Weak Oil Prices to Keep Producers Under the Gun By David Chance NEW YORK (Reuters) - A slide in crude oil prices to the lowest levels since 1994 Thursday overshadowed fourth quarter earnings from the nation's top oil companies, and analysts said continued oil oversupply will keep their profits under the gun this year. As crude oil briefly dipped to $15.90 a barrel, the lowest level since April 1994, some of the big oil companies issued strong earnings reports. Oil cut its loss and ended the day 32 cents lower at $16.04 on the New York Mercantile Exchange. Chevron Corp. said its quarterly profits doubled from a year ago, and Texaco Co. racked up solid earnings as higher oil production and strong marketing gains offset a slide in prices. "The fourth quarter is absolutely immaterial and the first quarter is going to be a disaster," said Michael Young, analyst at Deutsche Morgan Grenfell, who downgraded his 1998 earnings for the sector on the weaker oil outlook. He said that what joy there was in the fourth quarter, which prompted some major producers to boast of record earnings, was the result of foreign currency gains. "These earnings are completely fictitious as the companies have huge foreign currency gains," Young said. Among the other producers that reported their results, Amoco Corp. said its income was lower, partly because of the Asian economic turmoil, while USX-Marathon Group said its quarterly earnings were cut by a charge for an inventory market valuation. Chevron said it earned $929 million, or $1.41 a share, up sharply from $464 million, or 71 cents a share, a year ago, when the company took a charge of $221 million for its British operations. Revenues dropped to $9.7 billion from $11.2 billion. The San Francisco-based company said crude oil prices in the fourth quarter were $4.00 lower than a year earlier at $17.68 a barrel. Despite the strong results, which beat analysts' estimates for earnings of only $1.00 a share, Chevron's stocks closed down $1.56 at $75.44 on the New York Stock Exchange. Analysts cautioned that the results included a $143 million foreign exchange gain on its overseas refining and marketing operations which distorted results. "If you exclude the currency gains, you start working back down to a number which is in line with forecasts," said Eugene Nowak, analyst at ABN-AMRO Chicago Corp. For the year, Chevron earned $3.3 billion, or $5.05 a share, up sharply from $2.6 billion, or $3.99 a share in 1996. Revenues fell to $40.5 billion from $42.7 billion. The company said its U.S. refining and marketing business had its best year since 1988, turning a $28 million loss into a $174 million profit. "In spite of lower crude oil prices, we reached our earnings goal of $3 billion one year ahead of schedule," said Chief Executive Officer Ken Derr. "Our earnings improvement in 1997 was driven by the excellent performance of our U.S. refining and marketing operations and our continued focus on international liquids production growth," he said. Derr said the strong earnings had prompted Chevron's board to approve a $6.3 billion capital program for exploration and production for 1998, the largest in the company's history. Texaco Inc. said its earnings jumped to $623 million, or $1.15 a share, from $509 million, or 95 cents, a year earlier. Before special items, earnings were up 24 percent to $472 million, or 87 cents a share, topping Wall Street's consensus estimate of 80 cents. Sales totaled $12.0 billion, down from $12.8 billion. But the White Plains, N.Y.-based company warned that the slide in world energy prices would hit earnings in early 1998. Texaco said it overcame the sharp drop in world oil prices during the quarter by stepping up production and by squeezing more profits out of its refining and marketing divisions. "The recent sharp decline in both oil and natural gas prices as well as stagnant refining margins will apply downward pressure on first-quarter 1998 earnings," said Texaco Chief Executive Peter Bijur. For the full year, Texaco's earnings rose to $2.7 billion, or $4.99 a share, including special items, from $2.0 billion, or $3.77, in 1996. Before the items, earnings rose to $1.9 billion, or $3.52 a share, from $1.7 billion or $3.09. Sales rose to $46.6 billion from $45.5 billion a year earlier. Texaco stock fell $1.125 to $52.875 on the NYSE. Amoco Corp. said its fourth-quarter income fell to $789 million, or $1.63 per share from $871 million, or $1.74 per share, a year ago. The company had revenues of $9.69 billion, down from revenues for the same period a year ago of $10.11 billion. For the year, Amoco earned $2.72 billion on revenues of $36.29 billion, compared with record 1996 earnings of $2.83 billion on revenues of $36.11 billion. "Despite this current environment ... we are continuing to take the steps necessary to meet our targets set last year of 10 percent average annual growth rate in earnings and a 15 percent return on capital employed by 2001," said Laurance Fuller, chairman of the Chicago-based company. Amoco's stock fell $2.44 to $80.125 on the NYSE. USX-Marathon Group, the oil and gas unit of USX Corp., said a charge for an inventory market valuation cut its fourth quarter earnings to $38 million, or 14 cents a share, from $160 million, or 57 cents a share, a year earlier. Sales dropped to $3.8 billion from $4.4 billion. For all of 1997, the Marathon Group earned $456 million, or $1.59 per share, down from year-earlier profits of $664 million, or $2.31 per share. Sales fell to $15.6 billion from $16.2 billion. The Pittsburgh-based company said earnings from international exploration and production also fell, to $45 million in the quarter from $116 million a year earlier. Marathon's stock fell $1.94 to $31.94 on the NYSE.
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