Earnings : Income at Streamlined Texaco Up 85% in 1989
Texaco Inc., once the falling star of the oil business, reported Thursday that its net income jumped 85% to $2.41 billion in 1989, including gains from a major restructuring. The news suggests that the company is again ascendant after emerging from bankruptcy in 1988.
The figures showed the performance of a newly streamlined Texaco in the first full year since it came out of bankruptcy after paying $3 billion to Pennzoil Co. to settle the battle for Getty Oil Co.
And they reflected how far Texaco has come since 1988, when it was bait for corporate raider Carl C. Icahn. “I would characterize us as a new Texaco: focused, directed and fully competitive,” Texaco Chairman Alfred C. DeCrane said in a telephone interview Thursday.
Texaco’s 1989 net income included a $1.19-billion gain mainly from the sale of its Canadian subsidiary and $362 million in other gains. The results compare to 1988 net income of $1.3 billion, which included $181 million from the sale of Texaco’s German subsidiary and East and Gulf Coast assets.
Excluding one-time and non-operating items, Texaco’s income from continuing operations increased 16% in 1989 on a per-share basis, said Paul Mlotok, an oil industry analyst with the investment firm of Morgan Stanley & Co. in New York. “That’s quite respectable,” he added.
For the fourth quarter, net income was down 3% to $287 million from $296 million in the same quarter a year earlier. The decline was attributable in part to one-time charges of $355 million to establish a fund for environmental programs and a devaluation of offshore California assets. The fourth-quarter 1988 results included $84 million in one-time gains.
Texaco has been rebuilding under President and Chief Executive James W. Kinnear since it settled with Pennzoil and filed for bankruptcy protection. Texaco emerged from Chapter 11 bankruptcy protection in April, 1988, and has since sold off unprofitable assets, cut costs, reduced debt, consolidated its operations and streamlined its management.
Where there were once 14 levels of managers between the field and the executive suites, there are now only six or seven. “They’re not as rigidly structured as they used to be, which is often a deterrent to the entrepreneurial spirit,” said Lysle Brinker, vice president of the consulting firm of John S. Herold Inc. in Greenwich, Conn.
To appease shareholders--including Icahn--Texaco agreed early last year to pay more than $2 billion worth of special dividends amounting to $7 a share in cash and $1 in preferred stock. Texaco also embarked on a $500-million stock repurchase program, under which it has already spent $100 million.
To cut costs, Texaco’s exploration and production unit has sold more than 1,500 unprofitable oil and gas properties for more than $350 million since 1988, said Texaco spokeswoman Anita M. Larsen in the company’s headquarters in White Plains, N.Y.
In 1988, Texaco sold a 99% interest in Deutsche Texaco, its German unit, to a German utility for $1.2 billion, and in 1989 it sold a 78% interest in Texaco Canada Inc. for $3.2 billion to an Exxon subsidiary.
Effective Jan. 1, 1989, Texaco sold a 50% interest in its East and Gulf Coast refining and marketing operations to Saudi Arabia in exchange for $1.8 billion and a guaranteed supply of crude oil--600,000 barrels a day at competitive prices. That deal was particularly praised by analysts. “They freed up a lot of capital when they did that,” said Rosario Ilacqua, an industry analyst with Nikko Securities Inc. in New York.
Proceeds from the sales were used to help cut debt to about $6 billion from more than $10 billion at the time of the bankruptcy.
Over the last five years, Texaco has also succeeded in cutting the cost of finding and developing oil and gas reserves to an average $5.25 per barrel, compared to an overall industry average of $6.19, Brinker said.
By means of exploration and purchases, the company managed in 1988 to replace almost all of its oil and gas production for the first time in years. In 1989, “we’re going to have a very competitive performance,” DeCrane said, adding that final production and exploration figures won’t be ready for a month or two.
The company went a long way to boosting its proven reserves by paying $477 million in October to buy Tana Production Corp., a Texas-based oil company. The acquisition is important for Texaco because it included sizable reserves--435 billion cubic feet--of natural gas, which is expected to be in higher demand in the 1990s.
Texaco is also sinking more money in exploration in so-called frontier areas, or regions that have not previously seen extensive oil development: Argentina, the Chukchi Sea off Alaska and parts of Africa.
On the marketing side, gasoline sales were up 7% last year, owing in part to a well-received new System 3 gasoline and higher-volume, higher-efficiency gas stations, spokeswoman Larsen said.
