Growth in commodity prices propelled a sample of US oil and gas producers to healthy earnings gains in the second quarter and first half of 2005. Many firms in the group reported record-high second-quarter results..
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With worldwide oil demand strong and prices of oil, gas, and products robust, oil and gas producers and refiners reaped much stronger financial results in the second quarter than they did a year earlier. A sample of service and supply companies with headquarters in the US posted even stronger results.
Meanwhile, a group of companies based in Canada recorded improved net income for the quarter, but their collective first-half earnings slumped from a year earlier.
Prices, results
Although some companies incurred declines in production volumes, a spike in oil prices benefited their second-quarter 2005 earnings.
The US wellhead price of crude oil averaged $47.04/bbl in the second quarter of this year, up from $34.61/bbl in the same 2004 quarter. And the average crude oil spot price worldwide excluding the US was $49.96/bbl for the second 2005 quarter vs. $33/bbl a year earlier.
Natural gas prices increased, too, but by smaller margins. The US wellhead price of gas averaged $6.20/Mcf in this year’s second quarter, up from $5.56/Mcf a year earlier. And the wholesale price of heating oil in the US jumped 53% year-on-year.
The US-based operators in the sample of firms collectively improved second-quarter net income 33% compared with the same 2004 quarter. The group’s revenue grew 29% for the period. First-half 2004 results grew similarly, with net income up 36% and revenues up 27%.
Integrated firms
Production volumes were lower for some of the larger integrated firms, which still reported mostly stronger results for the quarter as compared with the same 2004 period.
In spite of a decline in oil and gas output, ExxonMobil Corp. reported record second-quarter net income of $7.6 billion. Record first-half net income of $15.5 billion was up 38% from the first half of 2004.
Liquids production of 2.5 million b/d was 115,000 b/d below the level of the second quarter of 2004. The company’s higher production in West Africa was more than offset by mature-field decline, maintenance activities, as well as entitlement and divestment impacts.
ExxonMobil’s second-quarter natural gas production decreased to 8.7 bcfd from 9.1 bcfd last year, as mature-field decline, maintenance activities, and divestments more than offset higher volumes in Qatar.
Downstream earnings in the second quarter were $2.2 billion, an increase of $714 million from last year due to improved worldwide refining conditions and higher refinery throughput. And ExxonMobil’s chemical earnings were $814 million, up $207 million from second-quarter 2004 due to higher margins.
Along with an 11% dip in earnings, Chevron Corp. reported that its worldwide production, including from oil sands and production under an operating service agreement, declined 6% from the second quarter of 2004. Chevron said the majority of the decline was associated with asset sales and cost-recovery provisions of certain production agreements.
Chevron’s US refining, marketing, and transportation segment recorded a $119 million earnings decline to $398 million in the second quarter from a year earlier, mainly due to downtime for maintenance at two of its refineries. Meanwhile, refining income outside the US grew $51 million to $578 million for the quarter. This gain was due to a one-time benefit of $47 million for a change in certain income tax laws and to higher product margins as well as an increase in Chevron’s ownership in the Singapore Refining Co. since the same 2004 quarter.
ConocoPhillips’s production, including Canadian synthetic crude and excluding its OAO Lukoil investment segment, averaged 1.54 million boe/d, down from 1.56 million boe/d in the second quarter of 2004.
ConocoPhillips posted a second-quarter earnings gain, though. Net income climbed to $3 billion from $2 billion in the second quarter of last year. For the first half of this year, earnings were $6 billion, up from $3.7 billion in the same 2004 period.
Marathon Oil Corp. reported that its upstream segment income was $776 million in the second quarter, compared with $438 million in the second quarter of last year. The increase was primarily due to higher liquid hydrocarbon prices and sales volumes and higher natural gas prices, partially offset by lower natural gas sales volumes.
Independent producers
Most of the independent oil and gas producers in the sample of US companies recorded earnings gains as their total production volumes were up from the second quarter of 2004. A dozen of the firms recorded losses for the quarter.
Chesapeake Energy Corp. announced that its oil and gas production set a record for the 16th consecutive quarter. The company’s 2005 second-quarter average daily production increased 31% from a year earlier and 7% from the first quarter of this year.
Chesapeake’s second-quarter earnings totaled $194 million, more than double that of a year earlier. For the first half of 2005, the Oklahoma City company posted net income of $319 million, up 52% from a year earlier.
Pioneer Natural Resources Co. reported a 166% gain in second-quarter earnings as its worldwide oil and gas production increased slightly and its natural gas liquids output declined 20%.
In May, Pioneer Natural Resources sold its interests in three noncore fields in Canada and recorded the results of operations of these fields, the gain on the sale, and the related tax effects as income from discontinued operations in the amount of $82 million. Income from continuing operations for this year’s second quarter was $103.5 million and compares to income from continuing operations of $64.2 million for the same period last year.
Plains Exploration & Production Co. reported a 16% year-on-year gain in second-quarter 2005 production to 67,700 boe/d but incurred a net loss for the quarter.
Due primarily to a mark-to-market charge for derivative fair value losses associated with the rise in oil prices during the quarter and a change in the estimated tax rate for 2005, Plains Exploration & Production reported a net loss of $47.3 million for the second quarter compared to net income of $18.9 million for the same 2004 quarter.
In the 2005 quarter, the Houston company recognized a pretax loss on mark-to-market derivative contracts of $113.9 million. Cash payments related to these contracts that settled in the second quarter totaled $50.9 million. In addition, Plains recorded noncash charges to revenue of $18.4 million related to certain oil and gas hedges.
Service, supply companies
A sample of service and supply companies recorded a collective 878% gain in earnings for the second quarter. Of the 29 companies in the sample, only three reported declines in net income as compared with the same 2004 quarter, and one incurred a loss.
Horizon Offshore Inc. reported a $27.7 million net loss for the quarter ended June 30. This compares with a net loss of $16 million for the second quarter of 2004. For this year’s second quarter, gross profit was $9 million on revenues of $70.5 million, compared to a $1 million loss on revenues of $44.9 million for the second quarter of 2004.
The company attributes the net loss for this year’s second quarter primarily to a $21.9 million loss on debt extinguishment and continued high levels of interest expense.
Transocean Inc. posted one of the largest earnings gains among the group of service and supply companies. Earnings soared 530% for the offshore drilling contractor, which has a fleet of 92 mobile rigs.
Transocean said demand for fifth-generation deepwater floaters, which total 13 of Transocean’s 32 high-specification floaters, has been particularly strong and continues to exceed supply.
Meanwhile, jack up demand remains strong throughout Southeast Asia, India, and West Africa, the primary regions of operation for the company’s fleet of 25 jack ups. The company also reported that it completed the sale of the Transocean Jupiter jack up for net proceeds of $20 million in the second quarter of 2005. ✦