Occidental Price Slips as Crude Prices Soar : Rig Explosion Felt on Stock, Oil Markets
The destruction of a huge North Sea oil platform rippled through the oil and financial markets Thursday, driving up crude prices and depressing the stock price of Occidental Petroleum Corp.
But the tragedy offshore from the United Kingdom was expected to have only limited long-term financial effects, coming as it did amid a severe world oil glut and crippling what analysts described as a barely profitable oil platform.
The explosion aboard the Piper Alpha platform takes out roughly 18% of Oxy’s worldwide crude oil production indefinitely. With precautionary shutdowns of five additional oil fields, world production immediately dropped by as many as 340,000 barrels per day--less than 1%.
Occidental was operator of the platform and owned 36.5% of the production from the Piper oil field. Texaco owned 23.5%. Other partners were International Thompson PLC, the British publisher, and Union Texas Petroleum of Houston.
Ray R. Irani, president of Occidental, said the accident will cut the company’s 1988 earnings by 5 to 10 cents a share, or $11 million to $21 million. Oxy earned $240 million last year.
Liability Insured
The company’s stock price dipped 62.5 cents Thursday to $26.25, a recovery of 50 cents from the low for the day on the New York Stock Exchange.
Irani also said the company carries $335 million in liability insurance and $525 million in property coverage on the Piper Alpha, which he termed adequate to cover losses. There is no protection for the loss in revenue, however, he said.
The company said it was more concerned about the loss of life than the financial implications. Chairman Armand Hammer and other Los Angeles-based executives flew to Aberdeen, Scotland, “to personally ensure that everything that can possibly be done is being done” for workers and their families.
The explosion, which was called the worst in the history of North Sea oil production, was the third recent development to threaten world oil supplies. As a result, crude oil futures prices jumped by 47 cents to $15.83 per barrel on the New York Mercantile Exchange.
It remained to be seen, however, whether the events--including the U.S. shooting down an Iran Air passenger jet and rumors of an emergency meeting of the Organization of Petroleum Exporting Countries to rein in oil production--have permanently halted a prolonged slide in oil prices to their lowest levels in nearly two years.
Prices fell toward the close of trading Wednesday after exceeding $16 a barrel at one point. Several analysts said there is still too much oil on the market, and there will be until OPEC members cut production for a long period.
“You’ve broken the negative psychology for a time, but you can’t be sure we’ve bottomed out for the year,” said Paul Mlotok, oil analyst at Salomon Bros. in New York.
The most recent production levels at the Piper Alpha platform and connected fields were not entirely clear, but oil analyst Andrew Gray III of Pershing & Co. said Oxy’s share of Alpha came to 53,000 barrels a day out of the company’s net crude production of about 300,000 barrels.
Two small, adjacent fields operated by Oxy and owned by the same partners, called Claymore and Scapa, were shut down as a precaution. Oxy gets about 27,000 barrels a day from those two fields. They are expected to be back in operation in a matter of weeks, Irani said.
Additionally, three small fields 100% owned by Texaco and producing 70,000 barrels per day were also shut down temporarily because they share pipelines with Alpha.
Texaco Share Minor
Texaco officials in New York could provide no breakdown of oil or revenue losses. It appeared that the company’s share of long-term lost production on the Piper Alpha was about 54,000 barrels a day, a minor share of its total output.
Texaco’s stock gained 25 cents a share Thursday, to $47.50.
Despite the sizable share of Oxy’s total crude production that Piper Alpha represented, the company’s earnings increasingly rely on its chemical operations. And the ill-fated platform, built in the early 1970s, was less profitable than most, said analyst Gray.
“Although 18% of their production came from that platform, its profit contribution was substantially less than that,” said Gray. Because of tax rates and the geological and climatic conditions, the North Sea is known as an expensive place to produce oil.
Dividend Is Safe
Irani confirmed that assessment, and said that more than half of Occidental’s 1988 earnings are expected to come from the chemical side of the business. He said the company’s 62.5 cents per share quarterly dividend is safe.
Irani also said that even at today’s weak oil prices, the company would rebuild a platform on Alpha field because “it’s still worth 5 to 10 cents a share.” However, the revised earnings forecast assumes no oil production from Alpha for the rest of the year and a resumption from the adjacent fields within a month.
