. Helping the Dallas independent was a $1.29/bbl gain in oil prices, most of which came last quarter.

A big exposure to natural gas squeezed earnings for others last year. Pogo's profits in 1995 fell to a third of their 1994 level as it realized the lowest gas prices since 1980, down 25/Mcf from the prior year.

A sampling of U.S. petroleum company earnings follows, in millions of dollars, with 1995 results listed first and losses in parentheses: Exxon 6,470 vs. 5,100, Mobil 2,376 vs. 1,759, Amoco 1,862 vs. 1,789, Shell 1,520 vs. 508, ARCO 1,376 vs. 919, Williams Cos. 1,300 vs. 246, Chevron 930 vs. 1,693, Conoco 655 vs. 680, Texaco 607 vs. 910, Oxy 511 vs. (36), ARCO Chemical 508 vs. 269, Phillips 469 vs. 484, Lyondell 389 vs. 223, PanEnergy 303.6 vs. 225.2, Enron Oil & Gas 142.1 vs. 148, Sun 140 vs. 90, Oryx 135 vs. (1,025), Vastar 103 vs. 149.7, Union Texas 102 vs. 67, Valero 59.8 vs. 26.9, LL&E 18.8 vs. (226.9), Pogo 9.2 vs. 27, Seagull 0.6 vs. 3.2, and Amerada (394.4) vs. 73.7

OPEC sees a 1.44 million b/d rise in oil demand this year from 1995.

Middle East Economic Survey (MEES) reports OPEC predicts global oil demand will reach 68.9 million b/d this year. That's 66,000 b/d higher than OPEC's last forecast. The group expects 1996 non-OPEC oil production to average 44.29 million b/d, up 1.81 million b/d from 1995. OPEC sees the call on members' oil at 25.6 million b/d in the first quarter, 23.4 million b/d in the second, 23.7 million b/d in the third, and 25.7 million b/d in the fourth.

Given OPEC output in recent months running at about 25 million b/d vs. a quota of 24.52 million, that leaves little room for quotabreaking this year.

Accordingly, Iraq's return to the market with limited oil sales this year could foster a price collapse if OPEC fails to take action. That scenario was revived yet again last week as Baghdad agreed to resume negotiations with the U.N. over a $2 billion, 6 month sale of oil to raise funds for humanitarian needs in Iraq and war reparations. The prospect slashed oil prices to a 6 week low Jan. 16.

However, later reports from Baghdad indicated heavy criticism of the U.N. conditions for the sale, suggesting anxiety over a sale deal was premature, and Nymex February crude gained 66 in a day Jan. 18 to close at $19.18/bbl.

Technical factors pulled the market down again in the days to follow, but it was bolstered again Jan. 23 with reports from OPEC that the group plans to meet immediately if Iraq is allowed to resume exports.

Pertamina Pres. Faisal Abda'oe assured reporters in Jakarta OPEC will meet as soon as the U.N. takes a clear stand on Iraq renewing exports.

Don't count out the prospect of another crisis to galvanize oil prices again, however. Tensions remain high in key exporter Nigeria.

Further, Bahrain has emerged as a new source of concern. Eight opposition leaders are to be tried on charges of inciting riots and sabotage in April 1995 in an alleged foreign backed plot to overthrow the government. Unrest has flared again recently, with bombings, arson, and riots. Martial law seems likely.

Although no Arab government identified the suspected provocateur government, Kuwaiti and Bahraini newspapers targeted Iran. Tehran denies any involvement. Egyptian President Mubarak warns the alleged intrigue is not aimed merely at tiny Bahrain but at all moderate Persian Gulf Arab states.

Recent regional gas price disparities in the U.S. reflect the need for more transmission and storage capacity at key places on North America's grid.

So conclude Arthur Andersen and Cambridge Energy Research Associates (CERA) in a joint study of North American gas industry trends. Rather than a shortfall of supplies in producing regions, Thomas R. Robinson, CERA's director of North American gas, said surging weather-induced demand for gas-mainly in the eastern U.S.-has been the main factor driving gas prices up on North American markets. Supply reliability has not been threatened. But Robinson said demand generated by very cold temperatures has exposed regional bottlenecks in transmission systems and prompted heavy draws on stored supplies and significant switching from gas among customers able to use alternative fuels.

Merger and acquistion activity continues at a sizzling pace in Canada.

TransCanada plans a $336.2 million (Canadian) takeover of Alberta Natural Gas (ANG). TransCanada currently owns 49.9% of ANG. There were takeover talks between the two in 1995 but they ended without agreement on price.

HCO Energy is seeking to take over Chancellor Energy by offering 0.32 HCO share for each of 59.75 million outstanding Chancellor common shares. Combining the two Calgary firms would result in total production of about 67 MMcfd of gas and 4,800 b/d of oil. Atcor Resources, Calgary, reports almost 100% of its shareholders have approved a $186 million (Canadian) takeover by Denver's Forest Oil. The deal is expected to close by end of January.

Mark Resources, Calgary, is studying a takeover bid by Enerplus Energy Services Ltd. Mark is fighting a $485 million (Canadian), or $7/share, takeover bid by Pembina Acquisition Corp., Calgary. Enerplus has not disclosed a value for its offer, but some analysts estimate the complex share plus trust unit bid may be worth $9-10/share. Enerplus manages about $500 million in oil and gas assets. Its offer will be presented to Mark shareholders in March.

A battle between two rivals to provide increased crude oil pipeline capacity from Alberta to U.S. export markets is heating.

Express Pipeline agreed to buy Platte Pipeline, which serves the U.S. Midwest, to carry as much as 170,000 b/d from Casper, Wyo., to refineries at Wood River, Ill. Meanwhile, Interprovincial (IPL) has filed an application for a third expansion of its crude pipeline from Edmonton to Chicago. Express needs Platte as a key U.S. link in its proposed line from Alberta to Casper. Also, IPL has received NEB approval for an additional 120,000 b/d expansion of its pipeline system to Chicago for completion by Dec. 31. and has applied for a second 120,000 b/d expansion this year. The new expansion includes a $140 million project in Canada and a $400 million line from Superior, Wis., to Chicago.

IPL, which moves 1.6 million b/d of crude to U.S. markets, completed a $405 million, 175,000 b/d expansion 2 years ago. The new project, including the line from Superior to Chicago, is a direct response to the Express project.

Venezuela has kicked off its first E&P profit sharing bid round, the first opening of exploration acreage to foreign companies in that country since nationalization (OGJ, Jan. 15, p. 24). Mobil/Veba/Nippon Oil won the 445,000 acre La Ceiba block, Conoco the West Gulf of Paria Block 7 solo and the Guanare block 50-50 with Elf, and Enron-Inelectra the East Gulf of Paria block.

Almost 40 strategically significant gas pipelines have been proposed in the Asia-Pacific region, says Edinburgh's Wood Mackenzie, all inspired by a regional rise in gas demand of 7%/year. If all the proposed pipelines were developed, says the analyst, an investment of more than $100 billion would be required, and the installed lines would extend more than 30,000 km.

Total is back in talks with Viet Nam's state owned Petrovietnam over building the country's second refinery, only months after pulling out of a project to build the country's first refinery. Petrovietnam has insisted the first refinery be built at Dung Quat, in a remote area of Viet Nam. Last year Total withdrew from the project, saying the site would be uneconomic (OGJ, Sept. 18, 1995, Newsletter). Total is still keen to build a refinery in Viet Nam because it has no refining capacity in Southeast Asia and wants one to support its regional products marketing and distribution plans. Earlier this month Petrovietnam said it had chosen Petronas, Conoco. and South Korea's LG Group to build the country's first refinery, due on stream by 2000 (OGJ, Jan. 15, Newsletter).