OGJ150 earnings down as US production climbs

Sept. 2, 2013
The dramatic slide of US natural gas and natural gas liquids prices, large differential between West Texas Intermediate and Brent prices, weak energy demand growth, and increased capital and operating costs in 2012 are reflected in the financial results posted by the companies on the OGJ150 group.

Conglin Xu
Senior Editor-Economics

Laura Bell
Statistics Editor

The dramatic slide of US natural gas and natural gas liquids prices, large differential between West Texas Intermediate and Brent prices, weak energy demand growth, and increased capital and operating costs in 2012 are reflected in the financial results posted by the companies on the OGJ150 group.

The combined net income for the group decreased 20% to a total of $91.1 billion in 2012. In last year's report, OGJ150 earnings for 2011 totaled $114.5 billion, up 26% from 2010.

Total OGJ150 revenues in 2012 slipped 1.4% to $1,024.7 billion from $1,039.2 billion in 2011. Revenues for the group was $1,043.4 billion in 2010.

Assets for the OGJ150 companies totaled $1,343.2 billion for 2012, up 4.2% from 2011. Total stockholder's equity of the companies increased 3.45% to $650.2 billion in 2012. This compares with $628.5 billion in 2011 and $580.2 billion in 2010.

Even though earnings collapsed for the OGJ150 group in 2012, strong earnings from 2011 have boosted available financial resources and the listed companies continued to invest. Capital and exploratory spending for the OGJ150 group last year totaled $206.5 billion, up 17.1% from 2011. This recorded the highest spending level in dollar terms for the group.

US net wells drilled by the OGJ150 companies decreased to 18,597 in 2012 from 19,197 in 2011. Oil and gas companies have slowed onshore exploration in the US due to drilling budgets and low gas and NGL prices.

Year-over-year OGJ150 comparisons must take into account company changes that occur. But the OGJ150 list represents a significant part of the US oil and gas industry and therefore reflects accurately industry activity and financial performance.

To qualify for the OGJ150, oil and gas producers must be US headquartered, publicly traded, and hold oil or gas reserves in the US. Companies appear on the list ranked by total assets but are also ranked by revenues, stockholders' equity, capital expenditures, earnings, production, reserves, and US net wells drilled.

The industry in 2012

Oil demand by the Organization for Economic Cooperation and Development in 2012 decreased consecutively. Among the OECD members, US demand declined 1.8%, according to the International Energy Agency. Net consumption growth all took place in emerging economies, especially in China and India.

Driven by development of unconventional resources, oil production growth in the US was the largest in the world in 2012, and the largest in the country's history.

WTI prices averaged $94.05/bbl in 2012, slightly flat compared with 2011. The spread between Brent and WTI increased 7.3% to $17.6/bbl last year.

Rising US gas output pushed prices to record discounts against both crude oil and international gas prices. The average US wellhead price for gas last year was $2.66/Mcf, down 33% from 2011.

The average US refiner acquisition cost of crude for the composite of both US and imported crude fell to $100.93/bbl from $101.87/bbl a year earlier. Meanwhile, prices of all refined products except propane increased in 2012, contributing to higher refining margins.

Changes in the group

There are 134 companies in this edition of the OGJ150. Last year's group contained 145 firms (OGJ, Sept. 3, 2012, p. 26). The last company on this year's list had assets of $2.04 million, up from $661,000 on last year's list.

This year's OGJ150 list contains four companies that were not on the list in the previous year. Also, 10 other companies listed last year do not appear in the current group as a result of mergers, bankruptcies, or various reasons. Five companies didn't file their results for 2012.

Credo Petroleum Corp. and El Paso Corp. were acquired by Forestar Group and Kinder Morgan Inc., respectively. GeoResources Inc. was merged into Halcon Resources Corp.

Some companies announced name changes last year. Energy Partners Ltd. changed its name to EPL Oil & Gas Inc. Voyage Oil & Gas Inc. is now called Emerald Oil Inc.

There are eight limited partnerships and five royal trusts in this year's group. Six companies are subsidiaries of non-US energy companies.

Group financial performance

For 2012, 71 of the OGJ150 companies reported profits. A year earlier, 94 companies made money.

The number of companies with net incomes exceeding $100 million decreased to 28 in 2012 from 45 in 2011. A total of 24 OGJ150 companies posted net losses of more than $100 million, compared with 7 in 2011.

The company with the highest 2012 net income is ExxonMobil Corp., followed by Chevron Corp., ConocoPhillips, and Occidental Petroleum Corp. ExxonMobil reported $47.68 billion in earnings, up from $42.2 billion a year earlier.

Ranked No. 66 by assets, Quicksilver Resources Inc. posted the largest net loss of $2.35 billion among the OGJ150 group last year. The loss was largely due to a big impairment charge as weak prices for gas and NGL. The company reported a net loss of $1.13 billion for 2011.

The highest ranking company to report a loss for 2012 is Devon Energy Corp., No. 8 by assets, which reported a net loss of $206 million. The loss was also driven by asset impairment charges due to low gas prices.

Due to the sharp drop in earnings, the indicators of financial performance fell significantly in 2012 from the previous year. Return on assets for the OGJ150 group fell to 6.8% in 2012 from 8.9% in 2011. Return on revenue for the group fell to 9% from 11% in 2011. Return on stockholder equity fell to 14% from 18.2%.

Group production, reserves

OGJ150 worldwide liquids production increased 6.85% in 2012 to 2.879 billion bbl. The group's US liquids production totaled 1.437 billion bbl, up 19.8% from a year earlier.

Group worldwide gas production moved up 2.4% to 17.4 tcf. US gas production for the OGJ150 group was up 6.27% at 12.029 billion bbl.

Worldwide liquids reserves were up 8.81% in 2012 to 36.685 billion bbl. Group US liquids reserves increased 19.5% to 20 billion bbl.

Worldwide gas reserves for the OGJ150 group decreased 7.6% to 209 tcf in 2012. Group gas reserves in the US fell 8.64% to 144.4 billion tcf.

OGJ150 group liquids reserves to production ratio averaged 13.95 years in 2012, compared with 14 years in 2011, 13.4 years in 2010, and 12.3 years in 2009. There is a trend for the OGJ150 firms of growth in proven reserves outpacing production growth.

Due to the rapid growth of US liquids reserves, the OGJ150 liquids reserves to production ratio in the US has been persistently higher than the non-US ratio.

Driven by reduced US gas reserves, the OGJ150's US gas reserves-to-production ratio slipped during last year from 14 years to 12 years. As a result, the gap between US and non-US gas R/P ratios has nearly vanished for 2012.

Fast-growing companies

Growth rankings for the OGJ150 are based on stockholders' equity. To be qualified for growth lists, companies are required to have positive net income for 2011 and 2012 and have an increase in net income in 2012. Subsidiary companies, newly public companies, and limited partnerships are not included.

Under the above criteria, only 17 companies in the OGJ150 qualified for the list of fast-growing companies. In the previous edition, 20 companies were listed in this category.

Sandridge Energy Inc., ranked No. 18 in total assets, leads the list this year. Its stock equity moved up 51.5% and net income increased 51.8%. In 2012, the company's oil and gas production increased 52% and 35%, respectively, thanks to continued development of the company's properties in the Mississippian play and production contributed by acquired properties.

Rosetta Resources Inc., the second fastest grower and No. 65 in total assets, posted an increase in stock equity of 27% and net income increased 58.4%.

Two of the companies were also in the top 20 list for last year: Rosetta Resources and Chaparral Energy.

The long-term debt positions of the companies on the list, collectively, moved up 36%. Murphy Oil Corp. surged its long-term debt to $2.2 billion in 2012 from $250 million in 2011. ExxonMobil decreased long-term debt by 15% to $7.9 billion.

Top 20 companies by assets

The top 20 companies as ranked by yearend 2012 assets posted collective assets of $1,168 billion, up 3.6% from a year earlier. The assets of the 20 firms represent 87% of the assets of all 134 companies.

These 20 companies reported a collective net income of $98.15 billion, down from $106.4 billion in 2011. Revenues by the top 20 companies decreased 1.44% to $980.41 billion in 2012.

The top 20 companies' US liquids production increased last year by 18.7%, totaling 1.134 billion bbl. Their liquids production worldwide grew 5%, reaching 2.56 billion bbl. The firms' gas production increased 2.77% in the US but declined 0.76% worldwide.

The group's liquids reserves climbed 18% in the US and 7% worldwide, respectively, but their gas reserves declined both in the US and worldwide.

Capital and exploration expenditures by the top 20 companies increased 18% to $165.9 billion in 2012. The top 20 companies drilled 12,575 wells in the US, roughly flat from a 2011 level.

Production, reserves leaders

Chevron posted the highest US liquids output with a total of 166 million bbl, followed by ConocoPhillips with 151 million bbl.

ExxonMobil topped the OGJ150 companies in worldwide liquids production with a total of 625 million bbl, overtaking the previous leader, Chevron.

ConocoPhillips lead the OGJ150 group in US liquids reserves, reporting an increase of 10% to 2,120 million bbl. ExxonMobil remained No. 1 in worldwide liquids reserves with 10,714 billion bbl.

As last year, ExxonMobil held the top spot in both US +and worldwide gas reserves and production. But its worldwide gas production dropped to 2.99 tcf in 2012 from 3.3 tcf in 2011.

Top 20 in spending, drilling

Capital and exploratory expenditures in 2012 by the top 20 totaled $169.2 billion, up from $145.5 billion in 2011 and $117.5 billion in 2010. Expenditures of the top 20 amounted to 82% of the OGJ150 total.

ExxonMobil, Chevron, and ConocoPhillips were the top three companies in capital and exploratory spending last year, followed by Oxy, Chesapeake Energy Corp., and Apache Corp.

ExxonMobil increased its 2012 outlays by 9% to $36.1 billion. Chevron's spending was $31 billion, up 17% from 2011 outlays. Oxy boosted it spending last year by 36% to $10.2 billion. With $2 billion in spending, Whiting Petroleum Corp. moved into the top 20 list this year, taking the place of Newfield Exploration Co.

Despite the rapid growth of capital and exploratory expenditures by the top 20 group, the rising pace of US net wells drilled slowed in 2012, in response to low gas and NGL prices and drilling budgets.

The top 20 companies in number of US net wells drilled reported 13,573 wells for 2012, down slightly from 13,871 wells in 2011. The 2010 figure was 11,013.

With a count of 1,411 wells, Oxy leads the group. This compares with the company's 1,020 wells drilled during 2011. The second company on the list is Chesapeake, with 1,272 wells, followed by ExxonMobil, Anadarko Petroleum Corp., and Sandridge.

Anadarko reported 1,015 wells drilled in 2012, down from 1,257 wells in 2011. This compares with the company's increase of $1.6 billion in spending last year. Pioneer Natural Resources Co.'s capital spending increased 45% to $2.75 billion in 2012, and its net wells drilled in US declined 4.5% to 751.

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