Second quarter, first half earnings rise for US producers, service firms

A group of service and supply companies collectively posted improved results from a year earlier, although the results were skewed by a large second quarter 2002 loss by Halliburton Co. A closer look at Table 2 shows that many companies in this group struggled to post earnings during the quarter, as industry investment continued to ail.

Majors

ChevronTexaco Corp. reported net income of $1.6 billion for the second quarter, up from $407 million for the same quarter a year ago.

For the quarter, the company's downstream earnings rebounded to $438 million from $18 million a year earlier. Strong oil and gas prices contributed to upstream earnings of $1.3 billion, up 3% from a year earlier.

For the first half, net income was $3.5 billion, buoyed by strength in ChevronTexaco's upstream and downstream sectors. This compares to $1.1 billion in net income for the same period in 2002.

High commodity prices and strength in its chemicals business helped boost the second quarter earnings of ExxonMobil Corp. to $4.17 billion, up $1.53 billion from a year earlier. The company's upstream earnings were $2.8 billion compared with $2.2 billion a year ago.

ExxonMobil's chemicals earnings were its highest since 1998, and its capital expenditures were $3.8 billion for the quarter, up $438 million from the same 2002 period.

"Downstream earnings were $1.1 billion, an increase of $764 million from last year's second quarter reflecting improved industry-wide conditions. Margins were particularly strong at the beginning of the quarter but have since weakened significantly," said Chairman Lee Raymond.

J.J. Traynor and Paul Sankey of Deutsche Bank Global Oil & Gas commented, "US and international downstream figures were up sequentially, despite lower headline refining margins, benefiting from a particularly strong April. [While] ExxonMobil clearly deserves operational credit for exploiting a favorable environment, for example in the $100 million-plus of higher year-on-year earnings from lower turnarounds, it is clear that this was an unusually strong downstream quarter that will not be sustained. Additional profitability came from windfall margins both in refining and marketing."

The analysts added, "Chemicals were also strong, again somewhat unsustainable, as results were particularly helped internationally by weakening of the dollar that added $180 million to earnings year-on-year. Margins were also stronger, though volumes fell. It has to be recognized that ExxonMobil's performance through the cycle comes without any significant overall growth, [as] higher downstream volumes were driven more by operational resumptions than by any underlying capture of market share."

Amerada Hess Corp. reported net income of $252 million for the second quarter, including gains on asset sales, compared with income of $149 million for the second quarter of 2002.

During the latest quarter, Amerada Hess sold shelf properties in the Gulf of Mexico, Jabung field in Indonesia, and several small UK fields for about $445 million. Exploration and production earnings of $88 million in the second quarter include a previously announced after-tax charge of $23 million for accrued severance and a reduction in London leased office space.

The company reported second quarter oil and gas production of 376,000 boe/d compared with 469,000 boe/d in the second quarter of 2002. Its average worldwide crude oil selling price, including the effect of hedging, was $24.10/bbl, down from its average price of 24.36/bbl for the second quarter of 2002. Amerada Hess's average US natural gas selling price, including hedging effects, was $4.09/Mcf in the second quarter, up from the $3.56/Mcf second quarter 2002 price.

Independent E&P firms

Because of higher oil and gas prices, most independent producers also enjoyed a jump in earnings during the second quarter and first half.

Anadarko Petroleum Corp., Apache Corp., and Houston Exploration Co., all based in Houston, are a few of the independent producers that posted higher revenue and earnings for both the second quarter and the first half of this year. A few independents, such as Harvest Natural Resources Inc. of Houston and Tulsa-based Vintage Petroleum Inc., recorded lower earnings for the second quarter.

Oklahoma City-based Kerr-McGee Corp. posted quarterly earnings of $69.6 million compared with a loss of $58 million for the corresponding period of last year. Kerr-McGee's adjusted after-tax income for the second quarter—which excludes from net income the results from discontinued operations, the cumulative effect of an accounting change, and other special items—increased $23.4 million from a year earlier.

The company attributed this increase to higher oil and gas prices, although lower production volumes, higher exploration expenses, and higher selling and administrative expenses partially offset the benefit of higher commodity prices. The lower production volumes resulted from the sale of nearly $1 billion of noncore producing properties.

Kerr-McGee's average sales price for oil, including the effects of the company's hedging program, was $25.28/ bbl, up from $22.44/bbl in the second quarter of last year. The average gas price increased 45% to $4.29/Mcf for the quarter.

Harvest Natural Resources Inc. announced net income of $1.2 million for the quarter. For the same period last year, the company had net income of $76.3 million. That included an after-tax gain of $89.6 million on the sale of the company's interest in Arctic Gas Co., which was partly offset by a $13.4 million impairment of the WAB-21 exploration property in the South China Sea.

Harvest had a net loss of $14.3 million for the first half, including a $16.6 million noncash equity charge recorded in the first quarter that reduced the carrying value of the company's Russian affiliate as a result of low oil prices in Russia. Net income for the same period last year was $77.8 million.

Service, supply firms

Service and supply companies as well as engineering and construction firms continued to feel the sting of depressed capital spending and drilling, but there are signs of improvement.

Grey Wolf Inc., Houston, reported a net loss of $14.2 million for the 3 months ended June 30, compared with a net loss of $4 million for the second quarter of 2002. The second quarter net loss includes about $8.5 million of pretax costs associated with debt refinancing.

Tom Richards, Grey Wolf chairman, president, and CEO, said July 30, "We have seen an increase in our average rigs working during the past few weeks and averaged 65 rigs working in July. Today we have 66 rigs working. Recent higher-than-expected injections into US natural gas storage have been a concern to some, but gas prices remain at attractive levels and our customers are benefiting from these prices. We believe that the fundamentals for natural gas remain positive. Leading edge bid rates have been between $7,750 and $9,500/rig-day since early May 2003."

Grey Wolf averaged 60 rigs working in the second quarter of 2003, compared with 59 rigs in the first quarter of 2002 and 54 in the second quarter of 2002.

For the second quarter, Houston-based Rowan Cos. Inc. incurred a net loss of $6.7 million on revenues of $158.1 million, compared with a net loss of $8.7 million on revenues of $148.5 million in the second quarter of last year. Rowan's offshore rig utilization was 88% during the most recent quarter vs. 82% in the first quarter and 87% in the second quarter of 2002.

The company's average offshore day rate of $39,400 increased 13% from the first quarter and 29% from the second quarter last year. Land rig utilization was 76% in the second quarter vs. 68% in the second quarter a year ago. The average land rig day rate of $10,600 increased 8% from the first quarter of this year and 4% from the year-earlier period.

Rowan Chairman Bob Palmer said, "In April, we announced that we were optimistic that the second quarter 2003 would witness a dramatic turn in our efforts to return to profitability. We believe such a turn is occurring.

"During the second quarter, our revenues grew by 20% and our losses were reduced by two thirds. Our drilling and aviation divisions were profitable in June, and the outlook for the manufacturing division is improving. With all 23 Rowan offshore rigs currently under contract, we believe our operating results will continue to improve during the third quarter," Palmer said.

Foster Wheeler Inc., Clinton, NJ, reported a net loss for the second quarter of $29.3 million compared with a net loss of $85 million for the same quarter last year. Revenues totaled $935.8 million compared with $958.9 million in the second quarter of last year.

New orders booked during the second quarter were $647.1 million compared to $533.2 million during the same period last year, excluding orders of $115.2 million related to the assets of the environmental businesses that were sold in the first quarter.

Second-quarter new bookings for Foster Wheeler's engineering and construction (E&C) group were up 16% during the second quarter vs. the same quarter a year ago, excluding environmental orders, due to growth in orders in Europe. Revenues for the E&C group in the second quarter were up 9% from the second quarter of 2002, excluding environmental revenues of $74.5 million. The increase was primarily due to higher revenues in the UK.

New bookings in the second quarter for the energy segment grew as orders increased in North American and European operations. Energy group revenues for the second quarter were flat with the same quarter of 2002, as improvements in the European power business offset the US power operations decline.

Foster Wheeler reported that its European operations continue to improve on revenue growth while its US business is benefiting from cost reductions and better execution on existing projects.