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Occidental 1st-Quarter Profit Off 30%

Energy: Oil company is first of what is expected to be several to report lower net income because of lower crude prices.

April 21, 1998|NANCY RIVERA BROOKS | TIMES STAFF WRITER

More evidence that the collapse of crude oil prices is hitting the oil industry where it hurts: Occidental Petroleum Corp. said Monday that first-quarter operating profit fell 30% because of lower crude oil and natural gas prices, and Unocal Corp. said it expects to reduce capital spending for short-term projects by as much as 13% this year.

The corporate toll from cheap oil is anticipated to mount during the next week as major oil and gas exploration and production companies release their earnings reports for the first three months of the year. Although oil prices have stabilized for now because of promised production cuts by oil exporting countries, the per-barrel price on the New York Mercantile Exchange is about one-fourth less than it was a year ago, and that means puny profits.

"It's not going to be a pretty picture," said Victor A. Burk, managing director of energy industry services in the Houston office of the Arthur Andersen consulting firm.

Oil industry analysts are predicting that first-quarter earnings at large U.S. oil companies will drop by anywhere from 20% to more than 50%.

Los Angeles-based Arco, El Segundo-based Unocal and Chevron Corp. of San Francisco will fall in that range, as will Exxon Corp., Mobil Corp., Texaco Corp. and several others, according to analysts polled by investment researcher IBES International Inc.

The culprit is cheap oil. Crude oil futures on the New York Merc averaged $15.92 a barrel in the first quarter, compared with $22.86 a barrel in the same period last year. The crude oil contract for May delivery, which expires today, fell 5 cents on Monday to $15.41 a barrel.

"Oil prices are fairly low, and obviously that's going to be a problem for companies that pull oil out of the ground," said Bruce J. Raabe, an oil analyst with Collins & Co. in San Francisco. "Companies with strong refining businesses will do better because gasoline prices have been fairly strong."

Occidental Petroleum, which has no refining operations, reported first-quarter operating earnings before special items of $89 million, or 26 cents per share, compared with $127 million, or 38.5 cents per share, for the same quarter in 1997.

First-quarter net income was $177 million, or 50 cents per share, compared with year-ago net income of $179 million, or 48 cents per share. The first quarter 1998 results include benefits from discontinued operations that Occidental has sold as part of a major restructuring that involved the purchase of the Elk Hill strategic reserve from the U.S. government.

Sales were $1.7 billion, compared with $1.9 billion for the same period in 1997.

Although oil and gas division earnings before special items fell to $127 million from $247 million, chemical division earnings jumped to $158 million from $92 million.

If crude oil averages $5 a barrel less this year than last, then U.S. oil producers will see more than $8 billion in revenue and cash flow wiped out, Burk said.

"That's a significant number," Burk said. "It will be interesting to see what companies will announce with regard to their capital spending plans for this year."

Unocal said Monday that it would reduce its capital spending budget by up to 13%, to $1.3 billion, by postponing some short-term projects.

In New York Stock Exchange trading, Occidental Petroleum shares closed at $29.38, down 19 cents, and Unocal shares closed at $41.13, up $1.06.

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