Oil Price Rebound Means Big Gains for Oil Producers

Friday, November 12, 1999
The third quarter proved to be a prosperous one for oil companies, as most of our sampling realized substantial gains in net income and net operating income for the period, as compared to 1998's third quarter. A higher average worldwide crude oil price was chiefly responsible for the increases, although in some cases, cost-cutting measures also contributed heavily to the financial results. Exploration and production net operating income was up, nearly across the board. However, for the first nine months of 1999, earnings and net income are still down from the same period in 1998. Phillips Reports Net Income of $221 Million Phillips Petroleum Company reported third-quarter net income of $221 million up from $46 million for the same period last year. Total revenues were $3.8 billion, versus $2.9 billion a year ago. Net operating income also was $221 million compared with $69 million for the third quarter a year ago. For the first nine months of fiscal year 1999, net income was $359 million compared with $447 million for the same period in 1998. Total revenues were $9.5 billion, versus $9.2 billion a year ago. "For the first nine months of 1999, costs were down across each of our business segments and we continue to see an overall decline in per-unit costs for the company," said Jim Mulva, CEO. "Phillips' average worldwide crude oil price was $20.32 per barrel, up from $11.81 in the same quarter a year ago. Our U.S. natural gas price was $2.33 per thousand cu. ft., up from $1.75. In our gas gathering, processing and marketing segment, natural gas liquids prices averaged $14.95 per barrel, up from $8.36 a year ago. "Worldwide lifting costs per barrel also improved for the quarter. U.S. lifting costs were $2.16 per barrel-of-oil-equivalent (BOE) in the third quarter of 1999, versus $2.44 during the same period last year. Foreign lifting costs were $2.42 per BOE, compared with $3.00 in the third quarter of 1998." The company's exploration and production net operating income was $158 million, up from $47 million in the same quarter a year ago, mainly due to higher crude oil and natural gas sales prices and higher crude oil production. Worldwide crude oil production was up 14 percent, while gas production was about the same. Exploration and production net operating income for the nine-month period was $312 million, up from $214 million a year ago, mainly due to higher crude oil sales prices, partly offset by higher dry hole costs. Operating earnings also benefited from foreign currency gains versus losses a year ago. Worldwide crude oil production was flat, while natural gas production dropped six percent from last year. Chevron's Net Income up 26 Percent Chevron Corp. announced third quarter net income of $582 million an increase of 26 percent from net income of $461 million for the 1998 third quarter. For the first nine months of 1999, net income was $1.3 billion down from $1.6 billion for the first nine months of 1998. "Higher crude oil and natural gas prices boosted third quarter earnings in our exploration and production business," Chairman and CEO Ken Derr commented. "Although this sharp rise in prices squeezed margins in our refining and marketing sector, operating earnings overall showed a solid improvement." Also contributing to the improved earnings picture were a decline in unit operating costs and an increase in crude oil and natural gas production. Derr stated, "Our third quarter operating costs per barrel dipped below the $5 mark - down about nine percent from a year ago. Our worldwide oil equivalent production was up 4 percent from last year's third quarter. These improvements occurred at the same time as crude oil prices were hitting $25 per barrel for a brief period - a level we haven't seen since early 1997." Derr indicated the company fully expects to hit its 1999 cost savings target of $500 million by the end of the year. He stated, through the first nine months, Chevron had already reduced its cost structure by more than $400 million, after excluding costs associated with special items and the company's growth components in the international exploration and production and international chemicals businesses. Derr said on a companywide basis, unit operating expenses for nine months 1999 declined by about seven percent to $5.01 per barrel compared with the same period last year. U.S. exploration and production net income for the 1999 third quarter was $233 million, up from $102 million in the 1998 third quarter. Excluding special items, 1999 quarterly earnings more than tripled the 1998 quarter - primarily the result of higher crude oil and natural gas prices and lower operating expenses. The company's average 1999 third quarter U.S. crude oil realizations of $18.11 per barrel increased $6.80 over last year's third quarter. Average U.S. natural gas realizations of $2.48 per thousand cu. ft. were 56 cents higher than in the 1998 third quarter. Conoco Increases Earnings 39 Percent Conoco announced third quarter 1999 net income before special items of $261 million. This is a 39 percent increase over the $188 million earned in 1998 on a pro forma basis. The higher earnings are attributable primarily to significantly increased production volumes and higher prices. Net income before special items was up 129 percent compared to second quarter 1999; for the first nine months, net income totaled $458 million. Net income, including $38 million of charges for special items, totaled $223 million for the quarter, up 19 percent from last year on a pro forma basis. Upstream earned $252 million, up 114 percent on higher crude oil prices and increased oil and gas volumes, partly offset by higher production costs associated with increased volumes and $10 million in write-downs for properties to be sold. Domestic earnings were $84 million, up 75 percent due to higher prices, although natural gas volumes were lower. Worldwide net realized crude oil prices increased 63 percent to $20.02 per barrel. Worldwide natural gas prices of $2.05 per thousand cubic feet were about the same as last year, as a nine-percent increase in U.S prices was offset by lower international prices that were down largely due to renegotiated contract terms and weaker demand. Overall, the company's total production was up 16 percent to 643,000 barrels-of-oil-equivalent per day. Conoco was ranked No.1 in exploration and production performance over the past five year period, according to Schroder & Co., an international investment banking firm. Schroder evaluated the E&P results of 14 of the world's largest oil companies from 1994-1998. USX-Marathon More Than Doubles Net Income USX-Marathon Group's net income adjusted for special items was $178 million in third quarter 1999, compared with net income adjusted for special items of $70 million in third quarter 1998. The Marathon Group recorded third quarter 1999 net income of $230 million. Marathon Group revenues were $6.5 billion in third quarter 1999 compared to $5.6 billion in third quarter 1998, due primarily to higher prices. Income for Marathon's reportable segments was $450 million in third quarter 1999, versus $290 million in third quarter 1998. Worldwide exploration and production (upstream) income totaled $201 million in third quarter 1999, versus $60 million in third quarter 1998. Domestic upstream income was $168 million in third quarter 1999, compared with $44 million in third quarter 1998. The increase was primarily attributable to higher liquid hydrocarbon and natural gas prices. On August 12, 1999, Marathon announced a deepwater natural gas discovery on its Camden Hills prospect, located in the Gulf of Mexico on Mississippi Canyon Block 348. The well was drilled to a depth of 15,080 ft. and encountered more than 200 ft. of gas pay. Marathon is the operator and has a 50.03 percent working interest. Further appraisal drilling is planned later this year to evaluate the full extent of this discovery. On September 19, 1999, production commenced from the Angus/Stellaria field, a three-well subsea development on Green Canyon blocks 112 and 113 in the Gulf of Mexico. Current gross production of 22,000 bpd and 33 mmcfpd is expected to increase during the fourth quarter when the third well is brought on production. Marathon holds a 33.34 percent interest in this project. Mobil's 3Q Operating Earnings Top $700 Million Mobil Corporation reported third quarter 1999 estimated operating earnings of $705 million. This is $208 million higher than the $497 million earned in the same period last year. Including special items, net income for the quarter was $688 million versus $509 million last year. Included in this year's third quarter net income was a special charge of $17 million for costs related to the proposed Exxon Mobil merger. Mobil's net income for the first nine months of 1999 was $1.9 billion, compared with $1.86 billion for the same period in 1998. "While worldwide crude oil and natural gas prices were up significantly, margins in refining and marketing, especially in Mobil's international markets, came under severe pressure," said Lucio A. Noto, chairman and CEO. "Earnings also benefited from lower exploration expenses, our continuing focus on cost reduction initiatives and other performance improvement programs. Overall, per barrel operating expenses were down 6 percent on a year-to-date basis. However, our results were negatively impacted by a significant amount of unscheduled downtime in our U.S. refinery operations. Exploration & Producing operating earnings of $515 million were $385 million higher than last year's $130 million. In the U.S., earnings of $141 million increased $103 million as higher crude oil and natural gas prices and lower operating and exploration expenses were only partially offset by the impact of lower natural gas production. ARCO Operating Results Up 600 Percent ARCO reported 1999 third-quarter net income of $372 million. Excluding special items, earnings for the quarter were $511 million - a sixfold increase over the previous year's results. In the 1998 third quarter, ARCO's net income was $872 million, while earnings excluding special items were $73 million in the same quarter last year. Reflecting higher commodity prices and cost reductions, ARCO's worldwide exploration and production operations excluding special items earned $360 million after tax in the 1999 third quarter versus $38 million in the prior period. Third-quarter net income totaled $183 million compared with a loss of $56 million in the same quarter of 1998. Overall, ARCO's oil and gas production was down six percent to 970,000 bpd versus 1.04 million bpd in the third quarter of 1998. Liquids production was down 14 percent, in line with expected natural field declines in Alaska and the November 1998 swap of California heavy oil properties for offshore Gulf of Mexico natural gas and oil assets, now owned by Vastar. During the third quarter, ARCO and Anadarko Petroleum announced a revised development plan for the new Alpine field on Alaska's North Slope that will increase production rates and reserve estimates. Upon full development, projected recovery from Alpine is expected to be 429 million barrels of oil, up from earlier estimates of 365 million barrels of recoverable oil. Additionally, peak production will now reach 80,000 bpd, up from previous estimates of 70,000 bpd. Alpine startup remains on target for mid-year 2000. Two U.S. discoveries were announced in the third quarter. In the Gulf of Mexico deepwater, Vastar Resources, Inc. announced a significant oil discovery with an exploratory well testing the Horn Mountain prospect on Mississippi Canyon Block 127. Vastar holds a two-thirds working interest in the prospect. In Alaska, ARCO announced an oil discovery in the Fiord accumulation, which is estimated to contain more than 50 million barrels of proven and potential reserves. Fiord is situated west of the Kuparuk River field near the new Alpine development. Texaco Reports 3Q Results Texaco reported third quarter 1999 income before special items of $453 million. Net income for the period was $387 million. "Boosted by significantly higher crude oil and natural gas prices, Texaco's third quarter results improved dramatically from the first half of the year to their highest quarterly level since 1997," said Peter I. Bijur, chairman and CEO. "Cutbacks in OPEC and non-OPEC production, plus improving global economies pushed benchmark crude oil prices over $20 a barrel. But, as we've seen in recent weeks, prices remain volatile. In addition, we are benefiting significantly from synergy capture and expense reductions as our $650 million global target will be realized by year end, a full year ahead of schedule." U.S. Exploration and Production earnings for the third quarter and nine months of 1999 were above last year's levels due to higher crude oil and natural gas prices and lower expenses. Prices continued to rise in the third quarter as production cutbacks by OPEC and several non-OPEC countries, coupled with increasing demand in improving global economies, led to a decline in worldwide inventory levels. Average realized crude oil prices for the third quarter and nine months of 1999 were $16.65 and $12.81 per barrel, 66 percent and 18 percent higher than the 1998 levels. For the third quarter and nine months of 1999, average natural gas prices were $2.44 and $2.09 per MCF, 29 percent and three percent above last year's periods. Operating expenses declined significantly for the first nine months of 1999 as a result of cost savings from the restructuring of the company's worldwide upstream organization. Exploratory expenses for the third quarter and first nine months of 1999 were $12 million and $104 million before tax, $36 million and $91 million below the same periods of 1998. Capital and Exploratory Expenditures were $2.2 billion for the nine months of 1999 and $2.8 million for the same period in 1998. In response to the difficult market conditions existing in the downstream and depressed crude oil prices during the first half of 1999, spending declined in most segments. In the U.S. upstream, expenditures for developmental activities dropped significantly and platform construction activity slowed in the deepwater Gulf of Mexico. Spending increased for enhanced oil recovery projects in California, which continues to be an area of focus. Unocal Reports Higher Operating Earnings Unocal Corporation reported third quarter 1999 preliminary net earnings of $24. Adjusted operating earnings were $42 million. The third quarter results compare with reported earnings of $36 million for the same period a year ago when the company had a $49 million gain from the sale of assets in Canada. Adjusted operating earnings for the third quarter 1998 were $4 million. For the first nine months of 1999, Unocal reported net earnings of $40 million. Adjusted operating earnings for the year-to-date were $81 million. This compares with reported earnings of $159 million and adjusted operating earnings of $138 million for the first nine months of 1998. Nine-month revenues were $4.4 billion, compared with $4.0 billion last year. "We are pleased with the significant improvement in our operating results, which reflect not only improved prices, but also our continued focus on cash costs," said Roger C. Beach, Unocal chairman and CEO. "The improved results from our mature businesses provide the cash flow to move forward with exploring and developing our exciting growth portfolio." The third quarter earnings reflect higher oil and gas prices, lower dry hole costs and a lower effective tax rate. These positive factors were offset partially by lower net oil and gas sales volumes and reduced earnings from non-E&P businesses. For the third quarter, Unocal's net worldwide production was 491,300 boe, compared with 481,500 boe the year before. Capital expenditures totaled $293 million, compared with $482 million a year ago.
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