Arco reports 21 % earnings increase in 1996
Arco has reported 1996 net income of $ 1.7 bn, compared with $ 1.4 bn in 1995. "Arco had one of the most successful
years in its 130-year history," said Arco Chairman and Chief Executive Officer Mike R. Bowlin. "Strong oil and
natural gas prices helped our performance, but increases in production and cost control also contributed to a fine
year. And we made real progress toward long-term growth for Arco's global operations."
Arco completed its first year of natural gas production at the Yacheng-13 field in the South China Sea, China's largest offshore natural gas field. The company also became a partner with Algerian Sonatrach, in Rhourde el Baguel, Algeria's second largest oil field, containing an estimated 3 bn barrels of oil. The application of Arco's enhanced oil recovery technology at Rhourde El Baguel is expected to increase production rates fivefold to 125,000 bpd and recover an additional 500 mm barrels. In the United Kingdom North Sea, Arco started production from the Trent and Tyne fields, giving it total average net gas production of 330 mmcfpd from the UK North Sea. In addition, Arco made important progress on a number of large-scale projects world-wide. In eastern Indonesia, Arco is drilling the seventh delineation well on the Wiriagar gas discovery to appraise for its potential as a world-scale liquefied natural gas project. Arco formed a joint venture with Russia's largest oil company, LUKoil, for projects in the former Soviet Union. In Venezuela Arco signed a joint venture agreement to produce and upgrade heavy oil in the prolific Orinoco Belt. In Alaska, Arco announced that the Alpine field, west of the Kuparak River field, is commercial and should start production in 2000. Alpine contains an estimated 800 mm to 1 bn barrels of oil with an expected recovery of 250-300 mm barrels.
E & P earnings up 86%
Higher prices and strong production levels throughout the world combined to give Arco's world-wide exploration and production (E&P) operations 1996 earnings totalling $ 1.27 bn, up from $ 683 mm in 1995. In the 1996 fourth quarter, E&P earnings totalled $ 406 mm, compared with $ 163 mm in the 1995 fourth quarter. For all of 1996, Arco's domestic crude oil price averaged $ 16.36 per barrel, up from $ 12.31 per barrel in 1995. US natural gas prices were also up, averaging $ 1.80 per thousand cubic feet in 1996, compared with $ 1.35 per thousand cubic feet in 1995. Overseas, Arco's natural gas prices averaged $ 2.54 per thousand cubic feet in 1996 while oil prices averaged $ 19.60 per barrel. Arco's 1996 oil and gas production totalled 921,100 bpd of oil equivalent, up from 909,300 bpd of oil equivalent in 1995. Increased natural gas production in the South China Sea, UK North Sea and Indonesia, as well as the United States, were primarily responsible for the growth, more than offsetting natural field declines in domestic oil production. Crude oil and natural gas liquids production world-wide averaged 625,400 bpd, compared with 649,900 bpd in 1995. The Rhourde el Baguel field contributed to production in the second half of the year. In addition, Alaska production exceeded expectations, driven by performance at Prudhoe Bay and Point McIntyre. International natural gas volumes grew to 730 mm cfpd in 1996, up 31 % from 557 mm cfpd in 1995. New production in the UK North Sea and the South China Sea, and growing volumes in Indonesia provided the boost in volumes. In the 1996 fourth quarter, Arco's international gas production was 241 mm cfpd higher than it was in the 1995 fourth quarter. Natural gas production in the United States averaged 1,044 mm cfpd in 1996, up from 999 mm cfpd in 1995. Vastar Resources Inc.'s San Juan Basin and Gulf of Mexico fields contributed to the 5 % increase. Arco holds an 82.3 % interest in Vastar. Arco's E&P earnings for 1996 included an after-tax benefit of $ 15 mm related to a Trans Alaska Pipeline (TAPS) refund. This compares to a net after-tax benefit from special items of $ 23 mm in 1995.
Refining and Marketing Growth
Earnings in Arco's refining and marketing segment were $ 260 mm after tax, up 47 % from last year's $ 177 mm after tax, although West Coast refining and marketing results were volatile throughout 1996. Arco continued to grow its West Coast business, increasing total products' sales volumes by 8 % and its refinery crude runs 3 % compared to 1995. The 1996 earnings included after-tax charges of approximately $ 10 mm for environmental and other remediation costs while the 1995 results included net special charges totalling $ 23 mm. In the 1996 fourth quarter, Arco's refining and marketing segment had an after-tax loss of $ 8 mm, compared with after-tax earnings of $ 53 mm in 1995, as crude oil prices increased while gasoline prices declined.
Expanding its global downstream business interests, Arco increased its interest in Zhenhai Refining and Chemical Company in China with the purchase of convertible bonds in late 1996 which will give Arco a 20 % interest upon conversion.
Chemicals down from record 1995
Arco's 82.7% interest in Arco Chemical Company earned $ 320 mm after tax in 1996, compared with a record $ 460 mm in 1995. Lower styrene prices more than offset improved profitability from propylene oxide (PO) and derivatives. Arco Chemical made further commitments to global expansion with investments and transactions to focus on its core PO, urethanes and performance chemicals businesses. In the 1996 fourth quarter, Arco earned $ 61 mm after tax from its interest in Arco Chemical. This compares with 1995 fourth quarter earnings of $ 104 mm.
For all of 1996, Arco earned $ 141 mm after tax from transportation, compared with $ 193 mm in 1995. The 1996 earnings included a net charge of approximately $ 20 mm after tax as the gain on a pipeline interest sale was offset by charges primarily related to a writedown of Arco's interest in the Point Arguello Pipeline and to the TAPS tariff refund which is reflected as a benefit in Arco's E&P operations. In after-tax results related to other operations in 1996, Arco earned $ 60 mm from coal ($ 75 mm in 1995 including after-tax charges of $ 10 mm); and $ 53 mm from a 49.9 % equity interest in Lyondell Petrochemical Company (compared with $ 194 mm in 1995). In total, special items for all operations in 1996 netted to zero after benefits from insurance settlements and the sale of a pipeline interest offset the Point Arguello Pipeline writedown, final charges for previously reported personnel reductions and charges for future environmental remediation. In 1995, benefits from special items were approximately $ 45 mm after tax.
Sales and other operating revenues for 1996, excluding excise taxes, totalled $ 18.6 bn, up from $ 15.8 bn in 1995. The 1995 number was restated to exclude previously reported excise taxes.