While weak oil prices were a big disappointment to producers,gas prices offered a bright side to second-quarter earningsreports. Generally, realized gas prices were up in the secondquarter from the year-ago period. However, prices generally wereoff for the first half of the year compared to the first half of1997. Some companies intimated the weak oil price environment willcause them to refigure their spending plans for the rest of theyear.

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

For Texaco, improved margins and higher international salesvolumes and an 11% increase in worldwide production only partiallyoffset effects of lower oil prices. Texaco net income for thesecond quarter of 1998 was $342 million, or $0.61 per share. Thequarter included a net special gain of $7 million. Net income forthe second quarter of 1997 was $571 million, or $1.05 per share,including a net special gain of $131 million. For the first half of1998, 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, upfrom 3,561 MMcf/d in the year-ago period. In the first half of theyear, 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 priceper 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 andanticipates some adjustment in spending by deferring non-criticalprojects should current low crude prices persist.

Amoco reported second-quarter earnings of $287 million or $.30per share. Excluding special items, second-quarter 1998 earningswere $395 million, or $.41 per share, compared with second-quarter1997 earnings of $622 million or $.63 per share. The earningsdecline primarily resulted from lower worldwide crude oil prices,which for Amoco dropped over $5.00 per barrel in the United Statescompared with the year-earlier levels.

“We are not satisfied with the current level of earnings,” saidH. Laurance Fuller, CEO. “We continue to have confidence in theability of our strategies to grow our business profitably overtime. As we implement those strategies, we may find it necessary intoday’s price environment to further reduce costs and the pace ofcapital spending.”

Gas production decreased 6% compared with the second quarter of1997, reflecting normal field declines and dispositions. Amocodomestic 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 firsthalf of the year, production was 2,266 MMcf/d, down from 2,399MMcf/d in 1997. Amoco’s U.S. natural gas prices averaged about$1.85/Mcf during the quarter, about $.15/Mcf higher than thesecond 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 thesecond quarter of 1998, reflecting the ongoing share repurchaseprogram.

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

“Exxon’s net income of $1.6 billion was down $345 million or18%, reflecting weaker crude oil prices which on average were about$5 per barrel or 26% lower than last year,” said Exxon Chairman LeeR. Raymond. “This year’s second quarter results benefited fromhigher liquids production, increased petroleum product and chemicalsales volumes, and improved downstream margins.

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

“The first-half of 1998 has been a very difficult period,”conceded Shell President Jack E. Little. “Lower prices for crudeoil and poor market conditions in other businesses have resulted indepressed earnings compared to the last few years. This businessenvironment during the second half of this year will beexceptionally challenging.”

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

Shell gas production was 2,076 MMcf/d in the second quarter, upfrom 1,733 MMcf/d in the second quarter of last year. In the firsthalf of the year, production was 1,987 MMcf/d, up from 1,746MMcf/d. Shell’s gas sold for $2.17/Mcf in the second quarter, upfrom $2.10/Mcf in the year-ago period. In the first half of theyear, 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 secondquarter of 1998 totaled $184 million, a decrease of $78 millionfrom 1997. For the first half of 1998, earnings were $332 million,down $383 million. Excluding special items in the comparableperiods, adjusted net income declined $107 million in the 1998quarter 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 $823million, or $1.25 per share, for the 1997 second quarter. Excludingspecial items, second quarter operating earnings were $620 million,compared with 1997 second quarter operating earnings of $837million.

Net second quarter 1998 U.S. gas production of 1,786 MMcf/ddeclined from 1,896 MMcf/d for the 1997 second quarter. Declineswere primarily attributable to property sales. For the first sixmonths, production was 1,796 MMcf/d, down from 1,911 MMcf/d in thefirst 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 22percent from $10.3 billion in last year’s second quarter.

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

Mobil reported second-quarter 1998 operating earnings of $655million, a 25% decrease, from the $870 million earned in the sameperiod last year. Operating earnings per common share, assumingdilution, were $0.81, compared with $1.07 in the second quarter of1997. Including special items, net income for the quarter was $642million, or $0.79 per common share, versus $850 million, or $1.04per share, last year.

“In addition to significantly lower crude oil prices, down about$5 per barrel from the same period last year, weak industryfundamentals in many of our businesses hurt earnings in the secondquarter,” said CEO Lucio A. Noto. “In the Upstream, lower worldwidecrude oil and international natural gas prices impacted earnings byover $200 million. Additionally, Mobil’s year-to-date productiondeclined by over 1% versus the same period last year, largely dueto temporary constraining factors.”

Mobil domestic gas production was 1,119 MMcf/d in the secondquarter of this year, down from 1,136 MMcf/d in the same period of1997. 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 soldfor $2.07/Mcf in the second quarter, up from $1.88/Mcf in the sameperiod 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 quarter1998, compared with $158 million, or 55 cents per diluted share, insecond quarter 1997. Marathon’s recorded second quarter 1998 netincome was also $162 million, or 56 cents per diluted share. Therewere no material special items. Net income in second quarter 1997was $118 million, or 41 cents per diluted share and included a $40million unfavorable reserve adjustment.

“The strong second quarter results reflected an exceptionalperformance by our downstream operations and continued growth inworldwide liquids production. This mostly offset the significantimpact of lower liquid hydrocarbon prices and increased explorationexpenses in our upstream business,” said Chairman Thomas J. Usher.

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

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

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

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

Phillips domestic gas production was 967 MMcf/d in the secondquarter, down from 1,019 MMcf/d in the same period of 1997. In thefirst six months of the year, production was 979 MMcf/d, down from1,053 MMcf/d in the first half of 1997. Domestic production soldfor $1.96/Mcf in the second quarter, up from $1.90/Mcf in thesecond quarter of 1997. In the first half of the year, productionsold for $1.97/Mcf, down from $2.26/Mcf in the first half of 1997.

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

Vastar gas production was 940 MMcf/d in the second quarter, upfrom 880 MMcf/d in the second quarter of 1997. For the first sixmonths of the year, production was 921 MMcf/d, up from 877 MMcf/din 1997. Production sold for $1.94/Mcf in the second quarter, upfrom $1.72/Mcf in the second quarter of 1997. For the first sixmonths of the year, production sold for $1.93/Mcf, down from$2.02/Mcf in the first half of 1997. “We continue benefiting fromnew production, our low cost structure and the fact that naturalgas represents about 75% of our product mix,” said CEO Charles D.Davidson. Significant production increases were achieved from theSan Juan Basin coal seam fields, from earlier startups of the HighIsland 117 and Ship Shoal 126 offshore fields; and from a recentdiscovery in the South Panola field.

Occidental Petroleum reported net income of $186 million ($.51per share) for the second quarter of 1998, compared with net incomeof $158 million ($.41 per share) for the second quarter of 1997.Earnings before special items were $47 million for the secondquarter of 1998, compared with $138 million for the same period in1997. 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 secondquarter, 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 itemswere $90 million for the second quarter of 1998, compared with $139million for the second quarter of 1997. Results for the secondquarter of 1998 were $380 million after including pretax gains of$290 million related to the sale of non-strategic domestic oil andgas assets, primarily MidCon Corp. The decrease in earnings beforespecial items primarily reflects the negative impact of lowerworldwide crude oil prices, partially offset by higher gas pricesand increased oil production in the eastern hemisphere and UnitedStates.

Joe Fisher, Houston

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