MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING FRIDAY APRIL 24, 1998 (5)
TOP STORIES
Low Oil Prices Drive Down Results For Imperial's First Quarter
The Financial Post
Low oil prices cut earnings at Imperial Oil Ltd. by more than 40% in the first quarter, Canada's largest oil company said Friday.
Profit for the quarter ended March 31 was $113 million (76› a share), down from $191 million ($1.21) for the equivalent period last year.
"Lower oil prices make this a challenging environment for Imperial," chairman and chief executive Bob Peterson said." Revenue for the Toronto-based integrated company, 70% owned by Exxon Corp., fell to $2.24 billion from $2.7 billion a year ago.
Oil prices fell 31% in the first quarter, compared with 1997, because of the mild winter, slack Asian demand and high production around the world.
"Imperial is ... relatively high cost. With lower oil prices, their profit in the production end of the business pretty much evaporated," said New York-based analyst Rosario Ilacqua of Rothschild Inc.
Earnings from Imperial's exploration and production arm slumped to $1 million for the period, including a $10-million gain from asset sales, from $120 million last year, which also included a $10-million gain from asset sales.
The company's retail gasoline stations made more money. Net earnings for the segment were $99 million, up from $65 million last year.
Earnings from its chemicals unit were marginally up at $22 million from $20 million last year.
At the company's annual meeting in Toronto on Friday, shareholders approved a three-for-one stock split effective May 15.
Big Oil Learning To Cope With Lousy Oil Prices
Canadian Press
Ask the chairman and chief executive of Canada's largest integrated oil producer what the price of crude will be in a year and he wastes no time with his answer.
A smile and a shrug.
"I haven't got the faintest idea," Bob Peterson said Friday after Imperial Oil Ltd.'s annual meeting in Toronto. "I don't know what the price of oil is going to be."
He certainly knows what it is now: light sweet crude is hovering near $15 US a barrel, about 30 per cent lower than last year's levels, and is to blame for a massive drop in Imperial's first-quarter profits.
But Peterson's laissez-faire outlook about oil prices is one that's becoming typical of Big Oil's attitude these days: don't worry, be happy.
It's a corporate version of that 12-step mantra about changing the things you can, accepting the ones you can't and having the wisdom to tell the difference.
Suncor Energy Inc., for instance, is forging ahead with expansion plans and capital investment programs despite the lousy price climate.
"Most of us continue to be optimistic that prices will improve, but I think we all need to behave like they won't," Peterson said after the meeting.
"We need to continue to focus on those things that are important: cost, volumes, our asset quality and execution of the details."
Peterson tried to get that across to shareholders Friday as he unveiled quarterly results that bore the scars of a run-in with the plunging price of crude.
Imperial's net earnings fell more than 40 per cent in the first three months of 1998 to $113 million, while profits from oil production were virtually wiped out.
Saving the day was an impressive increase on the petroleum products side, which includes Imperial's refineries and 2,000 Esso gasoline stations across the country.
Analysts and investors alike were cheered by the fact profits from Imperial's petroleum products business climbed to $99 million in the quarter, up from $65 million during the same 1997 period.
But it wasn't enough to sustain midday gains in Imperial Oil shares, which eventually retreated on the Toronto Stock Exchange to close Friday at $79.80, down a dime.
Imperial, owned by the world's biggest oil company, Texas-based Exxon Corp., has been closing unprofitable retail outlets, selling marginal assets and investing where money can be made as the Toronto company girds itself against low prices.
It's a strategy Peterson credits for Imperial's gas station division turning a profit in 1997 for the first time in recent years.
Imperial turned record profits of $847 million last year, which was probably why the company's chairman wanted to let shareholders know they could be in for a rough ride in 1998.
"It's been our view for some time that we can't count on high oil prices or rising oil prices or even stable oil prices to anchor investments and increase earnings," he said.
"Volatile markets are not an aberration in this business - they are a fact of life."
Despite the beating producers have taken on the oil production side, analysts like John Clarke at Deutsche Morgan Grenfell in Toronto were pleasantly surprised by the company's performance in that area.
"This is a cash machine that one shouldn't underestimate, notwithstanding the fact (oil production profits) did take a bashing," he said.
"The rest of the business seems to be performing very well. With a resurgence in oil prices, you can see (oil production) generating comparable income."
Forecasting the price of oil is a "mug's game" that can't be won, Peterson said, reminding shareholders of the predictions being made in the heady days of the late 1970s.
"We all knew that oil was going to be $100 barrel by now," he said.
"Oil is still cheaper than bottled water as increasingly open and flexible markets have developed for the commodity called crude oil."
Like integrated competitors Suncor, Petro-Canada Ltd. and Shell Canada Ltd., Imperial has an advantage over pure oil and gas producers.
Since it buys raw products for its refining and petrochemical operations, lower crude and natural gas prices mean lower costs at the other end of the business.
Increases in production helped cushion the blow of low oil prices at Suncor, where profits fell to a comparatively srong $50 million in the first quarter from $60 million last year.
Petro-Canada, meanwhile, saw first-quarter profits plunge to $36 million, down from $104 million in the same 1997 period. Shell Canada is expected to report results next week.
Big Oils See Silver Lining In Rotten Quarter
Reuters
The first quarter of 1998 was a rotten one for U.S. major and integrated oil companies as crude prices dropped by one third from a year ago.
While most analysts say this year is going to be poor, many companies are now seeing good increases in production and better performance in refining and marketing, especially overseas, helping to lift the gloom of an appalling quarter.
This should help them compensate for still-weak crude prices; the benchmark Brent blend is trading at $14.00 per barrel compared with a nine-year low of $12.00 hit in March.
Eugene Nowak, analyst at ABN AMRO Inc., said earnings from the two largest oil companies reporting on Thursday, Texaco Inc. (TX) and Chevron Corp. (CHV), came in as expected.
Chevron's adjusted operating earnings per share in the quarter were $0.57. Stripping out unusual items such as currency effects, which the West Coast giant includes at the operating level, they were in line with analysts' expectations of $0.67 per share, versus $1.23 a year ago, according to First Call. ''Chevron clearly had a very strong foreign refining and marketing performance, but the U.S. was far from robust, thanks to their exposure on the West Coast,'' Nowak said.
Chevron's operating earnings dropped 46 percent to $436 million from a year ago as average U.S. crude prices slumped 37 percent to $12.49 per barrel and natural gas by 25 percent to $2.09 per thousand cubic feet.
This slashed U.S. exploration and production earnings by 67 percent to $106 million, and unlike its peers, Chevron was not able to make up some of the fall with its domestic refining. Earnings there fell 36 percent to $50 million due to refinery maintenance and the worst quarter for gasoline prices for 25 years on the West Coast. In the international division, Chevron operating earnings fell to $155 million from $192 million.
In common with Exxon Corp. (XON), which reported on Tuesday, and Texaco today, Chevron saw a strong performance in overseas refining and marketing. Earnings in its Caltex venture with Texaco soared to $101 million from $56 million.
For Texaco, EPS excluding one-time items of $0.46, down from $0.90 a year ago, were below forecasts of $0.50.
''The strong performance in foreign refining and marketing was offset by some very heavy exploration expenses and interest,'' said Nowak.
Capital spending surged to $967 million in the quarter from $799 million a year ago, with the lion's share going on a $132 million rise to $766 million in exploration and production, as the White Plains, N.Y., major invested for the future.
Net income slid to $259 million from $492 million as oil prices swallowed up a worldwide production increase of 17 percent to 1.331 million barrels per day of oil equivalent.
Its U.S. downstream division earned $47 million, up from $6.0 million a year ago, and Texaco said it could have been more had it not been for the West Coast and maintenance.
Overseas earnings surged 80 percent to $182 million as European, Latin American and Asian demand recovered and the slump in oil prices perked up margins.
Atlantic Richfield Co. (ARC) posted a two percent rise in worldwide oil and natural gas production but saw its net income slide to $0.62 before items from $1.41, compared with analyst forecasts of $0.60.
ARCO suffered a drop in downstream earnings to $19 million because of its West Coast exposure and its worldwide upstream earnings fell 60 percent to $182 million.
Among the smaller integrated oils, Phillips Petroleum Co. (P) EPS came in $0.10 ahead of expectations at $0.65 per share, prompting an earnings upgrade to $2.90 for the year.
''We are raising our 1998 estimate by $0.10, primarily reflecting higher than expected chemical earnings and lower corporate charges this quarter,'' said Michael Mayer, analyst at Schroder & Co.
Phillips' adjusted earnings fell $76 million to $171 million as earnings in the U.S. upstream more than halved to $62 million as a result of lower oil prices.
Phillips chief executive Wayne Allen said in a conference call after the report that he expected the improvement in costs and margins in downstream businesses to continue.
USX-Marathon Group (MRO) saw its adjusted net income slide to $0.26 from $0.61, in line with analysts' expectations, as lower oil prices cast their pall over over a 10 percent rise in oil production. Adjusted earnings were cut by two-thirds to $76 million as U.S. upstream earnings fell to $74 million from $183 million and foreign upstream halved to $50 million.
Reported earnings of $180 million were flattered by a one-time gain of $107 million.
Marathon's refining and marketing business -- its 62 percent owned venture with Ashland Inc. (ASH), Marathon Ashland Petroleum LLC -- made $128 million, up from $79 million, although stripping out special gains that figure was $74 million.
However, analysts remain bullish on the stock and Schroder's Mayer rates it ''outperform'' and sees earnings per share this year at $1.85, down from $2.20 in 1997.
''Marathon will benefit this year from higher production, which is expected to be up about 11 percent, and downstream cost savings,'' he said.
Looking forward, most of the majors say they are eager to keep up investment to find new resources.
Chevron chief executive Ken Derr said that despite soft oil prices, the company would invest for growth and not cut spending as Unocal Corp. (UCL) and Amoco Corp. (AN) said this week that they would do.
''Although we're monitoring this crude oil market closely, we haven't made any substantive changes to our capital spending plans and expect to move forward with our attractive investment opportunities to grow the company,'' he said.
Traders get Mixed Signals As Oil Stabilizes
Calgary Sun
Oil prices squeaked upward on spot markets yesterday after sliding more than $2 Thursday amid fears of a worldwide supply glut.
West Texas Intermediate crude oil gained 35 cents per barrel on the near-month market to close at $13.38 after plunging $2.22 the day before.
But May futures remained fairly stable, with light sweet crude oil ending the week at $15.45 per barrel, up four cents.
The anomaly between short- and longer-term prices suggests traders are getting very mixed messages about the supply-demand situation, said David Manning, president of the Canadian Association of Petroleum Producers.
"There seems to be some confusion out there," Manning said.
The Organization of Petroleum Exporting Countries tried earlier this month to plug what was estimated as a 100 million bpd oversupply in the U.S. alone.
Along with non-OPEC countries, the cartel agreed in an emergency meeting to scale back production to drive prices up.
Calgary analyst Rick Roberge said oil prices tend to find their way back to the $18-$20 mark despite short-term events that may drive prices down.
Reduced demand in Asia, a U.N. agreement to loosen Iraqi production and a warm winter brought on by El Nino have all conspired to pummel oil prices, he said.
"Everything that could go wrong on both the demand and supply side did." |
