High commodity prices continued to buoy earnings for US and Canadian oil and gas firms in the fourth quarter of 2004 as strong downstream performance bolstered results of integrated companies and independent refiners.
Wellhead prices of oil and gas posted big gains from their levels in the final quarter of 2003. The US wellhead oil price jumped to an average $42.40/bbl in the last 3 months of 2004 from $27.42/bbl in the same period a year earlier. And the US wellhead natural gas price averaged $5.92/Mcf in the fourth quarter, up from $4.45/Mcf a year earlier.
Meanwhile, the spot price of crude outside the US averaged $38.62/bbl during the fourth quarter vs. $27.64/bbl during the same 2003 period.
Producers
US oil and gas producers were the big gainers during the fourth quarter.
The large integrated oil and gas firms mostly reported surges in fourth-quarter earnings from the same quarter of 2003 because of much improved downstream performance.
A sample of US firms, including producers and refiners, collectively earned 66% more during the fourth quarter of last year than in the same 2003 period. This same group’s revenues climbed 40% in the final quarter of 2004.
Full-year results also improved, although they didn’t surge as much as for the quarter. The group of US-based producers reported a year-on-year increase in 2004 net income of 47% and revenue growth of 27% from 2003.
Amerada Hess Corp. announced that earnings more than tripled between the fourth quarters of 2003 and 2004. ExxonMobil Corp. recorded its highest quarterly profit ever of $8.42 billion, up from $6.65 billion in the last quarter of 2003.
Marathon Oil Corp. reported slightly reduced fourth quarter net income of $429 million, down from $485 million.
Marathon’s US upstream income was $238 million in the fourth quarter and $1.1 billion for the year, compared with $249 million and $1.2 billion in the same periods of 2003. The company said the decreases were primarily due to lower liquid hydrocarbon and natural gas volumes resulting from base decline, weather-related downtime in the Gulf of Mexico, and the sale of Yates oil field. Higher oil and gas prices partially offset these factors.
Downstream income for Marathon Ashland Petroleum LLC (MAP) was $389 million in the fourth quarter, up from $97 million in the same 2003 period. The surge was mostly due to better refining and wholesale marketing margins, which averaged 9.6¢/gal in the fourth quarter vs. 4.1¢/gal in the final 2003 quarter.
Margins improved mostly due to wider-than-normal price differentials between sweet and sour crudes, which also allowed MAP to increase throughputs. About 60% of MAP’s crude oil inputs consist of sour crudes.
Flush with cash, many companies are increasing capital budgets, repurchasing stock, lowering debt, and increasing dividends.
During the fourth quarter, Burlington Resources Inc. repurchased about 4.2 million shares of its common stock for $176.6 million at an average cost of $42.49/share. For the full year, repurchases totaled about 14.4 million shares for $522 million at an average price of $36.37/share.
Anadarko Petroleum Corp. in January elected to increase the quarterly dividend on the company’s common stock by 29%.
“Anadarko has performed well in the past year, and we are confident about our prospects for continued growth,” said Jim Hackett, president and CEO.
That announcement followed news that Anadarko would reallocate $150-200 million from drilling and related activities to additional repurchases of Anadarko common stock. The company’s 2005 capital spending plan was reduced accordingly to a new range of $2.7-3 billion from a previously announced range of $2.9-3.1 billion.
Canadian firms
A sample of firms with headquarters in Canada collectively reported a 167% gain in fourth-quarter earnings, mostly on the strength of higher sales volumes and robust commodity prices. This group, which includes oil and gas producing firms as well as pipeline operators, posted 32% growth in revenues for the quarter.
The quarter’s big mover in this group was EnCana Corp., which announced fourth quarter 2004 earnings more than six times earnings of a year earlier. For the year, net income was up almost 50%.
EnCana’s increased cash flow allowed the company to lower its net debt-to-capitalization ratio to 33% last year, well within its target range of 30-40%. At the same time, the Calgary-based firm purchased 4% of its shares for about $1 billion.
TransCanada Corp. announced a 5% increase in its dividend on common stock after releasing yearend 2004 results. This is the fifth consecutive annual increase in the common share dividend for the company, whose core businesses are gas transmission and power generation.
TransCanada’s net income for the fourth quarter was $185 million, compared with $193 million for fourth quarter of 2003.
For the year, TransCanada’s net income was $1 billion, including net income from discontinued operations of $52 million. This compares with $851 million for 2003, including net income from discontinued operations of $50 million.
Service, supply companies
A group of US service and supply firms that OGJ sampled also fared well. Collectively, these 30 companies recorded fourth-quarter net income of $1 billion-turning around a net loss of $452 million a year earlier-and posted a 14% increase in revenue. For the year, earnings were five times their levels of 2003.
Weighing on the group’s fourth-quarter 2003 earnings was a $947 million loss recorded by Halliburton Co. For that quarter, the company took a $1.1 billion charge for its asbestos and silica liability. In the most recent fourth quarter, the company ended its asbestos liability and posted a net loss of $203 million.
Baker Hughes Inc. posted $179.6 million in net income for the fourth quarter, compared with $101.6 million for the same 2003 quarter. Net income for the full year rose to $528.6 million from $128.9 million in 2003.
Commenting on the earnings increases, Chad C. Deaton, Baker Hughes chairman and chief executive officer, said: “The oil and natural gas industry has recognized the need to invest to meet consumer demand, offset depletion, rebuild inventories, and restore some cushion of productive capacity.
“We expect that our customers’ investments will grow the most in Russia, the Caspian area, and in the Middle East and remain strong in North America. Increased raw material and labor costs will present challenges; however, the capital discipline in the service industry over the last few years has laid the foundation for improved profitability in 2005.” ✦
