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Major’s earnings continue strong Big oil company executives predicting profit and production declines Allen Baker PNA Contributing Writer
With oil prices stabilizing and natural gas showing weakness, it’s getting tougher for the big oil companies to keep their profits on an upward course.
Most of them still managed to show year-over-year gains in the second quarter, but few matched the stellar numbers of the first quarter. And executives are warning of substantial declines in profit and production later this year. BP struggles to boost production BP pushed second-quarter earnings up 5 percent from the 2000 figure, but boosted its total production by just 4 percent, with all of that coming from the gas side.
Liquids production actually dropped a bit, to 1,885 thousand barrels a day from 1,897 for the same quarter a year earlier. The big decline was in the United Kingdom. Natural gas production rose 11 percent, though, to 8,554 million cubic feet daily, from 7,694 in the prior-year.
Gas and oil volumes were down from the first-quarter totals worldwide. Second-quarter crude production in the United States was a bright spot, with liquids yield reaching 742,000 barrels a day, up from 722,000 in the first quarter and 705,000 a year ago.
Pro forma profit for the quarter was $3.8 billion, up from $3.6 billion a year ago but down from $4.1 billion in the blockbuster first quarter. The board increased the dividend 4.8 percent, bringing the pay out to 33 cents for each American Depository Share.
BP got an average of $3.43 for a thousand cubic feet of gas in the second quarter, up from $2.51 a year ago but down from $4.96 in the first quarter. Average yield from a barrel of oil was little changed at $24.74 a barrel.
It was refining and marketing operations that kept overall profits from slipping behind previous periods. On a pro-forma basis, second quarter earnings were up 26 percent over the year-ago figure at $1.76 billion. The segment showed a 77 percent improvement from the first quarter.
Chemicals continued weak, contributing just $9 million in profits, compared with $370 million a year earlier.
BP doesn’t provide quarterly revenue figures. Alpine powers Phillips Phillips Petroleum boosted its second-quarter operating earnings by 37 percent to $601 million as its Alpine field helped the company boost U.S. crude production by 61 percent. Alaska exploration and production contributed $240 million to the profit figure as Phillips pumped an average of 340,000 barrels of oil daily, up from 198,000 in the second quarter of 2000.
Revenues for the quarter were down 9 percent, though, to $5.0 billion from $5.4 billion.
Company-wide crude production was up 34 percent, but natural gas production slipped 2 percent. The gas price made up for that, with Phillips averaging $3.91 per thousand cubic feet for its gas in the quarter, compared with $2.99 a year earlier. U.S. gas brought $6.41 in the first quarter.
Refining and marketing brought in $196 million, far above the $86 million from that segment in 2000, but Jim Mulva, Phillips’ CEO, warned that refinery margins were tightening and some scheduled maintenance would also affect that segment in the third quarter.
There’s a bit of a downturn coming in crude production as well, Mulva said, with some downtime at Alpine and in Norway on top of normal seasonal decline. But Mulva predicts the company will be back to first-quarter levels of 845,000 barrels of oil equivalent daily by the fourth quarter.
Phillips’ chemicals business went down with the industry-wide decline in demand. The joint venture with Chevron drained $23 million from the bottom line, compared with operating income of $1 million a year earlier.
The average crude price dropped to $25.83 for the period from $26.96 a year earlier, while the company realized $3.31 per thousand cubic feet of gas, up from $2.78 in the second quarter of 2000. ExxonMobil eases higher Operating earnings rose 6 percent at ExxonMobil to $4.38 billion compared with a year earlier, though net income actually fell 2 percent from $4.53 billion to $4.46 billion. The difference came in special items involving the merger of Exxon and Mobil. Income dropped significantly from the first quarter, when the huge company had a profit of $5 billion.
Second-quarter revenues were $56.46 billion, up from $55.96 billion a year earlier. That figure also was a significant drop from first-quarter, when revenues reached $57.3 billion.
The deterioration could continue, according to ExxonMobil’s Chairman Lee R. Raymond:
“The improvement in earnings reflected higher U.S. natural gas realizations and refining margins, both of which were very strong early in the second quarter but declined significantly as the quarter progressed. The decline in these key earnings drivers along with crude oil prices has continued into the third quarter,” Raymond said in a statement.
Like the other majors, ExxonMobil showed a 27 percent gain in the downstream sector, and weakness in chemicals. Liquids production was up a bit to 2.53 million barrels a day, from 2.51 million in the quarter a year ago. Gas production was down a bit due to the shutdown of operations in the Aceh province of Indonesia due to unrest there. Unocal net slips Unocal’s net earnings dipped slightly to $247 million for the quarter from $264 million a year earlier. Excluding special items, the company did show an improvement to $228 million from $170 million a year earlier. Either way, it’s far short of the first quarter net of $295 million.
Higher natural gas prices in the Lower 48 and increased production there was responsible for the gains, said Unocal CEO Charles R. Williamson, with net Lower 48 gas production up 31 percent to 954 million cubic feet daily. That gas brought $4.62 per thousand cubic feet, up from an average of $3.41 a year earlier. Average Lower 48 liquids price slipped to $24.57 from $25.14.
Alaska operations contributed $13 million to company profits, down from $19 million in the first quarter and $23 million a year ago. Unocal sold its Nikiski fertilizer plant to Agrium Inc. in September of last year.
Overall, Unocal’s production averaged 516,000 barrels of oil equivalent daily, up nearly 11 percent.
Williamson is projecting a major drop in profit for the third quarter to a range of 50 to 60 cents a share. That’s compared with 99 cents in the second quarter. Gas sales continue to power Chevron Chevron continued to benefit from high natural gas prices in the big California market, and also got a major boost from refining and marketing.
It added up to a net income for the second quarter of $1.32 billion, up 19 percent from $1.12 billion a year ago. But that was still short of the $1.6 billion Chevron collected in a sterling first quarter.
The company, which is planning to merge with Texaco, brought in $1 billion from exploration and production, up from $968 a year earlier. Refining, marketing and transportation brought in $376 million, double the $187 million from the same period a year earlier. Chemicals brought in $27 million, barely half of the $51 million a year in the same quarter of 2000.
Chevron increased its natural gas production by 2 percent, while the price rose 65 percent of an average of $5.52 per thousand cubic feet. Average oil price was down 6 percent to $23.87 a barrel. Despite the income gain, second quarter revenues were down slightly to $13 billion, from $13.2 billion in the 2000 second quarter. Marathon profits from refining USX-Marathon Group benefited from strong results from its downstream segments, boosting net profits 59 percent to $582 million. That topped the first-quarter figure of $478 million as well. Revenues improved to $9.2 billion from $8.7 billion.
Higher natural gas prices powered the upstream segment, which contributed $374 million on the domestic side in the quarter, up from $356 million. But downstream was the dramatic change, with earnings before taxes of $842 million, compared with $529 million a year earlier.
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