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There's No Joy Among Producers Reporting 3Q Earnings

There's No Joy Among Producers Reporting 3Q Earnings

Major producers, who usually have chemical and other businesses to shield them somewhat from weak commodity prices, obviously were left unprotected during the third quarter. They're suffering under low oil and gas prices right along side the independents.

Third quarter net income figures announced by six major producers last week showed declines from the previous third quarter ranging from 23% all the way up to 79%. Shell, Chevron, Phillips, Texaco, Amoco, and Exxon all cited weak commodity prices for poor performance.

Among independents Burlington Resources, Apache Corp., Vastar Resources and Union Pacific Resources reported reduced earnings last week based on natural gas prices that were between 3% and 9% lower and oil prices off between 30% and 33% from those in the third quarter 1997 (See separate report, page 5).

"Lower prices for crude oil, natural gas and all major downstream oil and chemical products continued to depress earnings," said Shell President Jack E. Little, whose company's net income was off 46%. "Market conditions have deteriorated even further since the second quarter of this year, with average crude oil prices at their lowest level in 12 years."

Shell's domestic gas prices averaged $1.88/Mcf in the third quarter, down 40 cents from the year-ago period. Domestic gas production was down 4% in the quarter-to-quarter comparison but up 8% for the first nine months of this year. Downstream gas, a new Shell operating segment, had earnings for the third quarter of $10 million. During the third quarter, transported gas volumes were about 6,237 MMcf/d, down about 9% from the second quarter of this year. (The business segment did not exist last year.) Gas processing throughputs were about 76,000 barrels/d, down almost 30% from last quarter, and gas processing margins declined sharply, both due to adverse market conditions, Shell said. Shell's net income was $258 million, compared to $479 million for the same quarter of 1997.

"Earnings continue to suffer from the depressed crude oil prices that have plagued our industry for the past year," lamented Chevron CEO Ken Derr, whose company's income was off 37%. Chevron had net income of $461 million, or 70 cents/share, compared to $727 million, or $1.10 cents/share, in Q3 1997. Things don't look like they'll be getting better soon, Derr noted.

"The fourth quarter will be a difficult one. Our results will continue to be affected negatively by low crude oil prices and low margins on refined products and chemicals, since we do not foresee any significant near-term improvement in these areas." Chevron's average third quarter domestic gas prices were $1.92/Mcf, off 28 cents from the year-ago period. Declines in domestic gas and liquids production were attributable mainly to property sales and curtailments resulting from weather-related shutdowns in the Gulf of Mexico in September.

Phillips net income was off a whopping 79% to $46 million, or 18 cents/share, compared to $216 million, or 82 cents/share, in 3Q 1997. Exploration and production net operating income was $52 million, down from $146 million in the year-ago quarter, mainly due to lower prices for oil and gas and lower production. Phillips domestic gas production sold for an average of $1.75/Mcf, down from $2.15/Mcf in 3Q 1997.

Texaco net income was off 56% for the third quarter of 1998. Q3 net income was $215 million, 38 cents/share in 1998. Net income for the third quarter of 1997 was $490 million 90 cents/share. Amoco reported third-quarter net income of $295 million, 31 cents/share, down 54% from $635 million, 65 cents/share, in the third quarter of 1997. Exxon reported third quarter net income of $1,400 million, down 23% from the record $1,820 million in the third quarter of 1997. On a per-share basis, net income declined 22% to 58 cents in the third quarter, reflecting an ongoing share repurchase program.

For the third quarter, Texaco average gas prices were $1.89/Mcf; 11% lower than the 1997 period. Average realized crude oil prices for the third quarter were $10.06 per barrel; 39% lower than the 1997 period. Texaco domestic net gas production available for sale dropped to 1,641 MMcf/d from 1,722 MMcf/d in the third quarter of 1997.

Amoco's U.S. gas prices averaged about $1.70/Mcf during the quarter, about 10 cents/Mcf below the third quarter of 1997. Amoco's average crude oil prices decreased about $5.00/barrel and averaged about $12.50/barrel for the quarter. Gas production decreased 10% compared with the third quarter of 1997, reflecting normal field declines and dispositions. Crude oil and gas liquids (NGL) production declined seven percent from a year ago. Amoco's Canadian gas prices for the third quarter averaged about $1.30/Mcf, 10 cents/Mcf higher than the same period in 1997. Amoco's average crude oil prices in Canada were $5.00/barrel below the third quarter of 1997, and averaged about $9.00/barrel for the quarter.

Exxon "crude oil prices continued to be weak and on average were at their lowest level since the third quarter of 1986," said Chairman Lee R. Raymond. "Exxon's U.S. and European natural gas realizations also declined to the lowest quarterly level in nearly three years. Natural gas production was up slightly from the third quarter of 1997, while liquids volumes were essentially flat." Exxon's realized domestic gas prices averaged $1.97/Mcf in the third quarter of 1998, down from $2.22/Mcf in the third quarter of 1997.

Joe Fisher, Houston

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