Atlantic Richfield - 2nd Quarter & Interim Results

RNS No 8836d
ATLANTIC RICHFIELD CO
27th July 1998

 
ARCO'S SECOND QUARTER RESULTS
 
Lower Upstream Income; Higher Refining And Marketing
 
Los Angeles, July 27 - ARCO (NYSE: ARC) today reported 1998 second quarter
financial results that reflected the impact of lower oil prices and improved
results from its refining and marketing segment.
 
Earnings excluding special items (the basis on which earnings were estimated
by security analysts) totaled $220 million, or $0.67 per diluted share, down
44% compared to last year. Net income (which includes special items) for the
second quarter was $154 million, or $0.47 per diluted share.
 
In the 1997 second quarter, ARCO's net income totaled $390 million, or
$1.19 per diluted share, with special items netting to zero.
 
"The earnings story for the 1998 second quarter and first half is one of
low oil prices and lower production levels in our upstream businesses," said
ARCO Chairman and Chief Executive Officer Mike R. Bowlin. "Our second half
production should improve. New field start-ups in Alaska, the North Sea and the
Gulf of Mexico coupled with production from former Union Texas properties should
lead to about a 5% production increase for 1998. Low oil prices are a challenge
and cause us to carefully monitor our capital spending, but I'm pleased with our
progress toward our long term goals."
 

   SUBSTANTIAL PROGRESS TOWARD UPSTREAM GROWTH
 
   Bowlin characterized the second quarter as one in which the company took
significant actions on its long-term strategic goals and future growth.
 
   "During the quarter, we completed the acquisition of Union Texas Petroleum
and disposed of our U.S. coal assets. Subsequent to the end of the quarter,
Lyondell Petrochemical Company completed its tender offer for ARCO Chemical
stock, which results in the sale of our 82.1% interest in ARCO Chemical. In
addition, we agreed to acquire a 25% interest in a 10 trillion-cubic-foot gas
resource in the Gulf of Thailand."
 
   While having no material impact on the second quarter's net income, Bowlin
said these were all key events which will contribute to ARCO's future.
 
   "The merger with UTP provides a major step toward our goal of growing our
international presence. With the merger, ARCO's reserves overseas increased by
a half-billion barrels. Union Texas' growing production will supplement ARCO's
expected average annual production growth of 4-5% between 1997 and 2001."
 
   Bowlin said that despite year-over-year Alaska production declines in the
second quarter, meeting the goal of "No Decline After '99" in Alaska
production is still on target. Exploration near existing production in Alaska
has been very successful and has included the Tarn, Tabasco, Northwest Eileen,
Midnight Sun and Sambuca discoveries. Two of these satellite discoveries - Tarn
and Tabasco - are starting production this summer ahead of schedule.
 
   ARCO also announced plans for a miscible gas enhanced oil recovery project
at Point McIntyre, America's third largest oil field, and started construction
on an expanded miscible injectant (MIX) project for Prudhoe Bay, America's
largest field. In addition, ARCO was successful in acquiring more exploration
licenses in and around existing properties in the recent Alaska areawide lease
sale.
 
   LOW OIL PRICES PRIMARY NEGATIVE INFLUENCE ON E&P RESULTS
 
   Worldwide, ARCO's exploration and production operations earned $92 million
after tax in the 1998 second quarter, before a $75 million special item
writedown in the value of a North Sea gas field following the unsuccessful
resolution of a sales contract dispute. In the 1997 second quarter,
exploration and production operations earned $321 million. The 71% drop was
driven by generally lower oil prices and the effect of the Asian economic
situation on West Coast liquids realizations. U.S. petroleum liquids prices were
down $6.40 per barrel, averaging $8.71 per barrel for the quarter. Natural gas
prices for the U.S. operations averaged $1.92 per thousand cubic feet (Mcf), up
from an average $1.72 per Mcf in 1997.
 
   Production on an oil-equivalent basis totaled 904,700 barrels per day for
the quarter, compared with 952,400 in the 1997 second quarter. Production was
negatively affected by lower customer gas takes in the United Kingdom,
Indonesia and China. In addition, expected field decline, warmer ambient
temperatures and greater maintenance led to lower volumes in Alaska.
 
   REFINING AND MARKETING RESULTS IMPROVE
 
   The refining and marketing segment earned $97 million after tax in the
1998 second quarter, up from 1997 earnings of $68 million. Although West Coast
gasoline prices were lower than 1997, margins improved with falling crude oil
prices. ARCO's gasoline sales volumes increased 14%, reflecting the full
integration of the former Thrifty Oil stations into ARCO and increased volumes
at ARCO's retail outlets. Initial benefits from an announced $100 million cost
saving program that was launched in late 1997 are also being realized.
 
   OTHER OPERATIONS
 
   Other operations, predominantly Lower 48 pipeline and aluminum activities,
contributed after-tax earnings of $29 million in the 1998 second quarter,
compared with $24 million in the 1997 period.
 
   DISCONTINUED OPERATIONS AND SPECIAL ITEMS
 
   After-tax earnings from discontinued operations, consisting of ARCO's
interest in ARCO Chemical Company, totaled $90 million in the 1998 second
quarter. Subsequent to the end of the quarter, ARCO classified ARCO Chemical
as discontinued as a result of the tender offer's close.
 
   The 1998 second quarter results include no income from discontinued coal
operations. Although cash proceeds were received, the sale of U.S. coal assets
will not be recognized in income until disposition of the company's Australian
coal assets is completed.
 
   In the 1997 second quarter, ARCO's worldwide coal operations earned $24
million after tax while the interest in ARCO Chemical earned $29 million. The
1997 second quarter also included $46 million in after-tax earnings from
ARCO's equity interest in Lyondell. ARCO disposed of that interest in the third
quarter of 1997.
 
   Second quarter 1998 special items charges totaled $66 million, including
the $75 million for the writedown of the North Sea gas field.
 
 Summary of Special Items
 
                                  1998                     1997
 Asset valuation adjustment       ($75)                     --
 Restructure cost revision          12                      --
 Debt retirement                 ($118)
 Tax/interest reversal               0                     118
 Other                              (3)                     --
 Total                            ($66)                     --
 
   (Some of the matters discussed in this news release are forward-look
statements that involve risks and uncertainties. Actual results could differ
materially based on numerous factors, including the realized level of crude
oil and natural gas production and other risks detailed from time to time in the
company's SEC reports, including the 1997 report on Form 10-K.)
 
 ATLANTIC RICHFIELD COMPANY
 CONSOLIDATED STATEMENT OF INCOME
 (Unaudited)
 (Millions except per share amounts)
                          Three Months Ended          Six Months Ended
                                June 30                   June 30
                          1998          1997          1998         1997
 REVENUES                            (Restated)                 (Restated)
 Sales and other operating
 revenues               $2,546        $3,534       $5,082        $7,426
 Other revenues             90           148          200           248
 Total revenues          2,636         3,682        5,282         7,674
 EXPENSES
 Trade purchases         1,071         1,634        2,057         3,455
 Operating expenses        651           649        1,186         1,227
 Selling, general and
 administrative expenses   202           204          385           384
 Depreciation, depletion
 and amortization          326           341          678           687
 Exploration expenses
 (including undeveloped
 leasehold amortization)   126            90          275           216
 Taxes other than income
 taxes                     122           144          276           340
 Interest(a)               106           (12)         203           132
 Total expenses          2,604         3,050        5,060         6,441
 Income before income taxes,
 minority interest &
 extraordinary item         32           632          222         1,233
 Provision (benefit) for
 taxes on income           (37)          212           10           411
 Minority interest in
 earnings of subsidiaries    5            11           14            22
 Income from continuing
 operations before
 extraordinary item         64           409          198           800
 Income from discontinued
 operations, net of income
 taxes of $43 and $89 (1998)
 and $30 and $67 (1997)     90            99          176           191
 Net income before
 extraordinary item        154           508          374           991
 Extraordinary item - loss
 on extinguishment of debt
 (net of income taxes of
 $74 million)               --          (118)          --          (118)
 Net income               $154          $390         $374          $873
 Earned per share:
 Basic
 Continuing operations   $0.19         $1.27        $0.61         $2.48
 Discontinued operations  0.29          0.31         0.55          0.60
 Extraordinary loss         --        (0.37)           --         (0.37)
 Net income              $0.48         $1.21        $1.16         $2.71
 Diluted
 Continuing operations   $0.19         $1.25        $0.60         $2.44
 Discontinued operations  0.28          0.30         0.54          0.59
 Extraordinary loss         --        (0.36)           --         (0.36)
 Net income              $0.47         $1.19        $1.14         $2.67
 Dividends per common
 share                 $0.7125       $0.7125       $1.425        $1.400
 
   (a) Excludes capitalized interest of $21 million and $12 million for the
three-month periods and $37 million and $14 million for the six-month periods
ended June 30, 1998 and 1997, respectively.
 
 AFTER-TAX SEGMENT EARNINGS
 (Unaudited)
 (Millions)                Three Months Ended         Six Months Ended
                                June 30                     June 30
                           1998         1997          1998         1997
                                (Restated)                 (Restated)
 Exploration and production $17          $321         $199          $773
 Refining and marketing      97            68          116           114
 Other                       29            24           53            37
 Unallocated expenses        (4)           (3)         (26)          (26)
 Interest expense           (75)           (1)        (144)          (98)
 Income from continuing
 operations                  64           409          198           800
 Discontinued operations     90            99          176           191
 Extraordinary item - loss
 on extinguishment of debt   --          (118)          --          (118)
 Net income                $154          $390         $374          $873
 
 ATLANTIC RICHFIELD COMPANY
 CONSOLIDATED BALANCE SHEET
 
 (Millions)                    June 30,             December 31,
                                 1998                  1997
                                         (Unaudited)
 ASSETS
 Current assets:
 Cash and cash equivalents        513                    $434
 Short-term investments           215                     222
 Accounts receivable              840                     929
 Inventories                      451                     456
 Prepaid expenses and other
 current assets                   295                     204
 Total current assets           2,314                   2,245
 Investments and long-term
 receivables:
 Investment in Union Texas
 Petroleum                      2,646                      --
 Investments accounted for
 on the equity method             821                     763
 Other investments and long-term
 receivables                      979                   1,820
                                4,446                   2,583
 Net property, plant and
 equipment                     14,308                  13,560
 Net assets of discontinued
 operations                     2,013                   2,777
 Deferred charges and other
 assets                         1,354                   1,260
 Total assets                 $24,435                 $22,425
 
 LIABILITIES AND STOCKHOLDERS' EQUITY
 Current liabilities:
 Notes payable                 $4,364                  $1,456
 Accounts payable                 791                     948
 Long-term debt due within
 one year                         102                     164
 Taxes payable                    190                     308
 Other                            920                     953
 Total current liabilities      6,367                   3,829
 
 Long-term debt                 3,679                   3,619
 Deferred income taxes          2,335                   2,661
 Other deferred liabilities
 and credits                    3,740                   3,396
 Minority interest                251                     240
 Stockholders' equity:
 Preference stocks                  1                       1
 Common stock                     814                     807
 Capital in excess of par
 value of stock                   855                     640
 Retained earnings              6,969                   7,054
 Treasury stock                  (356)                   (170)
 Accumulated other comprehensive
 income                          (220)                    348
 Total stockholders' equity     8,063                   8,680
 Total liabilities and
 stockholders' equity         $24,435                 $22,425
 
 ATLANTIC RICHFIELD COMPANY
 FINANCIAL AND STATISTICAL DATA
 (Unaudited)
 (Millions)                Three Months Ended          Six Months Ended
                                 June 30                    June 30
                           1998         1997         1998         1997
 Additions to fixed assets
 Exploration and production
 (including dry hole costs)$699         $425       $1,325         $812
 Refining and marketing     140           53          260           88
 Other                       18           12           27           18
 Total                     $857         $490       $1,612         $918
 
 Exploration and production
 Pretax earnings, before
 exploration expense:
 Alaska                     $97         $332         $303         $810
 International              (79)          98           (7)         220
 Vastar                      76           83          177          221
 Other Lower 48
 operations                  43           84           88          185
                            137          597          561        1,436
 Exploration expense        126           90          275          216
 Exploration & production
 pretax earnings            $11         $507         $286       $1,220
 Pretax exploration expense:
 Alaska                      $9          $13          $28          $27
 International               52           47          109           85
 Vastar                      64           26          132           97
 Other Lower 48               1            4            6            7
 Total exploration expense* 126           90          275          216
 
 After-tax exploration and
 production earnings:
 Alaska                     $55         $194         $171         $483
 International              (91)          35          (90)          80
 Vastar                      33           58           81          121
 Other Lower 48              20           34           37           89
 Total                      $17         $321         $199         $773
 
   * Includes $14 million and $3 million of costs recovered in the three-
month periods and $20 million and $5 million in the six-month periods ended June
30, 1998 and 1997, respectively, under provisions of production-sharing
agreements.
 
 ATLANTIC RICHFIELD COMPANY
 FINANCIAL AND STATISTICAL DATA
 (Unaudited)
                       Three Months Ended           Six Months Ended
                             June 30                   June 30
                       1998          1997         1998          1997
 OPERATING STATISTICS
 EXPLORATION AND PRODUCTION:
 Crude, condensate and NGL production
 (net thousand bbls/day):
 United States:
 Prudhoe Bay          142.1         168.6        149.7         175.6
 Kuparuk              123.5         124.7        127.2         127.8
 Greater Point
 McIntyre              41.6          49.7         42.1          50.3
 NGLs / Other          32.7          31.3         32.9          32.9
 Total Alaska         339.9         374.3        351.9         386.6
 Vastar liquids        49.4          52.8         50.5          51.9
 Other Lower 48
 liquids              138.6         126.9        139.6         125.8
 Total United States  527.9         554.0        542.0         564.3
 
 International:
 Indonesia             26.1          28.3         24.1          24.8
 United Kingdom        14.4          17.5         15.0          18.6
 Algeria               17.0          15.0         20.6          14.6
 NGLs / Other          24.6          18.3         24.4          16.9
 Total International   82.1          79.1         84.1          74.9
 
 Total liquids
 production           610.0         633.1        626.1         639.2
 
 Natural gas production
 (million cubic feet per
 day - net)
 United States:
 Vastar               940.5         879.6        921.4         876.8
 Other U.S.           180.0         180.5        184.7         177.8
 Total United States 1,120.5      1,060.1      1,106.1       1,054.6
 
 International:
 United Kingdom       287.2         367.3        372.0         385.1
 Indonesia            245.6         313.7        245.2         310.3
 China                 97.2         155.5        110.8         149.9
 Other                 17.8          18.9         19.2          21.7
 Total International  647.8         855.4        747.2         867.0
 
 Total natural gas
 production         1,768.3       1,915.5      1,853.3       1,921.6
 
 Total production
 (barrels of oil
 equivalent)          904.7         952.4        935.0         959.5
 
 ATLANTIC RICHFIELD COMPANY
 FINANCIAL AND STATISTICAL DATA
 (Unaudited)
                        Three Months Ended           Six Months Ended
                             June 30                     June 30
                        1998          1997         1998          1997
 OPERATING STATISTICS
 Average sales prices
 Oil and gas liquids
 (per barrel):
 Alaska                $7.58        $14.65        $8.95        $16.36
 Lower 48, including
 Vastar               $10.74        $16.06       $11.71        $17.65
 U.S. composite
 average price         $8.71        $15.11        $9.92        $16.77
 International        $12.11        $17.06       $12.35        $19.00
 
 Natural gas (per MCF):
 U.S., including
 Vastar                $1.92         $1.72        $1.91         $2.03
 International         $2.56         $2.75        $2.63         $2.70
 
 REFINING AND MARKETING:
 Refinery runs
 (bbls per day):
 Crude oil           445,500       465,100      454,900       464,300
 
 U.S. petroleum product
 sales volumes, including
 intersegment sales
 (bbls per day):
 Gasoline            313,900       275,800      304,700       270,500
 Jet fuels           111,800       122,400      111,000       120,600
 Distillate fuels     78,100        78,100       78,000        77,900
 Other                89,600        75,100       76,500        68,400
 Total               593,400       551,400      570,200       537,400
 
 CHEMICALS
 Chemical product sales
 volumes, including
 intersegment sales (millions):
 Propylene oxide, PO
 derivatives, TDI and
 ADI - pounds          1,040           974        2,111         1,976
 Styrene monomer and
 derivatives - pounds    696           627        1,395         1,335
 TBA and
 derivatives - gallons   244           260          494           520
 
   Note to EDITORS: ARCO Chemical (NYSE: RCM) reported earnings on July 17;
Vastar Resources, Inc. (NYSE: VRI) announced earnings on July 22.
  
   Contact: Media: Albert Greenstein, tel Los Angeles 001 213 486-3384, or
Investors: Dennis Schiffel, tel [phone], both of ARCO, or
[e-mail] or Web site: http://www.arco.com
 
 
END 


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