Second quarter earnings surge for US operators

Sept. 20, 2004
Robust prices and increased production lifted earnings of most US oil and gas companies during the second quarter of 2004.

Robust prices and increased production lifted earnings of most US oil and gas companies during the second quarter of 2004.

Click here to view the OGJ Second Quarter Earnings in PDF.

The US wellhead price of crude oil in the second quarter rose to an average of $34.61/bbl from $25.75/bbl in the same period of last year. The average spot price of natural gas at Henry Hub rose to $6.091/MMbtu from $5.624/MMbtu.

Earnings of US service and supply companies generally were higher than they were a year ago but not by as much as those for operating companies.

For US oil and gas producers covered here, total earnings surged 65%, while revenues gained 26%. Collectively, service and supply companies in this report recorded a 20% gain in net income from the comparable 2003 quarter.

Integrated companies

ChevronTexaco Corp. led the majors in earnings increases. The company posted a record $4.1 billion in net income for the quarter, compared with $1.6 billion for the same 2003 period.

ChevronTexaco's upstream profits rose to $3 billion on the strength not only of higher oil and gas prices but also of the sale of nonstrategic producing properties in western Canada. The company's downstream earnings of $1 billion were more than twice those of a year earlier because of improved product margins.

Combined with record first quarter 2004 earnings, ChevronTexaco's net income for the first 6 months was $6.7 billion, up from $3.5 billion for the first half of last year.

ChevronTexaco's average prices for US oil and natural gas liquids in this year's second quarter increased nearly 30% from a year earlier to $32.68/bbl. Outside the US, the average liquids price was up 35% to $32.48/bbl.

The company's average sales price for US gas increased 9% to $5.59/Mcf, while elsewhere the average gas price of $2.55/Mcf was down 4% from a year ago.

Including volumes produced from oil sands and production under an operating service agreement, ChevronTexaco's worldwide production declined 4% from the second quarter of last year, but about half of the decline was associated with properties sold since last year's second quarter, the company said.

ExxonMobil Corp. reported second quarter net income of $5.8 billion, an increase of 39% from the second quarter of 2003.

Total revenue and other income rose to $70.7 billion from $57.2 billion in 2003. Capital and exploration expenditures of $3.6 billion in the second quarter were down $214 million compared with last year.

Upstream earnings increased by $1 billion to $3.8 billion, reflecting higher average crude and gas prices. Also, liquids production increased 4% from second quarter 2003.

Downstream earnings were $1.5 billion, the highest quarterly level since 1991, reflecting improved worldwide refining conditions partly offset by continued weakness in marketing margins. Chemical earnings of $607 million, the highest quarterly total since 1995, were up $168 million from those of the same quarter of 2003, boosted by higher worldwide margins and record sales volumes.

Murphy Oil Corp.'s worldwide crude oil and condensate sales prices averaged $34.14/bbl in the second quarter, compared with $24.60/bbl a year earlier. The company's refining and marketing operations generated a profit of $39.5 million, compared with $300,000 in the 2003 quarter. The improvement was due to higher margins in North America and the UK. A fire that destroyed a unit at the Meraux, La., refinery in June 2003 lowered earnings in the second quarter of 2003 by $12.3 million.

Independent producers

Among US independent producers benefiting from elevated prices and production volumes, Berry Petroleum Co., Bakersfield, Calif., reported record-high earnings of $15.3 million in the second quarter, an increase of 212% from a year earlier.

The company's oil and gas production also set a quarterly record: 20,315 boe/d, up 32% from the prior year's second quarter. Nearly all the production is oil.

Robert F. Heinemann, president and chief executive officer, said Berry increased drilling in Utah and California "to take advantage of the excellent crude price environment."

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Berry recently announced a joint exploration and development agreement with the Ute Indian Tribe and an industry partner.

Refining, chemicals

Independent refiner Frontier Oil Corp., Houston, reported net income of $49.5 million for the second quarter after losing $992,000 in the comparable quarter of 2003.

Income in the recent quarter—the company's second-highest ever—benefited from strong gasoline and diesel crack spreads and wide crude-quality differentials, Frontier reported. Gasoline crack spreads averaged $14.23/bbl, compared with $7.24/bbl in the second quarter of 2003. The diesel crack spread averaged $7.39/bbl, almost double that of the second quarter of 2003.

Kerr-McGee Corp., Oklahoma City, attributed much of its surge in second-quarter earnings to chemical operations. Operating profit for chemicals was $12.2 million, compared with a loss of $22.6 million in the second quarter of 2003 related to plant shutdowns.

ConocoPhillips's chemicals segment, which includes a 50% interest in Chevron Phillips Chemical Co. LLC (CPChem), generated income from continuing operations of $46 million, compared with $12 million in the second quarter of last year.

During the first 6 months of this year, ConocoPhillips's chemicals segment had income from continuing operations of $85 million, compared with a loss of $11 million for the same period a year ago. Higher margins in the olefins and polyolefins, aromatics, and styrenics business units and improved olefins and polyolefins volumes contributed to the improvement, the company said.

Service, supply companies

Among 32 service and supply firms covered here, 7 reported net losses for the second quarter, and 9 reported losses for the year's first half.

Horizon Offshore Inc.'s US operations generated losses due to low fleet utilization and unusually bad weather in the Gulf of Mexico.

During the second quarter, the company responded to low utilization with a plan to sell three marine construction vessels and a cargo barge. Discussions with potential buyers indicated a decline in market value of two of the marine vessels, and Horizon recorded a $2.6 million impairment loss on the assets held for sale.

A fire on the company's Gulf Horizon rig on May 18, while under tow to Israel, also contributed to the loss. Diversion of the Sea Horizon to replace the Gulf Horizon on the Israel Electric Corp. (IEC) contract precluded work scheduled in Southeast Asia.

Horizon said profits from its Mediterranean and Latin America operations as work began on the contracts for IEC and Petróleos Mexicanos partially offset losses from its US and Southeast Asian operations.

Halliburton Co.'s $663 million net loss for the second quarter reflected operations discontinued under its proposed asbestos and silica settlement of $609 million.

Revenues were $5 billion, up 38% from the second quarter of 2003. This increase was largely attributable to additional activity on KBR's government services projects in the Middle East.

Halliburton's Energy Services Group (ESG) had improved operating income in each of its four segments. Revenues increased 7% in the second quarter from the prior-year period, and operating income for ESG was up 15%.

Hydril Co. reported a second quarter earnings gain of 44%. Chris Seaver, president and CEO, cited strong bookings in the company's premium connection segment.

"We believe those results also reflect increased plant efficiencies from the capital improvement program we financed with the proceeds of our [initial public offering] in late 2000," he said.

"Scheduled shipments for the international market, plus the gradually improving domestic market, should increase our profitability in the second half of the year, compared with the first half."