Conglin Xu
Senior Editor-Economics
Laura Bell
Statistics Editor
For the second quarter of 2013, the combined earnings of a sample of 51 oil and gas producers, refiners, and midstream companies based in the US were down 25% from a year earlier. Earnings for the first half of the year were down 18%. The decrease in earnings was primarily due to reduced refining margins and maintenance activities in refineries.
And a group of 13 producers and pipeline operators based in Canada reported a combined 10.8% decline in first-half earnings but a 73.6% increase in second-quarter earnings. This was primarily attributed to EnCana Corp. turning around huge losses of $1.45 billion (Can.) from last year's second quarter to post earnings in the recent quarter.
Prices, margins
Front-month crude futures on the New York Mercantile Exchange in the second quarter averaged $94.22/bbl compared with $93.49/bbl during last year's second quarter. West Texas Intermediate crude oil spot prices in this year's second quarter averaged $94.10/bbl vs. $93.40/bbl a year ago.
Average US spot natural gas prices at most major trading points increased 40-60% during the first half compared with the same period in 2012. Front-month NYMEX gas averaged $4.01/MMbtu in this year's second quarter vs. $2.35/MMbtu a year earlier.
The return of gas prices to the $4/MMbtu range was attributed to factors including increased consumption, slowed production, and large withdrawals of Lower 48 storage inventories.
Cash operating margins in most refining centers decreased from a year ago, mostly as the result of softer market conditions for refined products and higher crude prices. US East and Gulf Coasts refining margins slipped 31% and 21% to $3.43/bbl and $7.28/bbl, respectively, according to Muse Stancil & Co. The average cash refining margin in northwestern Europe during the recent quarter was $3.74/bbl, down from $6.88/bbl a year earlier.
US firms
In addition to the decline in combined earnings, the sample of US firms reported a 5% decrease in revenues for the second quarter.
ExxonMobil Corp. recorded a net income of $6.9 billion for the second 3 months of this year, down 60% from second-quarter 2012. The company's oil-equivalent production decreased 1.9% from second-quarter 2012. Weaker refining margins and volumes associated with planned refinery turnaround and maintenance activities negatively impacted downstream earnings.
Chevron Corp. reported a second-quarter net income of $5.4 billion compared with $7.2 billion in the same quarter in 2012. The decline in earnings was largely due to softer market conditions for crude oil and refined products and repair and maintenance activities on its refineries in the US.
Among the largest quarterly gainers was Hess Corp. The company's earnings for the quarter were $1.6 billion compared with second-quarter 2012 earnings of $535 million. Second-quarter results included a nontaxable gain of $951 million related to the sale of the firm's interest in its Russian subsidiary.
With increased US onshore oil volumes by almost 20,000 b/d over second-quarter 2012, Anadarko Petroleum Corp. posted earnings of $959 million compared with a loss of $70 million a year ago.
Apache Corp. announced second-quarter earnings of $1 billion, compared with $356 million for the same period in the prior year. During the 3-month period ending June 30, the company achieved 42% year-over-year growth in North American onshore liquids to 175,000 b/d.
Refiners
Independent refiners, including Holly Corp., Valero Energy Corp., and Tesoro Corp., posted weak results due to reduced refining margins and throughputs.
HollyFrontier Corp. reported second-quarter net income of $265.7 million, down from $502.4 million in the same period last year. For the first 6 months of this year, net income was $609 million compared with $749.4 million for first-half 2012. Narrowing refined product margins and reduced throughputs due to maintenance activities contributed to the year-over-year decline in second-quarter earnings.
Meanwhile, Valero reported a 44% decline in second-quarter earnings to $465 million. The decrease was primarily due to lower refining throughput margins, higher natural gas costs, and higher costs of renewable identification numbers to comply with the federal Renewable Fuel Standard. Its second-quarter refining throughput volumes averaged 2.6 million b/d, a decrease of 52,000 b/d from a year earlier.
Tesoro's earnings declined 39.4% from a year earlier to $238 million. The lower income was a result of significant turnaround activity and a year-over-year decline in Midcontinent and Canadian crude oil discounts.
Canadian results
Collectively, the 13 Canadian companies that OGJ sampled recorded a robust combined increase in earnings for the second quarter. Up 73.7% from second-quarter of 2012, net income for the group totaled $3.8 billion (Can.). Meanwhile, the group's revenues gained 9.8% totaling $47.2 billion (Can.).
Despite EnCana's turnaround from last year's second quarter, seven of the other 12 companies posted decreased earnings for the period.
In the second quarter of this year, EnCana's earnings were $717.4 million, compared with a loss of $1.45 billion a year earlier. The loss was primarily caused by a $1.7 billion aftertax impairment charge resulting from the decline in 12-month average trailing gas prices. The company reported a solid operational performance with a 69% year-over-year increase in oil and natural gas liquids volumes.
Suncor Energy Inc. reported second-quarter earnings of $680 million compared with $324 million in second-quarter 2012. Second-quarter earnings were impacted by planned maintenance in oil sands, refining, and marketing and additional production constraints in oil sands due to unplanned third-party outages.
With net income down 48.5%, Imperial Oil Ltd. reported the largest decrease in earnings from second-quarter 2012. Factors contributing to low second-quarter and first-half 2013 earnings include a noncash aftertax charge of $264 million, lower industry refining margins, higher start-up related operating costs at Kearl oil sands project, and lower bitumen production and higher maintenance costs at its Cold Lake in situ oil sands project.
