Standard Oil Co. of Ohio abandoned its proposed California-to-Texas pipeline primarily because it expects to earn higher profits without it, and not solely because of "project-killing delays" in California that Sohio cited, according to oil industy experts.
After spending $50 million and 5 years to get 700 separate permits, Sohio canceled the pipeline Tuesday just weeks before Gov. Edmund G. (Jerry) Brown Jr. says it would have been approved by regulatory authorities in his state.
Higher world oil prices have sharply increased the profitability of shipping Alaskan crude oil in tankers to the Gulf and West coasts, as Sohio does now. Menwhile, according to industry analysts, there has been growing uncertainty over just how profitable Sohio's $1 billion pipeline would have been.
Sohio's announcement that it was dropping the project puts a new pressure on the Carter administration to seek congressional approval of Alaskan oil exports. Oil swaps, or exports, would boost the Alaskan North Slope producers' profits by hundreds of millions of dollars in the next few years. It costs less to ship oil to Japan than the Gulf Coast, but it can be sold for the same price.
Asked about Sohio's decision yesterday, one senior administration official conceded that the prospect of such exports is "more feasible now."
Sohio's Washington spokesman, William Roundtree, agreed yesterday that the company'sprofit outlook for the pipeline had changed. "It is not just two weeks and two permits -- even if you had all the permits in hand, there has been a change in the economics," he told a reporter.
On Wall Street, however, analysis of Sohio's last-hour decision focused on what it would do to corporate profits.
Originally, the Cleveland-based "little oil giant," as it is known, had expected to save $1 a barrel by shipping oil through the proposed Pactex (Pacific-Texas) pipeline. But as one top analyst said, "They don't need that now, because the economics have changed."
Rosario S. Ilacqua, a security analyst with L. F. Rothschild & Co., says Sohio's overall profitability has improved. Sohio is earning an estimated 80 to 90 cents a barrel after taxes for Alaskan oil sold on the Gulf Coast compared with 20 cents a barrel last year. As for earnings, Ilacqua says Sohio will return to its shareholders about $1.50 a share as against 38 cents during the first quarter last year.
According to Bob Levine of E. F. Hutton, another reason Sohio canceled the pipeline is that "the run through Panama is working more efficiently, and a lot more of their oil is being absorbed on the West Coast than was earlier thought possible."
Sohio, which is 51 percent owned by British Petroleum, produces half the oil on Alaska's North Slope.
Another complicating factor in Sohio's decision is that it had hoped to utilize 675 miles of an existing pipeline owned by El Paso Natural Gas Co. that had been used to ship natural gas to the lucrative California market. Oil industry excutives and Gov. Brown, however, said that El Paso is now interested in using the pipeline again to carry gas and not oil.
Still another factor, admitted by Sohio and other oil executives, is that under proposed Federal Energy Regulatory Commission regulations, the Pactex line would have returned the company smaller profits than had been expected. "The profitability of the pipeline had deteriorated to the point where we would get a utilitystyle rate of return, and that's not enough," said one Sohio executive.
Another consequence of Sohio's decision involves Brown's expected 1980 presidential bid and continuing accusations that he is anti-business.
Earlier this week Brown, in a telephone interview, said "California had reached the point where it was reday to go." He went on to say that he couldn't understand Sohio's with-drawal because the state would have issued necessary the permits in the next weeks.
By yesterday, however, Brown's remarks had harshend as he lashed out at Sohio and call it " an outlaw corporation." Pointing to Sohio's split ownership with England's BP, Brown went on to tell reporters, "Foreigners can't come to California and push California and push Americans around." Brown then went on to call for a full-scale congressional investigation.