Third-quarter 2017 results strengthened on higher prices

Dec. 18, 2017
As commodity prices improved and performance in the upstream and downstream strengthened, a sample of 62 US-based oil and gas producers and refiners posted a collective earnings of $8 billion in this year's third quarter compared with $92.4 million in earnings in the previous year's third quarter. Earnings in the third quarter were partially reduced by impacts related to Hurricane Harvey.

As commodity prices improved and performance in the upstream and downstream strengthened, a sample of 62 US-based oil and gas producers and refiners posted a collective earnings of $8 billion in this year’s third quarter compared with $92.4 million in earnings in the previous year’s third quarter. Earnings in the third quarter were partially reduced by impacts related to Hurricane Harvey.

The group of companies reported a combined net income of $21.53 billion for the first 9 months compared with a combined net loss of $26.91 billion over the same period in 2016.

A sample of 11 companies based in Canada, including oil and gas producers and pipeline operators, reported a combined $4.11 billion (Can.) in earnings in this year’s third quarter. In third-quarter 2016, this group’s combined earnings were $2.1 billion (Can.). In this year’s first 9 months, earnings reached $14.51 billion (Can.) compared with $512 million (Can.) over the same period in 2016.

Market review

Brent crude oil averaged $52.05/bbl and West Texas Intermediate averaged $48.20/bbl in this year’s third quarter compared with a respective $45.80/bbl and $44.85/bbl in the previous year’s third quarter. In this year’s second quarter, Brent and WTI averaged $49.67/bbl and $48.24/bbl, respectively. In September the Brent futures curve went into backwardation through yearend 2019.

Higher crude oil prices were supported by strong seasonal demand, a weaker dollar, and hurricane-related disruptions, while rising geopolitical tensions created additional uncertainty. Market confidence was reinforced further by strong compliance to production cuts by members of the Organization of Petroleum Exporting Countries and discussions about extending the production-cut agreement beyond its planned expiration.

US crude oil production for this year’s third quarter was 9.29 million b/d compared with 8.65 million b/d in third-quarter 2016 and reached 9.1 million b/d in this year’s second quarter, according to data from the US Energy Information Administration. Oil production growth in the Permian basin continued to remain strong.

Meantime, the WTI discount to Brent widened over this year’s third quarter relative to the first half because of rising inventories at Cushing, Okla. Rising production in the US coupled with temporary refinery outages from Hurricane Harvey have pushed more production into storage in Cushing, deepening the discount between WTI and Brent. Crude exports for the US reached record levels toward the end of September as marketers took advantage of the differential.

Natural gas prices at Henry Hub averaged $2.95/MMbtu for this year’s third quarter compared with $2.87/MMbtu during third-quarter 2016. US marketed gas production totaled 2.43 tcf for this year’s third quarter vs. 2.37 tcf for the same quarter in 2016.

Permian natural gas production continued to rise and currently exceeds the Eagle Ford and the Haynesville. Energy Transfer Partners began partial service of the Rover Pipeline at the start of September, adding to gas flows from the Marcellus basin to midwestern markets.

Refineries experienced a more substantial disruption from Hurricane Harvey, relative to oil and gas production, with more than 10 refineries in the Gulf Coast area either offline or operating at reduced capacity. Retail fuel prices increased in the wake of the storm because of refinery outages and pipeline issues.

According to Muse, Stancil & Co., refining cash margins in this year’s third quarter averaged $15.88/bbl for refineries in the Midwest, $19.08/bbl for the West Coast, $11.84/bbl for the Gulf Coast, and $7.81/bbl for the East Coast. In the same quarter in 2016, these refining margins were a respective $13.25/bbl, $14.61/bbl, $8.54/bbl, and $3.31/bbl.

Meanwhile, in this year’s third quarter, the Canadian dollar strengthened in relation to the US dollar vs. the same quarter in 2016. This rate increase had a negative impact on price realizations for Canadian companies.

US operators

ExxonMobil Corp. reported estimated third-quarter earnings of $4 billion compared with $2.88 billion in the same quarter in 2016.

The company’s upstream earnings were $1.6 billion as commodity prices increased, up $947 million from third-quarter 2016. US upstream results were a loss of $238 million in this year’s third quarter compared with a loss of $477 million in the same quarter in 2016. Non-US upstream earnings were $1.8 billion, up $708 million from the prior year. ExxonMobil added 12 offshore blocks in Brazil in addition to making the Turbot discovery in Guyana.

ExxonMobil’s downstream results for the third quarter increased to $1.5 billion, up $303 million from third-quarter 2016, mainly because of higher refining margins. The increase in earnings was partly offset by Hurricane Harvey’s impacts and the absence of favorable asset management gains of $380 million in the previous year from the sale of Canadian retail assets.

The supermajor’s chemical earnings for the third quarter were $1.1 billion, down slightly from a year ago on lower commodity margins and hurricane impacts, partially offset by volume growth. During the quarter the company completed the purchase of an aromatics plant in Singapore, enhancing its position to capture growing demand in Asia.

Chevron Corp. posted earnings of $1.98 billion in this year’s third quarter, up from $1.3 billion a year earlier. Included in the quarter was a gain on an asset sale of $675 million and an asset write-off of $220 million. Foreign currency effects decreased earnings in this year’s third quarter by $112 million compared with an increase of $72 million in the same quarter in 2016.

Chevron’s upstream operations in the US incurred a loss of $26 million in this year’s third quarter compared with a loss of $212 million in the same quarter last year, reflecting higher crude oil realizations. International upstream operations earned $515 million in the third quarter compared with $666 million earned in the same quarter a year ago, mainly because of higher depreciation expenses.

ConocoPhillips reported third-quarter net income of $436 million compared with a third-quarter 2016 loss of $1 billion. Excluding special items, this year’s third quarter adjusted earnings were $198 million compared with a third-quarter 2016 adjusted loss of $826 million. Improved earnings were due to higher realized prices, reduced depreciation expenses, lower exploration expenses, and impacts from dispositions.

The company’s underlying production for this year’s third quarter, excluding the volume impact from closed and signed dispositions, increased 16,000 boe/d, or 1.4%, compared with the same period a year ago, thanks to the ramp up of several major projects and multiple development programs, which more than offset normal field decline and hurricane downtime.

EOG Resources Inc. reported this year’s third quarter net income of $100.5 million. This compares with a third-quarter 2016 net loss of $190 million. EOG increased third-quarter total crude oil volumes 16% to 327,900 b/d. Production curtailments and completion delays due to Hurricane Harvey reduced crude oil volumes about 15,000 b/d during the quarter. Natural gas and NGL production exceeded target midpoints, contributing to 8% total company production growth. Meantime, EOG expects to complete about 505 net wells in 2017, an increase from its original outlook of 480 net wells.

Pioneer Natural Resources reported a third-quarter net loss of $23 million. Without the effect of noncash mark-to-market derivative losses of $103 million after tax, adjusted results for the third quarter were earnings of $80 million after tax. The company produced 162,000 b/d of oil, an increase of 10% compared with this year’s second quarter.

Refiners

Andeavor, formerly known as Tesoro Corp., reported third-quarter consolidated earnings of $601 million compared with $201 million a year ago. The company’s refining segment operating income was $762 million for this year’s third quarter compared with segment operating income of $58 million in the same quarter in 2016. The increase in refining earnings was driven by high crude oil and feedstock throughput. Refining margins were $1.6 billion, or $15.09/bbl, for this year’s third quarter. This compares with a refining margin of $729 million, or $9.08/bbl, in third-quarter 2016.

Phillips 66 posted third-quarter earnings of $849 million compared with earnings of $536 million in the same quarter in 2016. Refining’s adjusted earnings were $548 million in this year’s third quarter compared with $233 million in the prior quarter. This increase was largely driven by higher distillate and gasoline margins, as the market crack spreads were up 41% and 24%, respectively.

HollyFrontier’s adjusted net income for this year’s third quarter was $127.7 million higher than the same quarter in 2016 driven by higher sales volumes and refining margins combined with earnings attributable to the recently acquired Petro-Canada Lubricants (PCLI) operations.

For the third quarter, crude oil charges of HollyFrontier averaged 454,790 b/d compared with 443,560 b/d for third-quarter 2016. Consolidated refinery gross margin was $14.55/bbl, a 48% increase from third-quarter 2016. Total operating expenses for the quarter were $321.7 million compared with $256.2 million for third-quarter 2016 and included $56.1 million in costs attributable to our PCLI operations.

Marathon Petroleum Corp. reported third-quarter earnings of $1.004 billion. This compared with $219 million in third-quarter 2016. Refining and marketing segment income from operations was $1.1 billion in this year’s third quarter compared with $252 million in the same quarter of 2016. The increase in the segment results was primarily a result of a $3.47/bbl increase in the gross margin because of higher blended LLS-based crack spreads. Refinery throughputs exceeded 2 million b/d in this year’s third quarter and crude oil capacity utilization was 102% for this year’s third quarter compared with 100% for third-quarter 2016.

Canadian firms

All financial figures in this section are presented in Canadian dollars unless noted otherwise.

Canadian Natural Resources posted third-quarter earnings of $684 million compared with net earnings of $1.072 billion in the second quarter and a net loss of $326 million in third-quarter 2016. CNR’s crude oil and NGL production volumes averaged a record 759,189 b/d, representing a 19% and 65% increase from this year’s second quarter and third-quarter 2016, respectively. Crude oil and NGL production volume increases were primarily due to strong production from the Horizon Phase 2B expansion and a full quarter of production from the Athabasca Oil Sands Project (AOSP).

The company has generated free cash flow year-to-date of $1.2 billion after net capital expenditures, including the its Pelican Lake acquisition expenditures and excluding the AOSP acquisition expenditures.

Imperial recorded estimated net income of $371 million in this year’s third quarter compared with net income of $1.003 billion in the same quarter in 2016. The results for 2016 included a $716-million gain from the sale of retail outlets.

Upstream gross oil-equivalent production in this year’s third quarter was 390,000 b/d, 18% higher than in the second quarter, driven by increased volumes at each of Imperial’s major assets. Imperial’s downstream business continued to deliver strong results, with petroleum product sales remaining at near-record levels.

Suncor Inc. recorded third-quarter net earnings of $1.289 billion compared with $392 million in third-quarter 2016.

Suncor’s total upstream production set a new quarterly record of 739,900 boe/d in this year’s third quarter compared with 728,100 boe/d in the same quarter in 2016. Oil sands operations production was 469,300 b/d in the third quarter compared with 433,700 b/d in third-quarter 2016, with the increase primarily because of improved upgrader reliability and higher Firebag production. The company’s refinery crude throughput was 466,800 b/d in this year’s third quarter compared with 465,600 b/d in the same quarter last year.

Cenovus Energy recorded a net loss of $69 million during the third quarter, a 73% improvement over the same quarter in 2016. The company reduced planned 2017 capital spending guidance by $100 million to $1.6 billion at the midpoint with no expected impact to production in core areas.

Production at Cenovus’s Christina Lake and Foster Creek oil sands operations rose to 362,494 b/d in this year’s third quarter, an increase of 136% from the same quarter last year. The increase was mainly due to the acquisition and to incremental volumes from Foster Creek Phase G and Christina Lake Phase F, both of which began producing in second-half 2016.