Marilyn Radler
Senior Editor-Economics
Laura Bell
Statistics Editor
First-quarter 2011 results differed widely across oil and natural gas producers, refiners, and service and supply firms.
While the largest integrated US companies reported strong earnings, many oil and gas producers recorded dismal results for this year's first quarter in light of higher oil prices and lower gas prices as compared with those a year earlier. Some downstream results were stronger due to mostly improved refining margins and better chemicals results.
A sample of oil and gas producers and refiners based in the US recorded a combined 25% jump in both revenue and profits for first-quarter 2011 as compared with year-earlier results. However, among the group of 72 companies, only 19 improved on positive year-earlier earnings and 29 posted a net loss for the recent quarter. Many of these negative results are attributed to derivatives losses.
Meanwhile, a group of companies based in Canada combined for a first-quarter decline in earnings from a year earlier despite a climb in revenues, and a sample of service and suppliers posted stronger results from the first 2010 quarter.
Prices, refining margins
Oil prices in this year's first quarter on average were up about 20% from a year earlier. Front-month crude futures on the New York Mercantile Exchange in this year's first 3 months averaged $94.60/bbl compared with $78.88/bbl during last year's first quarter.
Refiner costs for crude surged, too. The average composite cost of oil for US refiners in first-quarter 2011 was $93.76/bbl, up 24% from a year ago, according to the US Energy Information Administration.
Cash operating margins in most refining centers increased sharply from a year earlier. US Midwest refining margins in the first quarter averaged $15.72/bbl this year, up from $4.04/bbl a year ago, according to Muse Stancil & Co.
While the average margin also spiked for refiners in the US Gulf Coast, West Coast, northwestern Europe, and southeastern Asia, the average margin on the US East Coast, where markets are highly competitive, fell 58% from the first 2010 quarter to average 73¢/bbl.
Wellhead and futures gas prices dipped from the 2010 first quarter as supplies and production remained abundant. Front-month NYMEX gas averaged $4.197/MMbtu in this year's first quarter vs. $4.989/MMbtu a year earlier.
Integrated US companies
US-based integrated operators posted solid increases in earnings as compared with year-earlier results.
ExxonMobil Corp. reported $10.7 billion in earnings for the first quarter of 2011, up 69% from first-quarter 2010. Revenues were $114 billion, and capital and exploration expenditures totaled $7.821 billion for the 3 months. Income taxes for the quarter were $8 billion.
Upstream earnings outside the US climbed 57% from a year earlier to $7.4 billion, accounting for most of ExxonMobil's first-quarter 2011 profits. On an oil-equivalent basis, production increased 10% from a year ago, the company reported. Although the company's gas production increased due to additional US unconventional volumes and project ramp-ups in Qatar, its liquids production declined slightly from first-quarter 2010.
ExxonMobil reported that improved margins resulted in record earnings of $1.5 billion in its chemicals segment, up by $267 million from a year earlier. Refining and marketing profits in the US rebounded to $694 million from a first-quarter 2010 loss, while downstream earnings outside the US surged by $308 million to $405 million.
A turnaround in results for Marathon Oil Corp.'s refining, marketing, and transportation segment helped boost the company's first-quarter earnings to $996 million from $457 million in last year's first quarter.
While strength in Marathon's exploration and production operations outside the US drove upstream earnings $166 million higher than a year ago, downstream results climbed to $527 million in earnings from a first-quarter 2010 loss of $237 million. The company's oil sands mining business also turned around to post income of $32 million from a year-earlier $17 million loss.
Chevron Corp. posted a 36% climb in first-quarter earnings, and ConocoPhillips's profits increased by 44% from a year earlier.
Independent US producers
Derivatives losses undercut many US oil and gas producers' first-quarter 2011 results.
Continental Resources Inc. in this year's first quarter incurred a $369.3 million loss on derivatives, which outweighed the company's oil and gas sales revenues and led to a $137.2 million net loss for the period. A year earlier, first-quarter earnings totaled $72.5 million.
Production during the quarter was up 34% from a year earlier, though, as Continental produced 51,663 boe/d, which was up 8% from fourth quarter 2010 production.
Continental Resources reported that oil accounted for 74% of its first-quarter 2011 production. The company's average realized oil price was $85.34/bbl, while its average realized gas price was $5.09/Mcf, yielding a blended realized price of $71.14/boe. In first-quarter 2010, the company's realized blended price was $62.07/boe.
Linn Energy LLC recorded a $369.5 million loss on derivatives in the quarter, resulting in a $446.7 million net loss. The Houston-based company's sales revenues for oil, gas, and NGLs during the 3 months were $240.7 million, up from $149.4 million in the 2010 first quarter.
McMoRan Exploration Co. posted a $15.8 million loss, compared with a $53.4 million loss in the first quarter of last year. The loss narrowed as the company benefitted from a $16.4 million insurance reimbursement from losses incurred from the September 2008 Gulf of Mexico hurricanes.
First-quarter revenues climbed 3% and gas production volumes increased to 11.7 bcf from 11.2 bcf a year earlier. McMoRan's average gas price realization during the recent quarter was $4.54/Mcf, down from $5.53/Mcf a year earlier. Oil price realizations were up in the recent quarter, but oil production volumes declined a bit from a year earlier.
Refiners
Higher refining margins allowed some refiners to swing to a first-quarter 2011 profit from a year-earlier loss, including Valero Energy Corp. and Tesoro Corp.
Valero reported that its $782 million improvement in operating income vs. the first quarter of 2010 was mainly due to a $3.93/bbl increase in refining throughput margins. The increase in throughput margins was primarily due to higher margins for diesel and jet fuel plus wider discounts for heavy-sour feedstocks on the Gulf Coast and light-sweet crude oils in the Midcontinent, the company said.
"Refining industry margins and feedstock discounts in our markets were very strong in the first quarter because of global demand strength and production issues in foreign refineries. In particular, our inland refineries benefited from processing WTI-type crude oils, which have been pricing at a significant discount to waterborne light-sweet crude oils such as [Louisiana Light Sweet] and Brent," said Valero Chairman and Chief Executive Officer Bill Klesse. Combined with its heavy and sour crude oil processing capabilities, more than 80% of Valero's refining capacity can process feedstocks that price below waterborne light-sweet crude oils, Klesse added.
Included in Valero's first-quarter 2011 results was an after-tax loss of $352 million on derivative contracts related to the forward sales of refined products.
Tesoro reported first-quarter 2011 net income of $107 million compared with a net loss of $155 million for the 2010 first quarter.
Tesoro recorded refining and retail segment operating income of $305 million in the recent quarter compared with a segment operating loss of $145 million a year earlier. The increase in operating income was due to higher refinery throughput rates, a significant crude sourcing advantage, and an improved margin environment, Tesoro reported.
Sunoco Inc., which operates heavily on the East Coast, incurred an $80 million loss for the recent quarter compared with a year-earlier $38 million loss.
"The sharp rise in crude oil prices created very challenging market conditions in the first quarter which, along with some significant operational reliability issues at two of our refineries, negatively impacted earnings. We have been aggressively focused on addressing the reliability issues," said Lynn L. Elsenhans, Sunoco's chairman and chief executive officer.
Canadian producers, refiners, pipelines
A sample of companies based in Canada posted a combined 20% decline in first-quarter 2011 earnings, although the group's revenues gained almost 12% from a year earlier.
EnCana Corp. reported $75.7 million (Can.) in first-quarter earnings compared with $1.4 billion (Can.) in profits a year earlier, when the Calgary-based producer realized a large hedging gain. Revenues fell 53% to $1.6 billion (Can.) on lower gas prices, even as the company's gas production volumes climbed 2% from a year earlier.
EnCana also produced a limited amount of oil and natural gas liquids, production of which declined 4% to 23,000 b/d in the recent quarter. The company said it plans to ramp up development and exploration of oil and NGLs in the US and Canada, since oil and NGLs command a sharp energy price premium over gas.
Talisman Energy Inc. incurred a loss in the first 3 months from a year-earlier profit due to a mark-to-market loss on held-for-trading financial instruments, UK tax changes, timing of liftings, and the impact of an increasing share price on share-based compensation, the company reported.
Service, supply companies
A sample of service and supply firms combined for a 31% increase in first-quarter earnings on a 37% climb in revenues. Results improved largely due to an increase in activity in onshore-US unconventional oil and liquids-rich basins.
Baker Hughes Inc. posted $381 million in profit for the first 3 months of this year, up from $129 million a year earlier. Revenue climbed 78% to $4.53 billion, and the company reported that higher oil prices have spurred producers to accelerate their capital spending. In North America overall onshore spending levels have increased as incremental spending on oil and liquids-rich gas plays has more than offset weakness in dry gas plays.
The rig count in Canada is already dominated by oil-directed drilling and for the first time since 1995, the US has more rigs drilling for oil than gas, Baker Hughes said. Service intensity in the unconventional shales continues to increase as drilling longer horizontal wells requires more frac stages and complex completions.
More Oil & Gas Journal Current Issue Articles
More Oil & Gas Journal Archives Issue Articles
View Oil and Gas Articles on PennEnergy.com
