US oil firms' 4Q earnings rise, 2002 results slip; service companies suffer throughout

March 24, 2003
US and Canadian oil and natural gas firms posted strong results for the fourth quarter, while service and supply companies' earnings were mostly lower.

US and Canadian oil and natural gas firms posted strong results for the fourth quarter, while service and supply companies' earnings were mostly lower. Earnings for each group of companies declined for 2002. A sampling of Canadian companies recorded similar results (see related story, p. 24).

Higher oil and gas prices lifted the earnings of producers. These prices helped upstream results but weakened downstream earnings for the full year. During the fourth quarter, the near-month futures price of oil on the New York Mercantile Exchange averaged $28.23/bbl. Meanwhile, the NYMEX futures price of gas during that period averaged $4.32/MMbtu.

Stronger refining margins increased downstream earnings for the quarter. Service and supply companies' results were hit hard by reduced day rates and suppressed drilling activity.

Comparing a sample of US-based oil and gas operating firms shows a 37% gain in revenues for the fourth quarter vs. the prior-year period, and the group's earnings totaled $5.9 billion vs. a $1.4 billion loss in the final quarter of 2001. Of the 57 companies in the sample, 10 recorded a loss, whereas 26 posted a loss in the same quarter of 2001.

For 2002, results were mixed. The group's full-year earnings declined 49%, while revenues were up 3% (Table 1).

Click here to view Table 1.

Integrated companies

Most of the large integrated oil and gas companies reported improved results from a year ago.

ChevronTexaco Corp. and Marathon Oil Corp. posted positive earnings for the fourth quarter, reversing their losses in the same period in 2001. While ExxonMobil Corp. reported stronger results compared with a year earlier, ConocoPhillips announced a $410 million loss for the quarter.

After posting net income of $904 million for the quarter and $1.1 billion for the year, ChevronTexaco Chairman and CEO Dave O'Reilly said, "Net income for both the fourth quarter and the full year was unsatisfactory. During 2002, we operated under weak global market conditions in our refining and marketing sector and recorded a number of special charges against income."

For the quarter, Marathon posted net income of $194 million on revenue of $8.6 billion. Annual results for most of the integrated companies were lower. Marathon, however, recorded net income of $516 million for 2002, up from $157 million a year earlier. One of the company's key achievements during 2002 was the replacement of more than 250% of production at finding and development costs of less than $5/boe.

Marathon's downstream income was $88 million in fourth quarter 2002 and $356 million for the year vs. income of $221 million and $1.91 billion in the comparable periods of 2001. The fourth quarter and annual decreases primarily reflect a much lower refining and wholesale marketing margin. The lower fourth quarter refining and wholesale marketing margin was due primarily to increased crude oil costs, which exceeded the increase in refined product prices for all commodities other than gasoline and distillates, decreased refinery throughput, and increased manufacturing expenses compared with the prior-year period.

Independents

Some independent oil and gas producers, such as Pogo Producing Co., Anadarko Petroleum Corp., and Berry Petroleum Co., were able to improve on both quarterly earnings and annual earnings because of increased production and higher oil and gas prices. Others, including Apache Corp., Burlington Resources Inc., and XTO Energy Inc., recorded stronger earnings for the fourth quarter but diminished annual earnings.

Oklahoma City-based Kerr-McGee Corp. reported a fourth quarter loss of $337 million, compared with a $50 million loss in the same 2001 period. The company said that the variance was due to asset impairments, higher exploration costs, and lower crude oil sales volumes, although higher realizations for oil and gas and higher natural gas sales volumes partially offset these factors.

For the year, Kerr-McGee posted a loss of $476 million. This compares with earnings of $486 million in 2001. Last year, the company exited the forest products business, abandoned chemical engineering projects, and completed the divestiture of certain oil and gas assets in the North Sea and onshore US.

Kerr-McGee Chairman and CEO Luke R. Corbett said, "We made substantial progress on our divestiture program of noncore oil and gas assets and on reducing debt. These moves enable us to further reduce our operating costs in 2003 and better focus our activities within our core operating areas."

Refining¸ petrochemicals

Independent refiners reported improved quarterly results and weaker annual earnings.

Premcor Inc., Old Greenwich, Conn., announced fourth quarter earnings of $34.7 million vs. a loss of $44.5 million for the same period a year earlier. For the year ended Dec. 31, 2002, the company posted a loss of $130 million compared with 2001 earnings of $143 million.

Premcor recorded its fourth quarter gain despite reduced throughputs in the wake of Gulf of Mexico hurricanes Isidore and Lili and scheduled turnaround maintenance. Chairman and CEO Thomas D. O'Malley attributes the results to restructuring cost savings and the elimination of operating expenses associated with the Hartford, Conn., refinery, which was closed last year.

Sunoco Inc., Philadelphia, reported fourth quarter earnings of $61 million, up from $4 million a year earlier. The company's refining and supply segment—its most profitable—earned $48 million. Much improved refining margins offset rising crude oil prices during the quarter. Strong gasoline and weather-related distillate demand combined with supply disruptions to result in a reduction in product inventories, boosting margins, especially in the northeastern US.

The retail marketing and chemicals segments of Sunoco earned $12 million and $17 million, respectively, for the quarter. Strong phenol margins, partly due to a temporary plant shutdown by another US supplier, helped improve results for the chemicals segment.

For all of 2002, Sunoco posted a loss of $47 million on slightly increased revenue. The company attributes most of the loss to significantly lower margins in its refining and marketing segments. Higher wholesale refined product, retail gasoline, and chemicals sales volumes and lower refinery fuel costs partially offset these factors, though.

Service-supply companies

Only 5 of the 31 service and supply companies in Table 2 recorded improved quarterly earnings from a year earlier. These companies are GlobalSantaFe Corp., Hornbeck Offshore Services Inc., Maritrans Inc., National-Oilwell Inc., and Offshore Logistics Inc.

Click here to view Table 2.

Two more, Core Laboratories and T-3 Energy Services Inc., reported fourth quarter earnings but had incurred losses for the same 2001 period. As a group, the service and supply firms posted losses for the quarter and for 2001 on slightly reduced revenues.

Hornbeck Offshore Services attributes its increase in earnings to the addition of five deepwater offshore supply vessels to its fleet since Sept. 30, 2001. Meanwhile, Maritrans benefited from a large increase in the amount of refined products the US imported from Europe last year, although maintenance expenses increased as a result of increased customer and regulatory requirements.

Noble Corp. of Sugar Land, Tex., announced fourth quarter earnings of $51.5 million, down $12 million from the same quarter the previous year as the average day rate for the company's US jack ups was $29,927, down from $44,990. However, utilization of these rigs increased to 82% from 65% in the corresponding period a year earlier.

Schlumberger Ltd. and Transocean Inc. reported substantial losses for the quarter and for 2002 amid decreased drilling activity and overall economic weakness. Transocean attributes its decline in revenues and field operating earnings primarily to deteriorating utilization and day rate levels within the company's fleet of semisubmersible drilling rigs capable of operating in 3,000 ft of water.

Schlumberger Chairman and CEO Euan Baird commented, "The fourth quarter confirmed our third quarter expectations that oil field activity would continue to slow down. Political uncertainty in the Middle East, the strike in Venezuela, and reduced oil company investment in Europe and Africa all contributed to make the business environment in 2002 progressively more difficult. The absence of any significant growth in energy demand has meant that our customers have not increased spending despite high commodity prices."