NGI The Weekly Gas Market Report / NGI All News Access

Oil Prices Hurt Producer Earnings; Gas Prices Stronger

Oil Prices Hurt Producer Earnings; Gas Prices Stronger

While weak oil prices were a big disappointment to producers, gas prices offered a bright side to second-quarter earnings reports. Generally, realized gas prices were up in the second quarter from the year-ago period. However, prices generally were off for the first half of the year compared to the first half of 1997. Some companies intimated the weak oil price environment will cause them to refigure their spending plans for the rest of the year.

A look at producer second quarter results (listed in descending order based on volume of domestic gas production):

For Texaco, improved margins and higher international sales volumes and an 11% increase in worldwide production only partially offset effects of lower oil prices. Texaco net income for the second quarter of 1998 was $342 million, or $0.61 per share. The quarter included a net special gain of $7 million. Net income for the second quarter of 1997 was $571 million, or $1.05 per share, including a net special gain of $131 million. For the first half of 1998, reported net income was $601 million, or $1.07 per share, compared with $1,551 million, or $2.85 per share, for last year.

Texaco second quarter domestic gas sales were 3,934 MMcf/d, up from 3,561 MMcf/d in the year-ago period. In the first half of the year, Texaco sold 3,908 MMcf/d in the first six months of the year, up from 3,700 MMcf/d in the first half of 1997. The average price per Mcf rose to $2.05 from $2.02 from the second quarter of 1997. And the average price for the first half of the year dropped to $2.10/Mcf from $2.36/Mcf in the first half of 1997.

The company said it is assessing investment projects and anticipates some adjustment in spending by deferring non-critical projects should current low crude prices persist.

Amoco reported second-quarter earnings of $287 million or $.30 per share. Excluding special items, second-quarter 1998 earnings were $395 million, or $.41 per share, compared with second-quarter 1997 earnings of $622 million or $.63 per share. The earnings decline primarily resulted from lower worldwide crude oil prices, which for Amoco dropped over $5.00 per barrel in the United States compared with the year-earlier levels.

"We are not satisfied with the current level of earnings," said H. Laurance Fuller, CEO. "We continue to have confidence in the ability of our strategies to grow our business profitably over time. As we implement those strategies, we may find it necessary in today's price environment to further reduce costs and the pace of capital spending."

Gas production decreased 6% compared with the second quarter of 1997, reflecting normal field declines and dispositions. Amoco domestic gas production was 2,271 MMcf/d in the second quarter, down from 2,415 MMcf/d in the second quarter of 1997. For the first half of the year, production was 2,266 MMcf/d, down from 2,399 MMcf/d in 1997. Amoco's U.S. natural gas prices averaged about $1.85/Mcf during the quarter, about $.15/Mcf higher than the second quarter of 1997.

Exxon reported second-quarter 1998 net income of $1,620 million, down 18% from the record $1,965 million in the second quarter 1997. On a per-share basis, net income declined 16% to $0.66 in the second quarter of 1998, reflecting the ongoing share repurchase program.

Exxon domestic gas production available for sale in the second quarter was 2,085 MMcf/d, up from 2,051 MMcf/d in the year-ago period. For the first six months of 1998, the company had 2,083 MMcf/d of domestic production available for sale, up from 2,022 MMcf/d in the year-ago period.

"Exxon's net income of $1.6 billion was down $345 million or 18%, reflecting weaker crude oil prices which on average were about $5 per barrel or 26% lower than last year," said Exxon Chairman Lee R. Raymond. "This year's second quarter results benefited from higher liquids production, increased petroleum product and chemical sales volumes, and improved downstream margins.

Shell Oil reported second-quarter net income of $316 million, a decrease of $215 million, or 40% from the second quarter of 1997. Excluding special items in both quarters, adjusted net income in the second quarter of 1998 totaled $312 million, a decrease of $164 million, or 34%.

"The first-half of 1998 has been a very difficult period," conceded Shell President Jack E. Little. "Lower prices for crude oil and poor market conditions in other businesses have resulted in depressed earnings compared to the last few years. This business environment during the second half of this year will be exceptionally challenging."

For the first six months of 1998, net income was $488 million, a decrease of $560 million, or 53% from the same period last year. Excluding special items, adjusted net income for 1998 totaled $483 million, a decrease of $492 million, or 50%, from 1997.

Shell gas production was 2,076 MMcf/d in the second quarter, up from 1,733 MMcf/d in the second quarter of last year. In the first half of the year, production was 1,987 MMcf/d, up from 1,746 MMcf/d. Shell's gas sold for $2.17/Mcf in the second quarter, up from $2.10/Mcf in the year-ago period. In the first half of the year, gas sold for $2.14/Mcf, down from $2.52/Mcf in the first half of 1997.

Oil and gas exploration and production earnings in the second quarter of 1998 totaled $184 million, a decrease of $78 million from 1997. For the first half of 1998, earnings were $332 million, down $383 million. Excluding special items in the comparable periods, adjusted net income declined $107 million in the 1998 quarter versus 1997 and $389 million in the first-half comparison.

Chevron reported second-quarter net income of $577 million, or $0.88 per share, a decrease of 30% from the net income of $823 million, or $1.25 per share, for the 1997 second quarter. Excluding special items, second quarter operating earnings were $620 million, compared with 1997 second quarter operating earnings of $837 million.

Net second quarter 1998 U.S. gas production of 1,786 MMcf/d declined from 1,896 MMcf/d for the 1997 second quarter. Declines were primarily attributable to property sales. For the first six months, production was 1,796 MMcf/d, down from 1,911 MMcf/d in the first half of 1997. Average second quarter domestic gas prices were $2.08/Mcf, 13 cents higher than the second quarter of last year. Total revenues for the quarter were $8.0 billion, a decrease of 22 percent from $10.3 billion in last year's second quarter.

U.S. exploration and production net earnings for the 1998 second quarter were $85 million, down from $182 million in the 1997 second quarter. Excluding special items, quarterly operating earnings declined by 56% from the 1997 earnings of $193 million.

Mobil reported second-quarter 1998 operating earnings of $655 million, a 25% decrease, from the $870 million earned in the same period last year. Operating earnings per common share, assuming dilution, were $0.81, compared with $1.07 in the second quarter of 1997. Including special items, net income for the quarter was $642 million, or $0.79 per common share, versus $850 million, or $1.04 per share, last year.

"In addition to significantly lower crude oil prices, down about $5 per barrel from the same period last year, weak industry fundamentals in many of our businesses hurt earnings in the second quarter," said CEO Lucio A. Noto. "In the Upstream, lower worldwide crude oil and international natural gas prices impacted earnings by over $200 million. Additionally, Mobil's year-to-date production declined by over 1% versus the same period last year, largely due to temporary constraining factors."

Mobil domestic gas production was 1,119 MMcf/d in the second quarter of this year, down from 1,136 MMcf/d in the same period of 1997. In the first half of the year, production was 1,121 MMcf/d, down from 1,172 MMcf/d in the first half of 1997. Domestic gas sold for $2.07/Mcf in the second quarter, up from $1.88/Mcf in the same period of 1997. For the first six months of the year, gas sold for $2.05/Mcf, down from $2.34/Mcf in the first half of 1997.

USX-Marathon Group's net income adjusted for special items was $162 million, or 56 cents per diluted share, in the second quarter 1998, compared with $158 million, or 55 cents per diluted share, in second quarter 1997. Marathon's recorded second quarter 1998 net income was also $162 million, or 56 cents per diluted share. There were no material special items. Net income in second quarter 1997 was $118 million, or 41 cents per diluted share and included a $40 million unfavorable reserve adjustment.

"The strong second quarter results reflected an exceptional performance by our downstream operations and continued growth in worldwide liquids production. This mostly offset the significant impact of lower liquid hydrocarbon prices and increased exploration expenses in our upstream business," said Chairman Thomas J. Usher.

Marathon Group revenues during second quarter 1998 were $5.6 billion, compared with $3.8 billion in 1997. Second quarter income from operations, excluding the effects of special items, was $452 million in 1998, compared with $307 million in 1997.

Marathon domestic gas sales were 1067.9 MMcf/d in the second quarter, down from 1123.8 MMcf/d in the second quarter of 1997. For the first six months of the year, domestic gas sales were 1149.6 MMcf/d, down from 1184.3 MMcf/d. The average domestic gas sales price was $1.87/Mcf in the second quarter, down from $1.98/Mcf in the year-ago period. For the first six months, the average price was $1.89/Mcf, down from $2.27/Mcf in the first half of 1997.

Phillips Petroleum posted second-quarter net income of $158 million, or 61 cents a share, a 49% decrease from $307 million, or $1.17 a share, for the same period last year. Second-quarter net income for 1997 benefited $80 million from resolution of a tax case. Total revenues in the second quarter of 1998 were $3.0 billion, versus $3.8 billion a year ago.

After adjusting for special items, net operating income was $152 million, or 59 cents a share, compared with $214 million, or 81 cents a share, for the same period a year ago - a 29% decrease. Special items in the second quarter decreased 1998 net income $6 million.

Phillips domestic gas production was 967 MMcf/d in the second quarter, down from 1,019 MMcf/d in the same period of 1997. In the first six months of the year, production was 979 MMcf/d, down from 1,053 MMcf/d in the first half of 1997. Domestic production sold for $1.96/Mcf in the second quarter, up from $1.90/Mcf in the second quarter of 1997. In the first half of the year, production sold for $1.97/Mcf, down from $2.26/Mcf in the first half of 1997.

Vastar Resources reported second-quarter 1998 earnings of $32.8 million ($0.34 per share), compared to $58.3 million ($0.60 per share) reported in the second quarter of 1997. Higher gas production and price realizations partially offset increased exploration expenditures and lower liquids production and prices. During the quarter the company achieved a 7% increase in gas production compared to the previous year's second quarter. Overall production rose 3% despite deteriorating margins for gas processing.

Vastar gas production was 940 MMcf/d in the second quarter, up from 880 MMcf/d in the second quarter of 1997. For the first six months of the year, production was 921 MMcf/d, up from 877 MMcf/d in 1997. Production sold for $1.94/Mcf in the second quarter, up from $1.72/Mcf in the second quarter of 1997. For the first six months of the year, production sold for $1.93/Mcf, down from $2.02/Mcf in the first half of 1997. "We continue benefiting from new production, our low cost structure and the fact that natural gas represents about 75% of our product mix," said CEO Charles D. Davidson. Significant production increases were achieved from the San Juan Basin coal seam fields, from earlier startups of the High Island 117 and Ship Shoal 126 offshore fields; and from a recent discovery in the South Panola field.

Occidental Petroleum reported net income of $186 million ($.51 per share) for the second quarter of 1998, compared with net income of $158 million ($.41 per share) for the second quarter of 1997. Earnings before special items were $47 million for the second quarter of 1998, compared with $138 million for the same period in 1997. Sales were $1.5 billion for the second quarter of 1998, compared with $2.2 billion for the same period in 1997.

Occidental domestic gas production was 578 MMcf/d in the second quarter, down from 630 MMcf/d in the second quarter of last year. Production was 603 MMcf/d in the first six months of this year, down from 612 MMcf/d in the first six months of 1997.

Occidental oil and gas divisional earnings before special items were $90 million for the second quarter of 1998, compared with $139 million for the second quarter of 1997. Results for the second quarter of 1998 were $380 million after including pretax gains of $290 million related to the sale of non-strategic domestic oil and gas assets, primarily MidCon Corp. The decrease in earnings before special items primarily reflects the negative impact of lower worldwide crude oil prices, partially offset by higher gas prices and increased oil production in the eastern hemisphere and United States.

Joe Fisher, Houston

©Copyright 1998 Intelligence Press, Inc. All rights reserved. The preceding news report may not be republished or redistributed in whole or in part without prior written consent of Intelligence Press, Inc.

Comments powered by Disqus