Paula Dittrick
Senior Writer
Laura Bell
Statistics Editor
Companies included in an OGJ sample of US-based producers and refiners reported mixed third-quarter earnings, and the biggest company, ExxonMobil Corp., said declining production along with low US natural gas prices hindered upstream financial performance compared with last year.
Out of a sample of 66 US companies, 31 reported a net third-quarter loss. Analysts noted gas prices for the latest quarter averaged about 30% lower than the previous year while oil prices were little changed.
Fitch Ratings of Chicago sees a stable outlook for US and Canadian companies going into 2013, saying the companies have balanced capital structures, strong operating performance, and robust liquidity.
West Texas Intermediate oil prices during 2013 could remain well above $65/bbl because of global supply disruptions, a premium on geopolitical risk, and generally loose global monetary policies, Fitch said.
"Many upstream producers spent 2012 capital budgets more quickly than projected, and have been faced with reducing fourth-quarter activity or going over budget," Fitch said, adding that its analysts expect improved efficiency in shale plays will help companies with more accurate budget planning.
Going into next year, gas prices are expected to improve relative to 2012 trough levels, Fitch said.
Refining offsets upstream dip
ExxonMobil noted downstream financial results offset a decline in upstream profits growth during third-quarter 2012 compared with 2011.
"Production volume and mix effects reduced earnings by $700 million. Lower liquids and natural gas realizations decreased earnings by $130 million," ExxonMobiil said in a Nov. 1 news release. "All other items, including the absence of prior year asset sales ($1 billion), unfavorable tax items, and foreign exchange impacts, decreased earnings by a total of $1.6 billion."
Noting temporary production problems in Kazakhstan and the North Sea, ExxonMobil reported a 1.8% decline in its worldwide crude oil and natural gas liquids production and a 1.3% decline in its worldwide gas production for the first 9 months of 2012 compared with 2011.
Rex Tillerson, ExxonMobil's chairman, said third-quarter 2012 earnings were $9.6 billion (net income attributed to ExxonMobil), which was down 7% from third-quarter 2011. In documents filed with the US Securities and Exchange Commission, ExxonMobil reported $9.9 billion in net income, including noncontrolling interests (see table).
The Irving, Tex.-based supermajor reported revenue of $115.7 billion, nearly 8% lower than third-quarter 2011 revenues.
ConocoPhillips noted the third quarter marked its first full quarter as an independent exploration and production company.
"We performed well," said Ryan Lance, ConocoPhillips chairman and chief executive officer. "Our production was on target, our growth projects and drilling programs are on track. Quarterly production, excluding the impact of dispositions, grew by 40,000 boe/d compared to the third quarter of 2011."
ConocoPhillips said its average realized crude oil price in the third quarter decreased to $102.72/bbl compared with $106.61/bbl for third-quarter 2011. Realized gas prices were $4.56/Mcf for the most recent quarter compared with $5.45/Mcf for the same period last year. Realized prices for NGLs were $40.39/bbl compared with a third-quarter 2011 price of $55.61/bbl.
Canadian firms note gas prices
OGJ's quarterly earnings sample of Canadian oil and gas firms included 15 companies, of which five reported losses.
EnCana Corp. reported the largest single loss: $1.2 billion (Can.). Encana attributed its loss to a $1.19 billion aftertax third-quarter impairment charge, resulting primarily from lower 12-month average gas prices. The charge was noncash in nature, meaning it did not affect cash flow or operating earnings, Encana said.
Randy Eresman, Encana president and chief executive officer, said the company's oil and NGL volumes continue growing as the result of accelerated development of liquids-rich plays.
"We expect to see this trend continue," Eresman said, adding Encana is working to diversify its assets and "achieve a more balanced stream of future cash flows."
Meanwhile, Canadian-based companies having oil sands operations generally reported higher profits.
Canadian Oil Sands Ltd. said third-quarter net income climbed to $338 million which it attributed to lower operating expenditures.
The Calgary firm benefited from a 3% rise in production and a decline in cash costs to $36.17/bbl from $37.19/bbl. Canadian Oil Sands owns 37% interest in the Syncrude Canada Ltd. oil sands project north of Fort McMurray, Alta.
Some international companies based outside the US and Canada reported that a glut in US shale gas production and continued weak US gas prices also dampened gains in their overall third-quarter earnings.
Royal Dutch Shell PLC said its oil and gas exploration and production earnings fell 24% compared with the previous year. The average price Shell received for gas in North America was down 38% compared with an 8% rise in the price it received elsewhere worldwide.
Shell said the third quarter marked the second consecutive quarter that US shale gas has weighed down its earnings.
Including a $1 billion gain on inventories and a $432 million impairment charge-related to US gas asset values and UK tax changes-Shell's net profit for the quarter was $7.14 billion, up 2.3% from the same period a year earlier. Revenue was $115.43 billion, down 8.4% from third-quarter 2011.
During the most recent quarter, Shell wrote down $354 million in assets, mainly US gas fields.
BP PLC reported net earnings of $5.2 billion for the 3 months ended Sept. 30. That compared with a $5.5 billion profit for third-quarter 2011 and a second-quarter 2012 loss of $1.2 billion, which included write-downs on US refineries and other assets.
A record third-quarter downstream profit stemmed from BP's refining throughputs reaching a 7-year high amid high refining margins. Executives expect refining margins will decline during the fourth quarter in line with seasonal trends.
Refining throughput also is expected to decline with the start of a transitional outage to replace the largest of three crude units as part of a $3.8 billion upgrade at the Whiting, Ind., refinery, BP said.
The 384,750 b/cd Whiting refinery is undergoing construction to increase its capacity to process Canadian heavy crude.
BG Group PLC, meanwhile, maintained a scaled-back US drilling program for the third quarter based on low US gas prices, executives said. Overall net earnings for the third quarter increased 16% to $1.2 billion, driven by a 13% rise in exploration and production operating profit to $1.3 billion and a 24% rise in LNG operating profits to $767 million, BG said.
