Atlantic Richfield Co., the seventh-largest U.S. oil company, said Monday that its second-quarter profit fell 44% as the lowest oil prices in 12 years and the sale of its coal operations slashed revenue.
Los Angeles-based Arco reported profit before gains and charges of $220 million, or 67 cents a diluted share, compared with net income of $390 million, or $1.19, a year ago. The company was expected to earn 68 cents a share, the average estimate of analysts polled by First Call Corp. Revenue fell 28% to $2.64 billion, from $3.68 billion.
Arco's profit was cut by the June sale of its coal operations, which contributed 7 cents a share to earnings in the second quarter of 1997. Oil prices that averaged 26% lower than last year also lowered returns.
Arco's shares fell 31 cents to close at $71.50 on the New York Stock Exchange.
Arco, saying it will concentrate on finding and selling oil and natural gas, bought an oil exploration company and sold its coal business in June. It also said last month that it would sell its 82% stake in its chemical unit, Arco Chemical Co.
The divestitures of the coal and chemical holdings will take about a dollar from Arco's annual per-share earnings, said Jack Aydin, an analyst at McDonald & Co.
Although some of that dollar will be offset by reduced interest payments and other cost savings, earnings will be lower at least until the company invests the proceeds from the sales in something that generates earnings, analysts said.
"Our second-half production should improve," Arco Chairman and Chief Executive Mike Bowlin said in a statement. He estimated 1998 production will be 5% more than in 1997.
Arco sold its U.S. coal assets last month to Arch Coal Inc. for $1.14 billion. Arco will exit the chemicals business when Lyondell Petrochemical Co. completes its $6.49-billion purchase of Arco Chemical, a transaction expected to close in the third quarter.
Arco bought Union Texas Petroleum Holdings Inc., an oil exploration company, for $3.3 billion in cash and assumed debt, closing the sale in June. That purchase will be reflected in third-quarter earnings reports and will mean lower results through next year, Arco said.
The company's focus on oil and natural-gas operations comes as crude oil prices hover near 12-year lows. Oil on the New York Mercantile Exchange averaged $14.67 a barrel in the second quarter, more than $5 less than a year earlier, and the lowest level since the third quarter of 1986.