Unocal, Amoco Report Big Jump in Earnings

Unocal and Amoco signaled Tuesday that the recovery of oil prices has begun to enhance the bottom line at the major oil companies. Both firms reported big earnings gains for the April-June quarter, a showing that other oil producers are expected to duplicate.

Unocal, headquartered in Los Angeles, said profit surged by 79% to $62 million, compared to the same period last year. The results exceeded some analysts’ forecasts. In Chicago, Amoco said earnings climbed 31% to $311 million.

The second quarter spanned a period of rising prices for crude oil, largely the result of a price-fixing and production-cutting accord by the Organization of Petroleum Exporting Countries. A year earlier, prices were in steep decline before bottoming out in August.

A recent forecast by Salomon Bros., the New York investment firm, said the 11 major domestic oil companies will report an average 35% gain in second-quarter earnings. The main reason is that the companies were receiving $18 to $20 for a barrel of oil, compared to $12 to $14 a year ago.

The companies, which also refine oil and sell it as gasoline or other products, lose some of the benefits of higher crude prices because the refining process thus becomes more costly. But the advantages of higher crude prices far outweigh the disadvantages.

Unocal, Amoco and the other firms are also benefiting from lower exploration and drilling costs because the virtual depression in the Oil Patch has led to lower wages and lower prices commanded by suppliers. Layoffs and internal cost cutting has also dropped break-even points.

“We have regained only part of the ground we lost last year,” said Fred L. Hartley, chairman and chief executive at Unocal. “Much of the earnings improvement results from lowering capital spending and dedicating cash flow to reduction of debt.”