High prices for crude oil and natural gas coupled with strong refining margins pushed earnings of US and Canadian oil and gas companies to high, and in many cases record, levels in fourth quarter 2000 and for the full year.
Exploration and production companies benefited from robust commodity prices-especially for natural gas in the fourth quarter.
For refiners, the year's last quarter was especially strong as crude prices subsided and products held value.
Rising rig counts and prices for oil field equipment and services boosted profits for service-supply companies.
The largest US companies reported annual and fourth quarter results earlier this month (OGJ, Feb. 5, 2001, p. 31).
Integrated companies
Efficiencies resulting from a decade of cost cutting and consolidation amplified the upstream profit gains stimulated by rising commodity values.
Murphy Oil Corp.'s fourth quarter earnings reached $93.3 million on revenues of $1.3 billion. In the comparable quarter in 1999, the company earned $59.5 million on $907.7 million in revenues.
Claiborne P. Deming, Murphy's president and chief executive officer, said that although strong oil prices dominated most of the fourth quarter, it was improved North American natural gas prices that fueled the record gains made by E&P operations.
"Murphy's downstream operations also made a significant financial contribution as US refining margins improved during the latter part of the quarter," Deming said. "Although downstream margins in the UK eased a bit near the end of the year, this operation posted particularly strong results in 2000."
USX-Marathon Group lost $310 million in the fourth quarter, compared to a $171 million profit in the same quarter of 1999 because of extraordinary charges related to joint venture agreements (OGJ Online, Jan. 2, 2001). The company reported revenues of more than $8 billion for the fourth quarter, up from $7.3 billion in the same quarter in 1999.
USX Corp. Chairman Thomas J. Usher noted that Marathon started a program to restructure its upstream business unit in 2000, which added to an overall reduction in its workforce by 24%.
Occidental Petroleum Corp.'s fourth quarter 2000 net earnings were $333 million on revenues of nearly $4 billion compared with net income of $383 million on $2.6 billion in earnings for the fourth quarter of 1999.
Oxy's profits suffered from shrinking margins in the chemical business, noted UBS Warburg LLC.
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Independent E&P
Among independent companies, Anadarko Petroleum Corp., Houston, reported net income of $454 million for the fourth quarter on revenues of $2.4 billion compared with $28 million in net income on revenues of $546 million a year earlier, prior to its merger with Union Pacific Resources Inc.
"We expect these outstanding earnings to continue in 2001," said Robert J. Allison Jr., chairman and CEO. Allison projected a 20% increase in first quarter 2001 earnings over the most recent quarter.
Devon Energy Corp., Oklahoma City, posted net income of $306 million on $850 million in revenues in the fourth quarter, compared with $74.9 million on $505 million in revenues in the same period of 1999. For the year, the company reported net earnings of $730.3 million compared to a net loss of $154.1 million in 1999. Earnings for 2000 reflect a $60.4 million one-time cost attributable to the merger with Santa Fe Snyder Corp, Devon said.
Salomon Smith Barney noted that the Rocky Mountain region contributed three fourths of Devon's fourth quarter volume gains and predicted that most of the company's production growth this year will come from expansion of coalbed methane production in the Powder River and Raton basins.
EOG Resources Inc., Houston, posted net income of $161.4 million on $505 million in revenues for the fourth quarter. This compares with net income of $30.5 million on $237 million in revenues in the comparable quarter in 1999.
Houston Exploration Co., Houston, reported net income of $40.8 million for the most recent quarter, four times its earnings for the same quarter in 1999. The company's production was up 11%, according to Salomon Smith Barney.
"The company has...put the drillbit into high gear, successfully drilling 59 of 67 wells in 2000," the analyst noted. And the company plans to accelerate drilling in 2001.
Refining
Refining margins improved worldwide in 2000 following a difficult year for refiners a year earlier.
After "the exceptionally weak refining environment of 1999," said Salomon Smith Barney, refining profitability more than doubled that of last year.
In the US, the firm noted, the gasoline market tightened during the summer amid low inventories, limited availability of imported product, tight specifications under a new phase of US gasoline reformulation, and unexpected refinery outages.
And winter in the US began with distillate inventories far below normal, particularly on the US East Coast. Salomon Smith Barney pointed out that premium prices for immediately available product discouraged stock-building and helped keep margins strong.
Ultramar Diamond Shamrock Corp. (UDS), San Antonio, reported fourth quarter 2000 net earnings of $119.1 million on revenues of $4.9 billion. This compared with $24.6 million in earnings on $4 billion in revenues for fourth quarter 1999.
"Industry fundamentals continue to point to good margins," said UDS Chairman and CEO Jean Gaulin. "Inventories for both gasoline and distillate are at about the same levels as last year's 5-year lows. Natural gas prices continue to be well above normal which, we expect, will add to operating costs-especially on the West Coast-but which will also work to keep inventories tight."
Service-supply firms
For North American service and supply firms, said Michael LaMotte, senior oil services analyst and managing director of Bank of America Securities LLC, the main lifts to fourth quarter earnings were the rising rig count and higher prices.
Helmerich & Payne Inc. reported net income of $33.8 million during fourth quarter 2000, vs. $20.5 million in the same quarter of 1999, attributing the gain to price strength. H&P reported revenues for the fourth quarter of $193 million compared with $150 million during the same quarter in 1999.
The Tulsa drilling contractor participated in the drilling of 25 wells during the fourth quarter-12 await pipeline connections, 5 are nearing completion, and 8 were dry holes. The company's fourth quarter oil production reached 2,502 b/d, vs. 1,888 b/d during the comparable quarter the year before.
For the fourth quarter of 2000, Cooper Cameron Corp., Houston, reported a net loss of $9.6 million on $348.4 million in revenues. Earnings reflected an after-tax charge of $34.2 million, mostly related to Cooper Energy Services' (CES) decision to shut down its engine manufacturing business. Financial analyst UBS Warburg noted that this was Cooper's fourth plant shutdown in 2 years, adding that it "should end the major restructuring of CES and result in a significant improvement in margins."
Sheldon R. Erikson, Cooper Cameron president and CEO, said, "While the demand for oil field valves had been slower to improve in the current cycle, recent activity has been more in line with overall strength in the North American rig count."
Joel Staff, chairman and CEO of National Oilwell Inc., Houston, said, "Unlike the conditions in 1997 and 1998, which were dominated by special-purpose offshore newbuilds, current demand for our products is balanced between onshore and offshore contractors and contains significant amounts of replacement capital equipment for existing rigs as well as equipment intended for new rigs.
"We believe the excesses of readily useable equipment that have existed within our industry over the last 20 years are now essentially gone...."
National Oilwell reported net earnings for the most recent quarter of $6.2 million on $329.4 million in revenues. This compares with net income of $300,000 on revenues of $222.5 million in the same quarter in 1999.
Rowan Co. Inc. reported net income of $27.5 million during fourth quarter 2000 compared with same quarter 1999 earnings of $2.4 million. Rowan's revenues for the most recent quarter were $184.2 million compared with $121.4 million a year prior.
Rowan Chairman and CEO C.R. Palmer said, "Our business outlook continues to be favorable... . First quarter earnings should be about the same as fourth quarter-give or take a few pennies. Love that $9 gas!"
Honing portfolios
According to some analysts, many energy firms spent much of 2000 honing their portfolios-acquiring key assets while divesting noncore properties.
UBS Warburg cited the acquisition and divestment strategy of Williams, Tulsa.
"After being in a whole series of nonstrategic businesses...acquired in past pooling transactions, [Williams] has made-and continues to make-significant strides at divesting assets that do not meet strict return hurdles."
For fourth quarter 2000, Williams reported a net loss of $48.4 million on revenues of $3.3 billion. This compares with net earnings of $122.3 million on $2.1 billion in revenues for the comparable quarter in 1999. Fourth quarter 2000 net income included losses from discontinued operations, Williams said.
Coastal Corp. reported fourth quarter net earnings of $208.3 million on $6.1 billion in revenues. This is the company's last full quarter before its scheduled acquisition by El Paso Corp. In fourth quarter 1999, Coastal earned $169 million on $3.2 billion in revenues.
During 2000, Coastal's production averaged 899.1 MMcfd of natural gas, up 42% from the year before, and 14,872 b/d of crude oil and condensate, up 39%. Coastal's earnings were enhanced by its 14.4% interest in the 1.3 bcfd Alliance Pipeline, which began commercial operation last December and is now flowing at full capacity.
El Paso reported fourth quarter earnings of $127 million, vs. a net loss of $178 million a year earlier. The company earlier this month received approval from the US Federal Trade Commission to acquire Coastal (OGJ, Feb. 12, 2001, p. 33).
Canadian companies
TransCanada PipeLines Ltd., Calgary, reported net income of $711 million (Can.) for 2000 from revenues of $21.2 billion. In 1999, TransCanada had a net loss of $80 million on $11.9 billion in revenues.
In fourth quarter 2000, TransCanada earned $162 million on $8.2 billion in revenues, compared to a loss of $570 million on revenues of $3.5 billion in 1999's comparable quarter.
TransCanada attributed higher revenues to higher natural gas prices and increased demand.
The company has been involved in a reorganization and a $3.45 billion sale of noncore assets. About $2.5 billion of the gains from asset sales in 2000 were applied to debt reduction.
CEO Doug Baldwin said the company positioned itself in 2000 to deal with market changes and increased competition. He said the company will work this year on expanding gas flow from Alberta and seek sales in California and the eastern US.
Imperial Oil Ltd., Toronto, increased its year-over-year quarterly net income to $492 million on revenues of $5.2 billion. This compares with net income of $205 million on revenues of $3.9 billion for the same quarter in 1999.
Full-year earnings were the highest in Imperial's history. "Higher international energy prices, strong North American refining margins, and a solid operating performance...made 2000 an excellent year," said Bob Peterson, chairman, president, and CEO.
Petro-Canada reported fourth quarter 2000 net earnings of $386 million on revenues of nearly $3 billion, compared with $66 million net earnings on almost $2 billion in revenues during fourth quarter 1999.
"We completed a program to dispose of noncore assets in order to focus our resources and attention on our more profitable businesses," said president and CEO Ron Brenneman. "At the same time, we're seeing that market prices for energy are clearly signaling the need for additional supplies."