Gasoline prices dropped another three cents around my neighborhood this week.
Oil companies are reporting earnings.
Monday January 25 5:43 PM ET
Low Oil Prices Hit Earnings At ARCO, Chevron
By Scott Hillis
LOS ANGELES (Reuters) - Big U.S. West Coast oil firms Chevron Corp. (NYSE:CHV - news)
and Atlantic Richfield Co. (NYSE:ARC - news) Inc. (ARCO) Monday posted sharply lower
fourth-quarter earnings, blaming the weakest oil prices in 12 years.
The earnings slump stemmed from exploration and production operations hard hit by a slump in oil
prices, which have dropped by a third in the past year, analysts said.
''There is no question this was a bad year for oils,'' ARCO Chairman and Chief Executive Mike
Bowlin said in a statement.
But refining and retailing helped to stave off worse damage as low oil prices helped the companies
reap profits at filling stations, analysts said.
San Francisco-based Chevron, the third-largest U.S. oil company, said fourth-quarter net income
fell 51 percent to $431 million, or 66 cents a share on a diluted basis, from $875 million, or $1.33
per share in the year-ago period.
On an operating basis, Chevron's earnings fell 38 percent to $503 million, or 76 cents a share.
Analysts had expected Chevron operating earnings of 47 cents per share, according to First Call
Corp., which tracks Wall Street forecasts.
Chevron Chairman Ken Derr said its refining and marketing business racked up ''strong profits'' for
a second year.
''They made it at the pump,'' said James Falvey, an analyst with Dresdner Kleinwort Benson.
''When oil prices are low, people are more inclined to buy the premium (gasoline).''
Monday, Chevron's stock fell 12.5 cents to $79.875 a share in composite New York Stock
Exchange trading.
ARCO also managed to come in ahead of Wall Street expectations. The Los Angeles-based oil
company posted operating earnings of $70 million, or 22 cents a share, far exceeding the First Call
consensus of 4 cents a share,
Including asset write-downs, however, ARCO posted a fourth-quarter net loss of $794 million, or
$2.47 a share, compared with a profit of $382 million, or $1.17 a share, a year earlier.
For the year, ARCO's net income dropped to $452 million, or $1.40 per share, on revenues of
$10.3 billion. That compared with 1997 net income of $1.77 billion, or $5.41 per share, on
revenues of $14.34 billion.
ARCO's stock slid $1.06 to $58.9375 a share in composite NYSE activity Monday.
Both ARCO and Chevron vowed to further slash spending to try to stay ahead of the sinking oil
prices.
ARCO is in the midst of a two-year drive to trim $500 million from costs, while Chevron pledged to
continue a cost-cutting plan that has saved it $2.4 billion since 1991.
Meanwhile, Chevron, cheered by a 7 percent rise in 1998 oil output from its international projects,
said it would boost exploration and production abroad.
''These strategies, taken together, position Chevron for a strong rebound in profitability when the
eventual improvement begins in crude oil and natural gas prices,'' said Derr, who also is Chevron's
chief executive officer.
Analysts were less bullish on the prospects for ARCO, whose stock has been battered in recent
months, sparking speculation that it might be a takeover target.
''ARCO, like all the domestic oil companies, is definitely in trouble,'' Falvey said. ''The problem is
whether they can find a good partner or mix.''
Los Angeles-based Occidental Petroleum Corp. (NYSE:OXY - news) also joined the fat-trimming
rush by announcing it would scale back capital spending to $350 million this year from $1.06 billion
last year.
Outside the integrated oil firms, there was a ray of light for the beleaguered industry as oil and gas
well driller Diamond Offshore Drilling said its fourth-quarter earnings rose to $82.6 million, or 58
cents a share on a diluted basis, from $79.3 million, or 55 cents a share, for the year-ago period.
Monday, Oxy's stock dropped 81.25 cents to $16.125 a share, while Diamond Offshore's stock fell
50 cents to $24.5625 a share.
dailynews.yahoo.com
Tuesday January 26 4:21 PM ET
Big Oil Earnings Evaporate, Three Plunge To Loss
By David Chance
NEW YORK (Reuters) - After the oil industry scored its most profitable year ever in 1997, its
executives knew it would have a tough act to follow in 1998.
But a 40 percent drop in crude oil prices and huge write-offs pushed three of the largest U.S. oil
companies to big losses in the fourth quarter.
Texaco Inc. (NYSE:TX - news), the fourth-largest U.S. oil company said Tuesday it lost $213
million, or 43 cents a share, in the quarter, after net special charges of $305 million.
This compared with income of $623 million, or $1.12 per share, for the fourth quarter of 1997, after
net special benefits of $151 million.
Operating earnings at the White Plains, N.Y.-based company slid to $92 million, or 15 cents a
share, down from $472 million, or 85 cents a share, but right in line with the 13 to 16 cents a share
analysts had been expecting.
''The industry has not experienced crude oil prices this low since the mid-1970s,'' said Texaco
Chairman and Chief Executive Peter Bijur.
Shares of Texaco slid 2 1/8 to 48 1/2 Tuesday.
''I think you are starting to see the capitulation. Investors are starting to realize there is not going to
be a turnaround any time soon,'' said Michael Young, oil analyst at Deutsche Bank Securities.
Just how bad industry conditions were was shown by the fact that after charges of $83 million,
Texaco earned just $1 million from its huge U.S. oil and natural gas operations, down a staggering
$224 million from the year-ago quarter.
Charges at Texaco were related not only to the fact that many oil fields, particularly small wells in the
U.S., are not economic at oil prices below $13 a barrel, but also reflected $71 million in currency
losses on its Asian refining operations, the lower value of its refined product inventories and the costs
of the startup of its U.S. refining and marketing ventures with Royal Dutch/Shell Group and Saudi
Refining.
For all of 1998, income before special items declined 50 percent to $894 million, or $1.59 per
share, from $1.894 billion, or $3.45 per share, for 1997.
However, net special charges of $316 million to cover the drop in the value of Texaco's oil fields
and oil product inventories reduced 1998 net income to $578 million, or 99 cents per share -- down
sharply from 1997's $2.664 billion, or $4.87 per share, after net special benefits of $770 million.
Phillips Petroleum Co. (NYSE:P - news), as expected, failed to turn in a profit either at the net or
operating level. On Jan. 6, Phillips had warned analysts and investors that it would record a
fourth-quarter loss and cut about 1,400 jobs.
The Bartlesville, Okla.-based oil company lost $210 million net, or 83 cents a share in the fourth
quarter, compared with net income of $209 million, or 79 cents a share, a year ago.
Phillips said in a statement that the net effect of special items in the quarter was $210 million, and
before these, it just broke even on an operating basis, in line with analysts' expectations.
Now Phillips is basing its plans on $11- to $12-per-barrel oil, way below the $17- to
$21-per-barrel average price of the 10 years preceding 1998.
At Occidental Petroleum Corp., the earnings report was clouded by special items, plus the sale of its
MidCon pipeline unit and the purchase of Union Texas Petroleum Holdings.
Monday, Oxy reported a fourth-quarter loss of $38 million, or 12 cents per share, compared with a
net loss of $884 million, or $2.65 a share, in the 1997 quarter.
The Los Angeles-based company said it lost $35 million before special items in the quarter, in line
with analysts' expectations, compared with earnings of $99 million for the same period in 1997.
Sales were $1.7 billion for the fourth quarter of 1998, down from $1.9 billion for the 1997 quarter.
For the full year, Oxy's net income totaled $363 million, 99 cents per share, compared with a 1997
net loss of $390 million, or $1.43 per share.
Sales slid to $6.6 billion in 1998, down from $8.0 billion in 1997.
The losses forced Oxy to slash capital spending to just $350 million from $1.06 billion.
Others, too, are hewing away at dead wood in an attempt to at least make some money with oil
prices mired at below $13.
Texaco said it was adjusting to the new low-price paradigm with $600 million in cuts from its capital
spending program as well accelerating a layoff program.
''We are not standing still, waiting for prices to improve,'' Texaco's Chairman and CEO Bijur said.
''We are implementing significant cost and expense reductions across all of our businesses.''
BP Amoco Plc, the world's third-largest publicly traded oil company, said Tuesday it would shed
1,600 jobs in Texas.
Analysts are questioning why the shares of oil companies should trade at 32 times estimated 1999
earnings and said takeover premiums were looking increasingly unjustified.
''These stocks are priced too high, even anticipating a tremendous recovery in commodity prices,
which is not happening,'' said Deutsche Bank Securities' analyst Young. ''We need a lot more of
these companies to disappear.''
dailynews.yahoo.com
Charles |
