Major producers, who usually have chemical and other businessesto shield them somewhat from weak commodity prices, obviously wereleft unprotected during the third quarter. They’re suffering underlow oil and gas prices right along side the independents.

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

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

“Lower prices for crude oil, natural gas and all majordownstream oil and chemical products continued to depressearnings,” said Shell President Jack E. Little, whose company’s netincome was off 46%. “Market conditions have deteriorated evenfurther since the second quarter of this year, with average crudeoil prices at their lowest level in 12 years.”

Shell’s domestic gas prices averaged $1.88/Mcf in the thirdquarter, down 40 cents from the year-ago period. Domestic gasproduction was down 4% in the quarter-to-quarter comparison but up8% for the first nine months of this year. Downstream gas, a newShell operating segment, had earnings for the third quarter of $10million. During the third quarter, transported gas volumes wereabout 6,237 MMcf/d, down about 9% from the second quarter of thisyear. (The business segment did not exist last year.) Gasprocessing 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 netincome was $258 million, compared to $479 million for the samequarter of 1997.

“Earnings continue to suffer from the depressed crude oil pricesthat have plagued our industry for the past year,” lamented ChevronCEO Ken Derr, whose company’s income was off 37%. Chevron had netincome of $461 million, or 70 cents/share, compared to $727million, or $1.10 cents/share, in Q3 1997. Things don’t look likethey’ll be getting better soon, Derr noted.

“The fourth quarter will be a difficult one. Our results willcontinue to be affected negatively by low crude oil prices and lowmargins on refined products and chemicals, since we do not foreseeany significant near-term improvement in these areas.” Chevron’saverage third quarter domestic gas prices were $1.92/Mcf, off 28cents from the year-ago period. Declines in domestic gas andliquids production were attributable mainly to property sales andcurtailments resulting from weather-related shutdowns in the Gulfof Mexico in September.

Phillips net income was off a whopping 79% to $46 million, or 18cents/share, compared to $216 million, or 82 cents/share, in 3Q1997. Exploration and production net operating income was $52million, down from $146 million in the year-ago quarter, mainly dueto lower prices for oil and gas and lower production. Phillipsdomestic 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. Q3net income was $215 million, 38 cents/share in 1998. Net income forthe third quarter of 1997 was $490 million 90 cents/share. Amocoreported third-quarter net income of $295 million, 31 cents/share,down 54% from $635 million, 65 cents/share, in the third quarter of1997. Exxon reported third quarter net income of $1,400 million,down 23% from the record $1,820 million in the third quarter of1997. On a per-share basis, net income declined 22% to 58 cents inthe 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 pricesfor the third quarter were $10.06 per barrel; 39% lower than the1997 period. Texaco domestic net gas production available for saledropped to 1,641 MMcf/d from 1,722 MMcf/d in the third quarter of1997.

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

Exxon “crude oil prices continued to be weak and on average wereat their lowest level since the third quarter of 1986,” saidChairman Lee R. Raymond. “Exxon’s U.S. and European natural gasrealizations also declined to the lowest quarterly level in nearlythree years. Natural gas production was up slightly from the thirdquarter of 1997, while liquids volumes were essentially flat.”Exxon’s realized domestic gas prices averaged $1.97/Mcf in thethird quarter of 1998, down from $2.22/Mcf in the third quarter of1997.

Joe Fisher, Houston

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