Conglin Xu
Senior Editor-Economics
Laura Bell
Statistics Editor
Lower oil prices and lower liquids realization reduced the earnings of some US and Canadian producers in the first 3 months of 2013. Although varied, the decreases in earnings are also attributable to higher operating costs, large asset impairment losses, and foreign exchange losses.
At the same time, refiners and marketers recorded stronger earnings from a year earlier as a result of higher refining margins and reduced costs.
A sample of 62 US-based oil and gas producers and refiners posted a combined decrease of 9.3% in first-quarter earnings compared with the same period in 2012.
A group of 13 Canadian-based producers and pipeline operators reported a collective 42% decrease in earnings in this year's first quarter vs. a year ago.
Prices, refining margins
The front-month futures contract on Brent averaged $113.65/bbl in this year's first quarter. This compares with an average price of $118.45/bbl last year. Crude oil front-month futures prices on the New York Mercantile Exchange in 2013's first quarter averaged $94.37/bbl compared with $102.93/bbl in first-quarter 2012. Front-month NYMEX natural gas futures averaged $3.48/MMbtu in 2013's first quarter vs. $2.51/MMbtu a year earlier.
Cash refining margins in the first quarter of 2013 averaged $32.25/bbl for the US Midwest, $18.59/bbl for the West Coast, $7.66/bbl for the Gulf Coast, and $3.65/bbl for the East Coast, reported Muse, Stancil & Co.
The average composite cost of crude oil for US refiners in the first quarter of 2013 was $100.27/bbl, down from $107.60/bbl a year earlier, according to the US Energy Information Administration.
US producers
In the sample of US oil and gas producers, 21 incurred a net loss for the first 3 months of 2013. Most producers recorded declines in earnings from a year earlier.
ExxonMobil Corp. reported net income of $9.76 billion for the first quarter 2013 compared with $9.8 billion in first-quarter 2012. Upstream earnings in this first quarter were $7.04 billion, down $765 million from first-quarter 2012. The decrease in upstream earnings was attributable to lower liquids realization, production volume and mix effects, and other items, including higher operating expenses. Oil-equivalent production in the first quarter 2013 decreased 3.5% from the same period a year ago.
ExxonMobil's downstream earnings were $1.55 billion, down $41 million from first-quarter 2012. Gains from stronger margins, mainly in refining, partially offset earning decrease stemmed from volume and mix effects and other items.
Chevron Corp. posted $6.2 billion in earnings for this year's first quarter, a 4% decrease from first-quarter 2012. The company's worldwide net oil-equivalent production was 2.65 million b/d in the first quarter, up from 2.63 million b/d in 2012's first quarter. International upstream earnings of $4.8 billion in this year's first quarter increased by $142 million from a year earlier, reflecting gains from favorable tax items and lower exploration expenses. US upstream earnings were down $397 million to $1.13 billion from first-quarter 2012, with lower crude oil realization and higher operating expenses.
Chevron's US downstream earnings of $135 million in 2013's first quarter compared with a net income of $459 million a year earlier, primarily due to higher operating expenses as a result of turnaround activity at the refineries of various locations. International downstream earnings increased $221 million from a year earlier, benefiting from higher margins on refined product sales.
ConocoPhillips announced first-quarter 2013 earnings of $2.15 billion compared with first-quarter 2012 earnings of $2.95 billion, which included $700 million from downstream operations prior to the separation of Phillips 66 on Apr. 20, 2012. First-quarter combined production from the Eagle Ford, Bakken, and Permian areas climbed 42% compared with first-quarter 2012. Oil sands production averaged 109 million boe/d, up 30% from first-quarter 2012.
Hess Corp. posted net income of $1.27 billion for the most recent quarter vs. net income of $560 million in the same period of 2012. In this year's first quarter, the company continued to make progress on its asset sales, including completing sales of its interests in Beryl area fields in the UK North Sea, the Azeri-Chirag-Guneshli fields in Azerbajian, and announcing the sale of its acreage in the Eagle Ford shale play. The company's exploration and production earnings were $1.28 billion in the most recent quarter compared with $635 million in first-quarter 2012.
Devon Energy Corp. recorded a net loss of $1.3 billion in this year's first quarter compared with earnings of $393 million for first-quarter 2012. The net loss was due to a $1.9 billion noncash asset impairment charge primarily related to lower oil and natural gas liquids pricing.
Newfield Exploration Co. posted a loss of $8 million in the first quarter of 2013. The result was attributable to a net unrealized loss on commodity derivatives of $111 million. Newfield's net production in first-quarter 2013 was 11.7 million boe. Its first quarter US liquids production was up 9% over fourth-quarter 2012.
Refiners
Tesoro Corp. reported first-quarter net income of $104 million compared with $62 million in first-quarter 2012. Tesoro recorded a strong operating income improvement in the first quarter. The company began the process of halting refining operations in Hawaii. The company is near the completion of the first phase of the Salt Lake City conversion project.
HollyFrontier Corp. reported first-quarter earnings of $343 million compared with earnings of $247 million for the first 3 months of 2012. The company's refinery gross margin was $23.32/bbl compared with $17.46/bbl during first-quarter 2012.
Valero Energy Corp. realized net income of $652 million for this year's first quarter compared with a first-quarter 2012 net loss of $432 million. Included in 2012's first quarter was a noncash, aftertax asset impairment of $605 million. The company's refining throughput volumes in this year's first quarter averaged 2.6 million b/d, an increase of 11,000 b/d from first-quarter 2012.
Marathon Petroleum Corp. posted a net income of $730 million for the first quarter, a 22% increase from last year. Its income from refining and marketing operations increased by $167 million compared with the same period in 2012.
Phillips 66 more than doubled profits in the first quarter due to favorable refining and chemical margins. Refining recorded first-quarter earnings of $922 million and first-quarter chemicals earnings were $282 million.
Canadian firms
Among Canadian-based firms, 3 of the 13 sampled incurred losses in the most recent quarter. More than half in the group reported declines in earnings from a year earlier. (Note: All monetary amounts that follow are in Canadian dollars).
Suncor Energy Inc. posted a net income of $1 billion for this year's first quarter compared with net income of $1.4 billion a year ago. The loss was attributable to a $146 million aftertax foreign exchange loss on the revaluation of US dollar denominated long-term debt and an aftertax charge of $127 million as a result of not proceeding with the Voyageur Upgrader project. The company's operating earnings increased due to record high oil sands production and record refining and marketing profitability.
Cenovus Energy Inc. generated earnings of $171 million in this year's first quarter, down from earnings of $426 million in the same period of 2012. Net earnings were negatively impacted by unrealized risk management and foreign exchange losses in the quarter. Cenvous' average daily oil production climbed 15% compared with the same period in 2012, primarily led by growth at the company's Christina Lake oil sands project.
EnCana Corp. recorded a net loss of $432 million for the most recent quarter. The loss was largely due to mark-to-market accounting of the company's unrealized risk management position and a nonoperating foreign exchange loss. The company's average liquids production increased to 43,500 b/d in this year's first quarter compared with 29,300 b/d in first-quarter 2012.
Talisman Energy Inc. reported a net loss of $209 million for the first quarter compared with net income of $286 million a year earlier. First-quarter production was 372,000 b/d, relatively flat with the fourth quarter, after adjusting for the sale of a 49% equity interest in Talisman's UK North Sea business in December 2012.
Imperial Oil Ltd.'s earnings in this year's first quarter reached $798 million, down from $1.1 billion in the corresponding period in 2012. Lower earnings were primarily due to the impacts of lower liquids realizations of $270 million, higher refinery and Syncrude maintenance effects of $165 million, and higher Kearl production readiness expenditures. The decrease in earnings was partially offset by lower royalties of $160 million and higher refining margins of $125 million.
TransCanada Corp.'s net income for 2013's first quarter was $492 million, including $84 million related to 2012 as Canada's National Energy Board approved a return on equity for the Canadian Mainline of 11.5% for the years 2012-17.
Over the next 3 years, subject to required approvals, TransCanada expects to complete $12 billion of projects that are currently in advanced stages of development. They include the Gulf Coast project, Keystone XL, the Keystone Hardisty terminal, the initial phase of the Grand Rapids Pipeline, the Tamazunchale Pipeline Extension, the acquisition of nine Ontario Solar projects, and the ongoing expansion of the NGTL System.
