Table 20. Refining and Marketing Financial Items and Operating Data for FRS Companies, 1992-1993 Note: Sum of components may not equal total due to independent rounding. Percent changes were calculated from unrounded data. 78Energy Information Administration, Petroleum Supply Annual 1993, DOE/EIA-0340(93)/1 (Washington DC, June 1994), Table 49. 79 The Los Angeles Times, October 14, 1993, p. J2. 80Energy Information Administration, Form EIA-28. (Table 21). In 1993, FRS retail operations sold an average of 85,000 gallons of gasoline per month, versus 82,000 in 1992. Higher average output volumes were realized by both large and small FRS companies (Table 19). In part, the gain in average outlet volume was due to an increase in overall retail sales, and in part due to FRS companies' continued push to rid themselves of lower-volume operations. Over the past two years, FRS companies have also reduced the geographic scope of their retail gasoline marketing networks. For example, during 1992 and 1993, Sun withdrew from gasoline marketing in Oklahoma, Missouri, and Iowa.81 This withdrawal concentrated Sun's retail network in the Northeast. In 1993, Sun maintained a retail network in 20 states compared to 27 in 1991.82 BP America, meanwhile, sold its retail network in Florida and its aforementioned marketing interests in Washington and Oregon, reducing BP America's marketing network to Ohio and the Southeast.83 In total, BP America reduced its geographic coverage by 8 states.84 Unocal announced in March 1992 that it would cease operating in the Southeastern United States, leaving Unocal with marketing operations located in only 7 western states, versus 44 states in 1991.85 In 1991, FINA's retail gasoline network was spread across 25 states; in 1992, FINA reduced its retail coverage to only 11 states, primarily located in the South. Ashland operated in 11 states in 1993 compared to 18 in 1991. Since 1991, Ashland has sold its retail operations in Florida, Washington, and Wyoming to concentrate more in the upper Midwest and Ohio Valley.87 Table 21. Gasoline Distribution by FRS Companies, 1992-1993 86 81Sun Company, Inc., 1992 Annual Report, p. 15. 82 National Petroleum News, Markets Facts, Mid-June 1993, p. 136, and Mid-June 1994, p. 144. 83 The British Petroleum Company, Annual Report on Form 20-F 1993, p. 20. 84 National Petroleum News, Markets Fact, Mid-June 1993, p. 136, and Mid-June 1994, p. 144. 85 National Petroleum News, Markets Fact, Mid-June 1993, p. 136, and Mid-June 1994, p. 144. 86 National Petroleum News, Markets Fact, Mid-June 1993, p. 136, and Mid-June 1994, p. 144. 87 National Petroleum News, Markets Fact, Mid-June 1993, p. 136, and Mid-June 1994, p. 144. Foreign Refining Foreign refining/marketing operations registered a 76percent increase in net income in 1993, to $3.5 billion, and realized the highest return on investment among the FRS companies' lines of business (Table 3). Even as lower petroleum prices drove FRS foreign refining/marketing revenues down by $18 billion, operating expenses fell by $20 billion.88 Higher refining margins contributed to this result. Margins in both European and Asian markets in 1993 were well above prior-year levels, though short of the extraordinary margins realized in 1991 (Figure 14). Higher utilization rates also Note: Refining margin is defined as netback crude oil price less spot crude oil price. Netback price is calculated by multiplying the spot price of each refined product by its percentage share in the yield of a barrel of crude oil. Transport and out-of-pocket refining costs are then subtracted to arrive at netback price. Source: Petroleum Market Intelligence, September 6, 1991, p. 8; April 2, 1992, p. 8; January 7, 1993, p. 8; and January 6, 1994, p. 8. contributed to the earnings upswing. The FRS companies' overseas refinery utilization rate rose from 80 percent of capacity in 1992 to 83 percent in 1993 (Table 20), the highest rate in the 20 years spanned by the FRS data. Despite the improvement in foreign refining/marketing performance, capital spending for this line of business fell 9 percent between 1992 and 1993 (Table 20). However, although FRS companies reduced their overall foreign downstream capital expenditures over the last two years, it appears that in the rapidly growing countries of Asia, refining expenditures may have increased. Chevron, DuPont, Exxon, Mobil, and Texaco accounted for most of the FRS companies' net investment in overseas refining/marketing operations."9 These companies increased European refining throughput by 3 percent in 1993 and by only 7 percent over the last five years." In contrast, the same companies increased their Asian and Pacific Rim refining throughput by 6 percent in 1993 and by 23 percent over the last five years. 91 The FRS companies apparently are also redirecting their marketing efforts towards Asia. Evidence presented in the annual reports of a number of FRS companies with overseas downstream petroleum commitments suggests that Asian transport fuels marketing has been a growing target of investment. For example, Caltex, Chevron and Texaco's joint subsidiary, which operates primarily in Asia (but also in Africa and the Middle East), increased its capital expenditures for marketing between 1989 and 1993 from $67 million to $262 million." Further, in 1990, Caltex reported that its retail distribution system included more than 16,000 retail outlets, while in 1994, Caltex reported more than 17,500 outlets.93 In contrast, Chevron, Mobil, Texaco, and DuPont reported that the number of their European retail outlets fell from 16,441 in 1989 to 13,361 in 1993. Over the same period, Mobil reported that Pacific Rim refined product sales increased 29 percent while Mobil's European product sales remained flat.95 92 88 Energy Information Administration, Form EIA-28. 89Energy Information Administration, Form EIA-28. Chevron, Supplement to the Chevron Corporation 1992 and 1993 Annual Reports; DuPont, Data Book 1993; Exxon Corporation, 1992 and 1993 Financial and Operating Reviews; Mobil, 1992 and 1993 Mobil Fact Book, A Supplement to the Annual Report; and Texaco, Inc., Financial and Operating Supplement, 1992 and 1993. "Chevron, Supplement to the Chevron Corporation 1992 and 1993 Annual Reports; DuPont, Data Book 1993; Exxon Corporation, 1992 and 1993 Financial and Operating Reviews; Mobil, 1992 and 1993 Mobil Fact Book, A Supplement to the Annual Report; and, Texaco, Inc., Financial and Operating Supplement, 1992 and 1993. 92Texaco, Inc., Form 10-K, Caltex Group of Companies Combined Financial Statements and Schedules, 1989, p. 15, and 1993, p. 18. 93 Caltex Reports, 1990, p. 5, and 1994, p. 1. "Chevron, Supplement to the Chevron Corporation 1993 Annual Report, p. 39; DuPont, Data Book 1993, p. 46; Mobil, Mobil Fact Book, A Supplement to the Annual Report, p. 66; and, Texaco, Inc., Financial and Operating Supplement, 1993, p. 55. 951993 Mobil Fact Book, p. 65. Transportation TAPS Lowers Profits Developments in the Trans Alaskan Pipeline System (TAPS), which transports crude oil from the North Slope of Alaska to the port of Valdez, Alaska, are central to the financial performance of the FRS companies' liquids pipelines. The three FRS companies accounting for 94 percent of TAPS ownership (ARCO, BP America, and Exxon) account for a majority of the FRS companies' revenue from liquid pipelines." The TAPS throughput declined 7 percent in 1993 following a 4-percent decrease in 1992. Further, tariff rates fell to $2.94 per barrel in 1993 from $3.26 per barrel in 1992.98 Revenue for FRS liquids pipelines declined 6 percent (Table 22). Operating expenses increased 3 percent. Additions to investment in place increased 38 percent partly due to the installation of the GHX gas handling system (see the box entitled "Sustaining Prudhoe Bay in 1993"). Net income (excluding unusual items) decreased 26 percent compared to 1992 (Table 22). Gas Pipelines' Performance Stable in 1993 Although most of the FRS companies are involved in liquids pipelines operations, two-thirds of the total pipeline assets for the FRS companies are committed to natural gas transmission. Three companies (Coastal, Enron, and Occidental) account for nearly all of the FRS companies' natural gas pipeline activity and accounted for 17 percent of U.S. natural gas transmission volumes in 1993.99 Despite a decade of deregulatory turmoil (see the box entitled "Unbundling in Natural Gas Transmission"), financial results for natural gas pipelines were remarkably stable between 1992 and 1993. Revenues were up 3 percent (Table 22), to $6.8 billion, about the same as overall growth in U.S. natural gas consumption.100 Operating costs increased slightly, producing a modest 4-percent rise in operating income. However, mainly due to the rise in the Federal corporate income tax rate from 34 percent in 1992 to 35 percent in 1993 and its effects on deferred taxes (see Chapter 2), net income posted a 16-percent decline. Sustaining Prudhoe Bay in 1993 The Prudhoe Bay field is the nation's largest oil field and accounts for the majority of TAPS throughput. The Prudhoe Bay field has entered its mature phase and production levels began to decline in 1989. To mitigate this decline, the owners of the oil field initiated a gas handling expansion program to restore the reservoir pressure and enhance oil production. In 1990, the producers installed the first major gas handling system and reservoir stimulation program, GHX-1, which maintained production levels in 1990 and 1991. However, in spite of this, net production still declined by 48,000 barrels per day (b/d) in 1992 and net production in 1993 declined by 63,000 b/d. In September 1993, the first phase of a second major gas handling expansion project (GHX-2) was installed, increasing gas handling capacity to 6.7 billion cubic feet per day (bcf/d) in the fourth quarter of 1993. The second and last phase of GHX-2 will be installed in 1994 and will increase the annual gas handling capacity to 7.5 bcf/d. The total expansion, at a cost of $1.3 billion, is expected to increase field production by 100,000 b/d by 1995. "Exxon Corporation, 1993 Securities and Exchange Commission Form 10-K, p. 12.; Atlantic Richfield Corporation, 1993 Annual Report on Form 10-K, p. 11; and British Petroleum Company, 1993 Annual Report on Form 20-F, p. 17. "The following seven FRS companies together own 100 percent of the Trans Alaska Pipeline: Amerada Hess Corporation, Atlantic Richfield Corporation (ARCO), BP America, Exxon Corporation, Mobil Corporation, Phillips Petroleum Company, and Unocal Corporation. Source: The Christian Science Monitor, January 5, 1994, p. 8. 98 Atlantic Richfield Corporation, 1993 Annual Report, p. 10. "Energy Information Administration, Natural Gas Monthly, DOE/EIA-0130(94/03) (Washington, DC, March 1994), Table 11. 100 Energy Information Administration, Natural Gas Monthly, DOE/EIA-0035(94/03) (Washington, DC, March 1994), Table 3. Table 22. Financial Items for Transportation for FRS Companies, 1992-1993 aData are for FRS companies with pipeline assets primarily in natural gas transmission. Excludes special charges taken by FRS companies. 'Measured by additions to property, plant, and equipment, plus additions to investments and advances. dData are for FRS companies with pipeline assets primarily in liquids pipelines. --= Not meaningful. Source: Energy Information Administration, Form EIA-28. Unbundling in Natural Gas Transmission A decade-long transition towards deregulation of the U.S. interstate natural gas pipeline industry is now largely over. The year 1993 marked the first winter in which the FRS natural gas pipeline companies operated in the completely unbundled environment mandated by FERC Order 636. Prior to the Natural Gas Policy Act of 1978, FERC Order 436 and FERC Order 500 (implemented in October 1985 and 1987, respectively), natural gas pipelines acted primarily as suppliers of bundled gas services. Pipeline firms purchased gas from producers, shipped the same gas to end users, and ultimately charged end users for both the marketing and the transporting of this gas. However, in response to market and regulatory changes over the past ten years, gas pipelines have increasingly separated their transportation and marketing operations. Carriage shares (transported volumes), which were almost negligible before 1984, had exceeded sales volume by 1987. For the first half of 1993, carriage shares accounted for 86 percent of the total natural gas delivered. However, as interstate pipelines leave the merchant function mandated by FERC Order 636, natural les will become insignificant. In April 1992, FERC issued Order 636, known as the "Restructuri ̧ Order 636 required pipelines to further "unbundle" their natural gas transportation services by ing transportation, sales, and storage services separately. The implementation ' open access to these services ha fundamentally altered the way natural gas is sold, transported, and stored in the United States. L.terstate pipelines now provide a variety of gas transportation and storage services, and gas is now sold by marketers and producers. |