Strong oil prices boost fourth-quarter earnings

March 12, 2012
Strong oil prices buoyed upstream results for oil producers in fourth-quarter 2011 and for the entire year.

Marilyn Radler
Senior Editor-Economics

Laura Bell
Statistics Editor

Strong oil prices buoyed upstream results for oil producers in fourth-quarter 2011 and for the entire year. The collective quarterly earnings of a sample of US-based producers and refiners more than doubled compared with the last quarter in 2010, while annual net income for the group was up 32% from a year earlier. Still, 19 of these 47 companies posted a net loss for the quarter.

Weak refining margins were a drag on downstream earnings for some refiners, but margins in the US Rocky Mountains were stronger from the final 2010 quarter.

The combined earnings for a group of Canadian-based oil and gas producers, refiners, and pipeline companies also were stronger than those posted a year earlier, as they were impacted by higher oil prices and lower natural gas prices.

The near-month New York Mercantile Exchange crude oil futures price in the final quarter of 2011 averaged $94.06/bbl, up from the year-earlier average of $85.20/bbl.

In contrast, natural gas futures averaged just $3.476/MMbtu in the recent quarter, down from $3.98/MMbtu a year earlier.

US-based producers

ExxonMobil Corp. earned $9.7 billion in the fourth quarter of 2011 on revenues of $121.6 billion, up from year-earlier results of $9.5 billion. For 2011, the company's net income was $42.2 billion vs. 2010 earnings of $31.4 billion.

In the recent quarter, ExxonMobil reported that its productions volumes were down 9% from a year earlier, as its global output of liquids and natural gas declined. The company said that its US gas production growth was more than offset by field decline and lower demand in Europe.

As Chevron Corp. posted $5.1 billion in fourth-quarter earnings, the company recorded $5.7 billion in upstream earnings and a $61 million loss from downstream operations. For the year Chevron earned a record $26.9 billion, including $24.8 billion from its upstream segment and $3.6 billion from its downstream segment, but the company lost $1.1 billion from all other operations.

Chevron reported that its average sales price of crude oil and natural gas liquids was $101/bbl in the fourth quarter 2011, up from $76/bbl a year earlier. Its average sales price of natural gas was $3.62/Mcf, compared with $3.65/Mcf in the 2010 fourth quarter.

With revenues of $3.54 billion, Houston-based producer Anadarko Petroleum Corp. incurred a $339 million loss for the fourth quarter of 2011. Anadarko reported that during the quarter it remitted about $4 billion to BP PLC as part of its settlement agreement and received insurance proceeds of about $138 million associated with the 2010 Deepwater Horizon disaster. Also, the company said it recorded a non-cash price-related impairment of about $1.5 billion with no associated impact on proved reserves.

Swift Energy Co. reported that its total revenues for the fourth quarter of 2011 increased by 34% from the fourth quarter of 2010 to $155.1 million, primarily due to higher prices for oil and natural gas liquids and higher natural gas and NGL production volumes. The Houston-based company posted a 24% increase in fourth quarter 2011 production to 2.7 million boe and a 20% increase in year-end proved reserves.

Swift's depreciation, depletion, and amortization expense of $21.52/boe in the recent quarter was up 6% from the comparable period in 2010, primarily due to a higher overall depletable base. The company incurred a $36 million net loss for the recent quarter compared with a year-earlier loss of $19 million, but earnings from continuing operations of $20.7 million were up from $10.3 million a year earlier.

US refiners

Valero Energy Corp. reported fourth-quarter earnings of $45 million vs. a loss of $438 million a year earlier. Valero said that it incurred a decline of $1.84/bbl in its refining throughput margin, particularly in the Gulf Coast region where the throughput margin decreased by $4.21/bbl. The decrease in the throughput margin was primarily due to lower margins for gasoline and petrochemical feedstocks plus reduced discounts for medium and heavy sour feedstocks, such as Mars and Maya crude oils, Valero said.

Margins sank in most regions of the US from the final 2010 quarter, even turning negative for refiners on the East Coast and on the Gulf Coast in December. Down from a year earlier, fourth-quarter 2011 cash refining margins averaged 74¢/bbl for East Coast refiners and $1.28/bbl for Gulf Coast refiners, according to Muse Stancil & Co. (MSC).

At the same time, the cash margin for US Midwest refiners averaged $14.47/bbl, up from $9.77/bbl in the last three months of 2010, according to MSC.

Dallas-based HollyFrontier Corp. reported a post-merger surge in earnings for the fourth quarter and for the year. Fourth quarter earnings were $223.4 million compared with $14.7 million in the same period of 2010.

HollyFrontier said the increase reflects both the effects of increased operating scale due to its 2011 merger of equals and historically strong fourth quarter refining margins, which continued to benefit from wide differentials between inland and coastal-sourced crude oils. The company operates refineries in Kansas, New Mexico, Oklahoma, Utah, and Wyoming.

HollyFrontier reported that its overall refinery gross margins were $15.32/bbl, a 95% increase from the fourth quarter of 2010, with overall production levels averaging 438,000 b/d and overall crude oil charges averaging 407,000 b/d for the current quarter.

The company's Rocky Mountain refining margins were the strongest, with average gross margins of $18.33/bbl for the quarter. The Midcontinent and Southwest refining operations also yielded good results, where quarterly gross margins averaged $14.71/bbl and $14.76/bbl, respectively.

Canadian firms

Among a sample of 13 operators and pipeline companies based in Canada, four firms reported a net loss for the final quarter of 2011. The group's collective annual earnings were up 10% from a year earlier on 22% stronger revenues.

Encana Corp. reported that its results, which include a net loss for the final quarters of 2011, were impacted by impairments. The company reports its results in US dollars.

In the fourth quarter of 2011, Encana's net earnings were impacted by a noncash asset impairment of $854 million after tax, compared with $371 million after tax for the same quarter in 2010 triggered by lower forecasted natural gas prices and a change in future development plans.

Imperial Oil Ltd. reported strong results for the recent quarter and for the year. Calgary-based Imperial Oil posted earnings for the full year 2011 of $3.37 billion, the second highest in company history and up 53% from a year earlier.

For the recent quarter, Imperial Oil recorded a 26% increase in net income mainly due to higher crude oil prices, increased Cold Lake bitumen production, and stronger downstream margins, the company said.

Similarly, for the full year 2011, Imperial Oil, which also reports results in US dollars, said that its increased earnings were primarily attributable to higher crude oil commodity prices, stronger industry refining margins, and increased Cold Lake bitumen production, but these factors were partially offset by the unfavorable impacts of higher royalty costs, the stronger Canadian dollar, higher gains on asset divestments from a year earlier, and lower conventional crude oil volumes, about $80 million of which was due to third party pipeline reliability issues.

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