Bigger Margins on Refined Products Raise Oil Profits

Third-quarter profits rose 15% at Exxon Corp. and 24% at Atlantic Richfield Co. as lower crude oil prices raised profit margins on products made from oil, the industry giants said Monday.

Unocal Corp. said its third-quarter profit more than tripled from a year ago.

The drop in the price of oil raised the companies’ profits from “downstream” products such as gasoline, heating oil and petrochemicals by reducing the cost of the oil that goes into making them.

On the other hand, the oil price drop lowered the companies’ profits from “upstream” exploration and production of crude oil.

Oil Prices Down

“It’s kind of the same theme as for most of the year,” said Stephen Smith, an analyst at Bear, Stearns & Co. “Downstream is the name of the game.”

Sometimes prices of refined products fall in lockstep with crude oil prices, but this time strong demand for the products kept their prices relatively firm, creating wider profit margins for the oil companies. Exxon said its chemical earnings set a record.

Oil prices have fallen over the past year, mainly because of the inability of the Organization of Petroleum Exporting Countries to rein in excess production.

Arco said its average price for domestic crude oil fell more than $4 a barrel to $9.62 a barrel in the third quarter from $14 a barrel a year earlier.

New York-based Exxon, the largest U.S. oil company, said it earned $1.26 billion, up from $1.07 billion a year earlier. Revenue fell 0.2% to $21.89 billion.

For the first nine months of its fiscal year, Exxon said its profit rose 18% to $3.88 billion. Revenue rose 6.5% to $65.5 billion.

Improved profit margins on refined products were made possible by relatively firm prices for the products, combined with lower costs for the crude oil that goes into them, Exxon said. Margins on refining and marketing had been “severely depressed” a year earlier, the company said.

However, weak crude oil prices depressed earnings from exploration and production operations, it said.

Arco, based in Los Angeles and the eighth-largest U.S. oil company, said its profit rose to $391 million from $315 million a year earlier. Revenue rose to $4.59 billion from $4.44 billion.

For the nine-month period, Arco said its profit rose 34.8% to $1.19 billion. Revenue rose about 11% to $13.8 billion from $12.4 billion.

Arco said its after-tax earnings from oil and gas exploration and production shrank to $80 million from $235 million a year earlier. But after-tax profits of refining and marketing rose to $121 million from $30 million a year earlier.

Profits at its Lyondell Petrochemical Co. jumped to $156 million from $23 million. Arco announced separately that it was considering selling 50% of Lyondell to the public in a stock offering.

Los Angeles-based Unocal, the nation’s 13th-largest oil company, said its earnings shot up to $97 million from $29 million a year earlier. Revenue rose marginally to $2.581 billion from $2.576 billion.

For the first nine months, Unocal said its earnings rose to $339 million from $152 million a year earlier. Revenue rose to $7.43 billion from $7.06 billion.

Unocal’s results were affected by a variety of one-time factors. The biggest was a $456-million gain for the nine-month period, based on a change in accounting for income taxes. That was partially offset by charges totaling $341 million after taxes for writedowns of various assets.