Robert J. Beck
Economics Editor
First quarter profits for Oil & Gas Journal's group of 22 large U.S. oil companies totaled $5.616 billion, down 26% from first quarter 1989.
Results were mixed, with 14 companies posting a drop and eight showing an increase. None of the companies had a loss for the quarter this year, compared with one company, Ashland Inc., a year ago.
A slide in earnings from chemical and U.S. refining operations caused the first quarter slump.
Last year, record chemical earnings led the way as group profits jumped sharply from first quarter 1988. This year, higher crude prices squeezed margins in chemicals and refined products.
Lower demand for petroleum products slowed a rise in U.S. prices. Outside the U.S., strong demand enabled refiners to boost prices. Refining margins improved over those of a year ago, and non-U.S. refining earnings moved up in this year's first quarter.
Group revenues continued to climb, increasing 10.7% to $107.2 billion for the first quarter this year. The revenue increase was due to higher prices for crude oil and non-U.S. petroleum products.
PRICES, DEMAND, SPENDING
Average world price for export crudes was $18.23/bbl in first quarter 1990, up from $15.69/bbl in the same period of last year.
Latest data from the Energy Information Administration for the first 2 months of this year show the U.S. average refiner acquisition cost of crude oil was up 28% at $20.48/bbl from the first 2 months of 1989. OGJ's weekly survey of U.S. unleaded gasoline prices shows the average pump price moved up 9.6% from $0.9428/gal last year to $1.0335/gal for first quarter 1990.
EIA estimates U.S. first quarter demand at 17.07 million b/d, down 3.1% from the same period in 1989. The International Energy Agency (IEA) pegs first quarter nonCommunist demand at 53.8 million b/d, up from 53.2 million b/d in 1989. Outside of North America, demand was 34.8 million b/d this year vs. 33.7 million b/d last year.
Group spending moved up.
Thirteen companies listed capital and exploration outlays for first quarter 1990 of $6.481 billion, up 11.4% from the same period of 1989. This amounted to 166.2% of earnings for the 13, compared with 99.8% in 1989.
This excludes $3.871 billion spent in first quarter 1989 by Exxon Corp. to acquire Texaco Canada. Including that purchase, Exxon's outlays were $5.389 billion last year, considerably more than in 1990. Only two other companies, Chevron Corp. and USX, reported lower spending for first quarter 1990 than a year ago.
Phillips Petroleum Co. increased outlays 90.2% to $329 million. Texaco Inc. boosted spending 64.9% to $592 million, and Amerada Hess's spending moved up 42.9% to $205 million.
REFINING, MARKETING
Factors affecting first quarter earnings from U.S. refining and marketing were similar to those in first quarter 1989.
Rising crude costs reduced margins and profits compared with year earlier levels. Crude prices have been moving up since 1988, increasing at a pace faster than product prices.
In addition, for some refiners accidents and damage from extremely cold weather last December pinched capacity during the first quarter and helped reduce earnings.
Shell Oil Co. posted a loss of $21 million from its oil products division during the most recent first quarter, compared with a $113 million profit in first quarter 1989.
Freeze damage at refineries impaired earnings early in the 1990 quarter. Margins began to improve late in the quarter as raw materials costs declined and average gasoline selling prices strengthened.
Exxon Corp. also posted a loss of $28 million from U.S. refining and marketing, compared with a profit of $37 million during first quarter 1989. Non-U.S. earnings in the same sectors were up $81 million at $219 million during the 1990 period.
Margins were better than a year ago, particularly in Europe. However earnings in the U.S. were trimmed by the partial loss of operating capacity at the Baton Rouge refinery because of a fire in December 1989.
Mobil Corp. had a 43% drop to $39 million from the same period a year ago for U.S. refining and marketing. International earnings during the same period moved up 33% to $53 million.
Mobil said, "Product prices have not reached levels sufficient to recover the increase from first quarter 1989 levels in crude and other hydrocarbon acquisition prices, the impact of inflation on expenses, and higher environmental costs."
Earnings were higher in Europe and the Pacific Rim countries, except Japan, reflecting higher gross margins and improved refinery operations.
First quarter 1990 manufacturing, marketing, and distribution earnings for Texaco fell $7 million to $30 million in the U.S. and rose $6 million to $106 million outside the U.S. The non-U.S. improvement stemmed from higher product prices and strong margins, especially in Europe and Latin America,
By contrast, Chevron showed a sharp increase in earnings from U.S. refining, marketing, and transportation. Profits jumped to $59 million for this year's first quarter from only $7 million a year ago. Most of the earnings occurred in January when product prices, especially for jet and heating fuels, increased faster than crude oil acquisition costs.
Average product sales prices advanced 17% from the 1989 quarter, and sales volumes were up almost 6%. In addition, refinery input and capacity utilization improved over last year's first quarter.
Non-U.S. earnings also moved up $28 million to $71 million in first quarter 1990 as a result of higher margins and favorable foreign exchange rates.
Amoco Corp. earnings from worldwide refining, marketing, and transportation slipped 3% to $111 million in first quarter 1990. Sales of refined products were down 6% from the year before at 1.15 million b/d. U.S. total product sales volumes fell 3% to 931,000 b/d, but gasoline sales increased 3% to 531,000 b/d.
CHEMICALS
Many companies set profit records from chemical operations in 1988-89. But this year earnings from this sector began to fall as a result of rising feedstock costs coupled with weakening demand and lower prices for some chemicals.
Phillips Petroleum Co. reported net income from chemicals of $67 million in first quarter 1990, down from $160 million for the same period last year. Earnings this year included $49 million for business interruption insurance related to lost earnings from last year's explosions and fire at the Houston Chemical Complex. Earnings were down substantially on lower margins and lower sales volumes for olefins and polyethylene.
Shell's chemical products posted earnings of $98 million, down $125 million from the record $223 million earned in first quarter 1989.
Mobil's chemical earnings were $83 million in the first quarter this year vs. a record $180 million in the same period last year. Its world petrochemical prices generally peaked in first quarter 1989, followed by a downward trend into first quarter 1990.
Exxon's chemical earnings worldwide fell from a record high $405 million in the first quarter last year to $181 million this year. Earnings were down in the U.S. and abroad even though sales volume rose 2%.
Petrochemical earnings at Texaco fell to $16 million this year from $96 million a year ago. The company blamed surplus supply. In addition, a decline in ethylene and propylene prices that showed up during first quarter 1989 continued to squeeze margins this year. Earnings also were trimmed by downtime for maintenance and repairs of the light olefins unit at Port Arthur, Tex.
EXPLORATION, PRODUCTION
One of the strongest earning sectors the first quarter this year was exploration/production.
Most companies in the OGJ group posted earnings gains from the same period a year ago, due mainly to increased prices for crude oil and natural gas. In the U.S., higher prices were partially offset by lower oil production volumes.
EIA reports U.S. crude production averaged 7.466 million b/d for first quarter 1990, down from 7.783 million b/d a year ago. NGL production fell to 1.506 million b/d from 1.635 million b/d.
U.S. exploration and production at Chevron earned $155 million in the first quarter, compared with $70 million in the same period of 1989.
Its average oil price was up $3.50/bbl at $18.50/bbl. Average gas prices were up 15% to a little more than $1.90/Mcf. Liquids production fell 3% as a result of normal field declines. Gas production moved up 13%, reflecting increased demand because of the early winter cold spell in the eastern U.S.
Non-U.S. exploration and production earned $129 million, up from $116 million in the same period of 1989. Earnings improved because of higher crude oil prices but were reined by foreign exchange losses.
Liquids production was up 3% as increases in Indonesia and Australia more than offset declines in Canada and the U.K. Natural gas production rose 33%, reflecting increased production in Canada and output that began in mid-1989 from Australia's Northwest Shelf project.
Mobil's U.S. and non-U.S. exploration/production earnings were up in first quarter 1990. U.S. income was $97 million, compared with $54 million a year ago. U.S. liquids production fell marginally to 370,000 b/d. Natural gas production was down 12% at 1.999 bcfd.
International profits were 16% ahead of last year at $272 million. Crude oil prices were up 20%, gas prices 16%.
Amoco's U.S. exploration/production earnings for first quarter 1990 shot up 129% from the same period of 1989, climbing to $226 million. However, foreign earnings fell 34% to $69 million.
The U.S. increase reflected higher prices, particularly for crude oil, and lower exploration expenses and depreciation, depletion, and amortization costs. Those increases more than offset lower production.
Texaco posted earnings from U.S. exploration/production of $199 million, up $69 million from first quarter 1989. Crude oil prices were up an average $4/bbl from last year's first quarter. There were also expense reductions as a result of efficiencies achieved by upstream reorganization.
Outside the U.S. Texaco's earnings were $118 million, up $49 million due to higher prices and increased production. Production rose in Indonesia and Australia, and North Sea flow returned to more normal levels.
Shell posted exploration/production earnings of $173 million, up $74 million from the same quarter last year. U.S. crude oil prices averaged $18.09/bbl for first quarter 1990, u p $4.11/bbl from a year ago. Natural gas prices averaged 13% higher than the same 1989 period.
Shell's crude oil prices weakened considerably in March and continued to fall in April. By mid-April crude oil prices were about $4/bbl less than the first quarter 1990 average.
Exxon's first quarter earnings from U.S. exploration/production were down marginally to $355 million from $357 million the year before. Last year's earnings included gains of $59 million from gas sales contract settlements.
Earnings from non-U.S. operations moved up $221 million to $730 million for first quarter 1990, benefiting in part from gains of $53 million on sales of Canadian producing properties.
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