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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: SliderOnTheBlack who wrote (43208)	4/25/1999 2:45:00 PM
From: cherrypitter	Read Replies (2) \| Respond to of 95453

Slider Et All: "It's the Cap Spending, Stupid". Check out this article from 19 April "Forbes" magazine: Forbes 500s Database Alone among big oil companies, Chevron is increasing its drilling budget this year. What does Ken Derr see that other oilmen don't? The contrarian By Christopher Palmeri OIL PRICES HAVE ticked up in recent weeks, but, even at $16 a barrel, they are still in the dumps. Most oil companies are doing what they almost always do when prices dive: cutting outlays for well drilling. But this story is about the one guy who is not playing that game. Chevron Corp. Chairman Kenneth Derr is increasing the outfit's exploration and production budget by 12% to $3.7 billion, making it the only big oil company to beef up its drilling budget this year. Look at the others. Exxon is slicing its E&P spending by 12% from 1998 to this year; BP Amoco, by 22%; Conoco, 40%. The 15 largest companies as a group are going to cut by an average of 17%, according to Salomon Smith Barney. So what gives with Chevron? “If you are going to go for something, make sure it's big enough to matter,” says Derr, 62. Translation: Most oil companies are choosing profits over production growth. Derr wants both. How? Chevron got in early in several rich drilling areas overseas, such as Angola and Kazakhstan. Those fields are profitable even at today's depressed oil prices, so Derr can afford to pump more money into production. And if prices should go up, as they presumably will before the fields run dry, the projects become even more lucrative. Of course, it's easier said than done. Mobil Corp. and Amoco Corp. spent billions of dollars in the 1990s on international exploration projects, notes John S. Herold analyst Richard Gordon. Growth was mediocre, and both lost their independence. The Royal Dutch/Shell Group was another high roller on international projects, but switched course last December. Shell has reduced its projected capital spending by $5 billion this year. Derr insists: “It's not how much you spend; it's what you get for your money.” So far he seems to have gotten a pretty good bang for his buck. After Derr took over in 1989, he channeled an increasingly larger percentage of Chevron's budget into big oil and gas projects overseas. Result: Over the past five years, as Chevron has pumped 2.6 billion barrels, it has added 4.3 billion others, a 165% replacement rate. The average big oil company replaced just 116% of what it sold. It now costs Chevron $3.91 per barrel to find oil, considerably less than what it cost the company a decade ago. “They never overpay,” notes J. Robinson West, chairman of the Washington, D.C.-based consultancy Petroleum Finance Co. In part that's because Derr's timing is usually good. Chevron paid the government of Kazakhstan about half what Mobil did for a piece of the huge Tengiz field on the Caspian Sea. How? It got in three years earlier. Derr also used the slump in energy prices to pick up a promising natural gas play in Thailand. Chevron paid $3.50 a share for the Rutherford-Moran Oil Corp., which two years ago traded at $30 a share. That said, Derr is still watching the cost side of the equation. He continues to cut outlays at Chevron's domestic oil and gas unit, its refining and gas station businesses and its chemical operations. Those businesses, Derr says, have returns lower than his overall goal of a 12% return on capital. He's also whacking away at Chevron's overall costs, to the tune of $500 million. As a percentage of 1998 net income (38%), that's the same order of magnitude as the cutting that Exxon and British Petroleum announced in their mergers with Mobil and Amoco. Priming the pump Look who's been at or near the top in annual production growth. Company Production growth 1993-97 Projected production growth 1999-2001 Chevron 2% 4% Exxon 1 2 Marathon 2 4 Mobil 1 2 Occidental 3 1 Phillips 2 2 Texaco 2 3 Sources: Company annual reports; MSDW estimates. Morgan Stanley Dean Witter oil analyst Douglas Terreson expects Chevron's overall production to grow by 4% a year over the next three years. That should translate into 10% earnings growth, on the high side for the industry. While Chevron's earnings fell 60% last year, to $1.3 billion on sales of $30 billion, Terreson forecasts a rebound this year to $2 billion, or $3 per share.

To: SliderOnTheBlack who wrote (43208)	4/25/1999 8:50:00 PM
From: SargeK	Read Replies (1) \| Respond to of 95453

New and Old Mantra: "It's the Spin Stupid" The more things appear to change, the more they stay the same. Some folks just never learn........... K