During the first quarter of 1999, lower crude oil and natural gas prices led to a sharp decline in profits for a sampling of North American oil and gas companies.
Both revenues and profits were down from the year earlier. There was a significant increase in world and U.S. demand for petroleum, but the higher level of oil consumption was not sufficient to offset the negative impact on profits from the low prices.
For many of the companies, the exploration and production sector earnings showed the sharpest decline. But refining and marketing earnings were also down for the year. Refining margins deteriorated as product prices fell along with crude oil feedstock costs.
Aggregate results
For the first quarter of 1999, total profits for the 101 companies that Oil & Gas Journal surveyed were down 42% compared with first quarter 1998 results. First quarter net income for the group totaled $2.835 billion compared with $4.886 billion in the same period a year earlier. The decline in earnings was due in part to a 10.3% drop in total revenues to $87.677 billion.
Of the 101 companies sampled, only 26 had higher profits in the first quarter this year than in the same period of 1998. Lower quarterly earnings were posted by 30 of the companies, while 45 posted losses, compared with only 35 showing losses for first quarter 1998.
Demand and prices
Increased oil demand in the first quarter of 1999 partially offset the impact on earnings of lower oil and natural gas prices. According to the International Energy Agency (IEA), worldwide petroleum demand averaged an estimated 76 million b/d for the period, up 1.3 million b/d from the average 74.7 million b/d in first quarter 1998.
The rise in demand appears to signify the beginnings of a recovery from the worldwide slowing of growth that occurred in 1998 due to the economic problems in Asia and other developing regions.
U.S. petroleum product demand averaged an estimated 19.193 million b/d in the first quarter of this year, up 4% from 18.454 million b/d in the same period a year earlier. Closer to normal winter weather and continuing economic growth boosted U.S. product demand.
U.S. natural gas demand moved up 1.9% to 6.779 tcf for the first quarter, compared with 6.651 tcf in first quarter 1998. Natural gas demand in the residential and commercial sectors were up significantly due primarily to winter weather colder than a year earlier.
The worldwide price for export crude oil averaged $10.74/bbl for the first quarter of 1999, down 16.3% from the same period in 1998. In the U.S. the average first quarter price for West Texas intermediate (WTI) crude oil was $12.18/bbl, down 19.7% from the average in first quarter 1998. The average price for light, sweet crude on the futures market was $12.91/bbl in the first quarter, down 19.1% from first quarter 1998.
The average Henry Hub spot price for natural gas was $1.80/MMBTU for the first quarter this year, down 17.8% from $2.19/MMBTU in the same period of 1998. The price of natural gas on the futures market also averaged $1.80/MMBTU, down 18.6% from last year`s $2.21/MMBTU.
The U.S. pump price for all types of motor gasoline averaged $1.031/gal for the first quarter of 1999, down 9.6% from $1.14/gal in first quarter 1998. The U.S. price of No. 2 distillate for residences averaged $0.803/gal, down 12% from $0.912/gal a year earlier.
Company results
The group of integrated companies, large independent production companies, and independent refining companies posted significantly lower profits for the first quarter of 1999 than for the same period a year earlier. And the group of small independent producers posted an aggregate loss for the first quarter this year as well as last.
The 18 integrated companies in the sample had first quarter 1999 earnings down 43.4% from 1998 (see table, opens in new window). Net income was $2.423 billion in the period, compared with $4.284 billion in 1998.
Revenues for this group fell 12.2%. Profits were up for 3 of the companies, while 11 had lower earnings, and 4 had losses vs. 2 for the same period last year.
The group of 52 large independent producers posted a net profit of $271 million in the first quarter, down 34.9% from $416.4 million for the same period in 1998. Of the group, 13 had higher profits, while 12 posted lower profits, and 27 recorded losses vs. 18 a year ago.
The group of 26 small independents posted a loss of $8.9 million in the first quarter compared with a loss of $10.6 million in the same period a year earlier. In this group, 8 companies had higher quarterly profits than a year earlier, while 4 posted declines in earnings, and 14 recorded a loss, the same as in first quarter 1998.
The survey also included five companies that are exclusively refiner-marketers. For these five, first quarter profits were down 42% to a total of $150 million, compared with $196 million in 1998. Revenues for the group fell 10.3% to $9.745 billion. Two of the companies had increased profits, while three posted lower profits.
A significant increase in U.S. products demand helped offset some of the effects of lower prices. And lower crude oil feedstock costs helped prevent a total collapse of refining margins during the first quarter. According to Ernst & Young Wright Killen, U.S. Gulf Coast refining margins averaged a dismal $0.173/bbl compared with $0.593/ bbl during first quarter 1998.
