Marilyn Radler
Senior Editor-Economics
Laura Bell
Statistics Editor
Oil and natural gas companies based in the US and Canada reported a collective surge in earnings during the third quarter compared with year-earlier results.
A sample of US-based producers and refiners combined for a 35% increase in third-quarter earnings, and a sample of Canadian firms combined to post a 16% earnings increase from a year earlier.
Many operators reported improved results due to higher crude oil and gas realizations and generally stronger refining margins. But 13 of the US-based companies posted a net loss for this year's third quarter.
Oil prices were higher than those recorded during third-quarter 2010 on slightly greater worldwide demand along with geopolitical tensions and a decline in Libya's oil output.
The front-month futures price of West Texas Intermediate crude on the New York Mercantile Exchange averaged $89.54/bbl in the recent quarter compared with $76.21/bbl a year earlier.
While oil prices were stronger, gas prices were little changed from last year's third quarter. Front-month NYMEX gas futures in the third quarter averaged $4.055/MMbtu vs. $4.235/MMbtu a year earlier.
The US wellhead price of gas averaged $4.10/Mcf in this year's third quarter compared with $4.11/Mcf a year earlier, according to the US Energy Information Administration.
US firms
ExxonMobil Corp. earned $10.33 billion in the recent quarter with $125.33 billion in revenues while upstream production volumes fell 4% from a year earlier. Earnings for the first 9 months of 2011, which saw a 5% increase in production volumes, were $31.7 billion, up 49% over the first 9 months of 2010, the company reported.
Chevron Corp. reported that its earnings jumped 107% to $7.857 billion during the third quarter from a year earlier. Chevron's $6.2 billion in upstream earnings climbed by $2.6 billion on higher oil prices while its $2 billion in downstream earnings increased by $1.4 billion on gains from asset sales and improved margins.
Production increases from project ramp-ups in Canada, the US, and Brazil and new volumes stemming from the acquisition of Atlas Energy Inc. were more than offset by maintenance-related downtime, normal field declines, and a 39,000 b/d negative effect of higher prices on volumes produced under cost-recovery and variable-royalty contract provisions, Chevron said.
Anadarko Petroleum Corp. posted a $3 billion loss for the recent quarter, as the company recorded a $4 billion Deepwater Horizon settlement agreement with BP PLC that decreased net income by about $3.374 billion. Anadarko's third-quarter revenues totaled $3.2 billion on a 10% increase in liquids sales volumes from the 2010 quarter.
Refiners
Refining margins in the US were relatively strong in most regions during the recent quarter. Average cash margins moved up for Gulf Coast and Midwest refiners from the corresponding 2010 period, according to Muse, Stancil & Co. (MSC). Margins also were higher in Northwest Europe and Southeast Asia.
The average East Coast margin sank to average 15¢/bbl from $1.09/bbl a year earlier. But MSC figures show that US Midwest cash refining margins averaged $27.40/bbl in this year's third quarter, up from $10.33/bbl a year earlier.
Valero Energy Corp. recorded a surge in third-quarter earnings due to better margins. The San Antonio-based refiner's earnings were $1.2 billion, up from $303 million in third-quarter 2010.
Valero said earnings improved from a year earlier due to an increase of $5.11/bbl in its refining throughput margin combined with an increase of 389,000 b/d in refining throughput volumes.
The increase in throughput margin was primarily due to higher margins for diesel and jet fuel plus substantial discounts for light, sweet oil in the Midcontinent and better discounts for heavy, sour feedstocks, Valero said. The increase in throughput volumes was due to added capacity from the Aug. 1 acquisition of the Pembroke refinery in the UK from Chevron plus operating the Aruba refinery, which was not in operation during third-quarter 2010.
Meanwhile, Sunoco Inc. reported a $1 billion net loss despite $12.158 billion in revenues during this year's third quarter. During the quarter, Sunoco recorded a $1.959 billion noncash provision ($1.175 billion, aftertax) to write down assets at its Philadelphia and Marcus Hook refineries to their estimated fair values in connection with Sunoco's decision to exit the refining business (OGJ Online, Dec. 2, 2011).
"Market conditions continue to pose challenges for our refining and supply segment and, while the refineries' operational performance improved during the third quarter with crude utilization averaging 90%, the segment reported another loss. We remain focused on running our assets safely and reliably at economic utilization rates," said Lynn L. Elsenhans, Sunoco's chairman and chief executive officer.
Canadian companies
Most of the companies in the sample of producers and pipeline operators with headquarters in Canada posted improved earnings compared with their third-quarter 2010 results.
These 17 companies combined during the recent quarter for a 25% increase in revenues and a 16% climb in net income from a year earlier. For the first 9 months of 2011, the group's collective revenues were up 10% and earnings were up 7% from the corresponding 2010 period.
Four companies in the group posted a decline from their third-quarter 2010 earnings, and one company, Ivanhoe Energy Inc., posted a loss in the recent quarter.
Imperial Oil Ltd. recorded one of the biggest gains in third-quarter earnings, posting net income of $859 million (Can.), up from $418 million (Can.) in the 2010 quarter.
Imperial Oil attributed the increase primarily to stronger refining margins of $270 million, higher oil commodity prices of $190 million, increased Cold Lake bitumen production of $90 million, and higher Syncrude volumes of $45 million.
These factors were partially offset by foreign exchange effects of the stronger Canadian dollar of $65 million, higher royalty costs of $60 million, and lower conventional oil volumes of $35 million due to third-party pipeline reliability issues, the company reported.
These same factors affected Imperial Oil's results in the first 9 months, when earnings jumped 68% to $2.366 billion (Can.) on a 24% increase in revenues to $22.59 billion (Can.).
Pipeline operator Enbridge Inc. reported $5 million (Can.) in earnings for the third quarter, down from $158 million (Can.) in the 2010 third quarter due to hedging. Revenues over the periods increased by 22% to $4.272 billion.
These third-quarter results reflected unrealized noncash mark-to-market accounting impacts, primarily related to the comprehensive long-term economic hedging program Enbridge has put in place to mitigate exposures to foreign exchange risks, including exposures inherent within the new Competitive Toll Settlement (CTS) that took effect July 1, the company said. On June 24, Canada's National Energy Board approved the 10-year CTS agreement reached between Enbridge and shippers on its mainline system.
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