Average commodity prices and rig counts in this year's second quarter plummeted compared with second-quarter 2008, sending the financial results of producers, refiners, and service companies tumbling from a year earlier.
A sample of US operators recorded a combined 74% decline in earnings for the second quarter of 2009, and for the first half of this year, the group combined for a loss.
A group of producers and pipeline companies with headquarters in Canada similarly posted a collective decrease in second-quarter earnings from a year ago. This group's first-half 2009 earnings also were down sharply year-on-year.
Compared with a year earlier, a sample of service and supply companies reported a collective decline in earnings over the 3-month and 6-month periods as well.
In this year's second quarter, the front-month futures price of oil on the New York Mercantile Exchange averaged $59.79/bbl, down from $123.80/bbl a year earlier.
Meanwhile, the front-month gas futures contract during the second quarter was down 67% from a year earlier, averaging $3.81/MMbtu in the recent quarter.
The rig count in Canada for June fell to 125 units from 266 a year earlier, according to Baker Hughes Inc. And the US rig count in June averaged about 900, down from 1,902 a year earlier.
Results are in US dollars, unless indicated otherwise.
US producers
Thirty-seven of the 70 US-based oil and gas producers and independent refiners in a sample of firms reported a net loss for the recent quarter. And although the large, integrated companies reported solid results, earnings were down sharply from a year earlier due to much lower oil and gas prices.
With net income of $3.95 billion, ExxonMobil Corp. recorded a 66% slide in second-quarter earnings from a year earlier. Revenues slid 46% to $74.4 billion.
ExxonMobil reported that lower oil and gas price realizations reduced its second-quarter earnings by $6.1 billion. Production decreased about 3% from second quarter of 2008.
The company reported that its downstream earnings of $512 million were down $1 billion from the second quarter of 2008, as weaker refining margins more than offset stronger marketing margins. Petroleum product sales were down slightly from a year earlier, mainly reflecting asset sales and lower demand.
Marathon Oil Corp. reported a 47% decline in earnings for the second quarter to $413 million, as revenues slumped 40% to $13.358 million. Lower oil and gas price realizations pushed down E&P earnings to $220 million in the recent quarter from $822 million in the 2008 second quarter.
Weaker oil and gas prices also suppressed the earnings of Chevron Corp., which recorded a 71% decline in its second-quarter 2009 profit compared with a year earlier.
Many of the independent oil and gas producers swung to a loss for the 2009 second quarter vs. the second quarter of 2008, including Pioneer Natural Resources Co., which recorded a $92.1 million loss in the recent quarter due to a loss on derivatives.
Devon Energy Corp. reported net earnings of $314 million for the quarter ended June 30, down 76% from the 2008 second quarter. Production of oil, gas, and natural gas liquids increased 12% to a record 65.4 million boe in the recent quarter. Devon's gas production volumes in Canada climbed a bit due to lower government royalties. But the company's record production volumes were met with lower realized prices for all products, resulting in the decrease in quarterly net earnings.
Chesapeake Energy Corp. swung to a $237 million profit for the recent quarter, with results buoyed by a realized gas and oil hedging gain of $597 million.
Refiners
Most US-based refiners in the sample of companies posted a net loss for this year's second quarter, including Sunoco Inc., Tesoro Petroleum Corp., and Valero Energy Corp. Each of these companies incurred sharp declines in revenues from a year earlier as a result of weak demand for petroleum products.
But as costs declined on lower crude prices, Holly Corp. reported a jump in second-quarter earnings to $21.6 million from $11.9 million in the second quarter of 2008. The Dallas-based company attributed the increase to a host of factors, including the effects of increased refining production, partially offset by an overall decrease in refinery gross margins.
Holly's overall refinery gross margins were down 14%, but refinery production levels increased 41% from a year earlier due to incremental production attributable to operations of the company's recently acquired Tulsa refinery and production gains resulting from capacity expansions at the Navajo and Woods Cross refineries.
Also contributing to Holly's year-over-year increase in second-quarter production levels were the effects of reduced production during the second quarter of 2008 as a result of a fluid catalytic cracking unit outage that forced a downtime at the Navajo refinery. Increased earnings attributable to the company's asphalt marketing business also contributed to the increased earnings in the recent quarter.
Canadian operators
A sample of Canadian-based producers and pipeline operators recorded a combined 71% decline in second-quarter earnings. For the first half, net income sank 54% from a year earlier, as most companies in the group reported poorer results.
Canadian Natural Resources Ltd. reported $162 million (Can.) in earnings in the recent quarter, compared with a $347 million (Can.) loss a year earlier. The company's oil production volumes climbed following a ramp-up in oil sands production at the Horizon project, which started up in this year's first quarter.
Despite swinging to a net profit, CNR reported that its adjusted net earnings were lower from the second quarter of 2008 due to the impact of lower realized pricing, lower natural gas sales volumes, higher production expense, and higher interest expense, partially offset by the impact of higher realized risk management gains, lower royalty expense, and the impact of the weaker Canadian dollar relative to the US dollar.
Of the 11 companies in the sample of Canadian firms, only TransCanada Corp. posted an increase in revenues in the second quarter of 2009 vs. a year earlier. TransCanada's revenues climbed 5.5% on the strength of both its electric power and pipeline segments, but earnings fell 3% from the second quarter of last year due in part to higher interest expenses.
Three of the companies posted a loss for the quarter, including Ivanhoe Energy Inc., Gentry Resources Ltd., and Suncor Energy Inc. Ivanhoe also recorded negative revenue for the recent quarter due to a derivative loss.
Service, supply firms
A decline in drilling activity, especially in North America, continued to suppress financial results for a group of service and supply firms.
Collectively, the sample of service and supply companies posted a 53% decline in net income in this year's second quarter. Revenues for the 21 firms declined 21%. Combined first-half earnings were down 40% from the group's first-half 2008 net income.
Six of the service and supply companies in the sample recorded a net loss for the quarter, and five of those also incurred a loss for the first 6 months of this year.
BJ Services Inc., which recently announced a merger agreement with Baker Hughes Inc. (OGJ Online, Aug. 31, 2009), recorded a second-quarter loss of $32.3 million on revenues of $787 million, and for the first half of 2009, the company earned $160 million.
BJ Services reported that the slide in earnings in the recent quarter was primarily a result of decreased demand and intense price competition for its products and services in pressure-pumping markets in the US and Canada.
Baker Hughes announced $87 million in earnings for the recent quarter, a decline of 77% from a year earlier. For the first half of 2009, Baker Hughes recorded a 64% drop in earnings from a year earlier to $282 million.
