For some oil and natural gas producers, fourth-quarter 2009 earnings improved from a bleak quarter a year earlier, but feeble demand for products hurt refining and marketing results.
Annual results for 2009 reveal that lower oil and gas prices and lower demand for energy products in light of weakness among the world's developed economies created challenges for most companies.
OGJ looked at the fourth-quarter 2009 and full-year 2009 results of three samples of companies and found that with one exception, each of the groups—US-based operators, Canadian producers and pipeline firms, and service and supply companies—collectively posted weaker earnings reports from a year earlier.
The sample of oil and gas producers and refiners based in the US recorded an improvement in combined net income for the 2009 fourth quarter, as fewer of these companies incurred a loss for these 3 months vs. the final 2008 quarter.
During last year's fourth quarter, the front-month futures price of oil on the New York Mercantile Exchange recorded a higher average than during the final 2008 quarter, at $76.13/bbl vs. $59.06/bbl. But the average gas futures price in the recent quarter was $4.927/MMbtu, down from $6.398/MMbtu a year earlier.
US operators
A group of oil and gas producing companies and refiners with headquarters in the US posted a combined return on revenues of just 5% in the fourth quarter of 2009.
The group's total earnings were $13.1 billion in the recent quarter. This compares with a combined net loss of $30.6 billion a year earlier, when ConocoPhillips recorded a $31.7 billion net loss for the quarter (OGJ, Mar. 16, 2009, p. 30).
Seventeen of the companies in the sample of 53 US-based firms recorded a net loss in the 2009 fourth quarter, while 27 of these companies incurred a loss for the final 2008 quarter. For the year, however, the number of companies that recorded a loss was 32. For 2008, there were 16 companies in this group that incurred a net loss.
Some of the operators in the sample improved on their fourth-quarter 2008 results, including Murphy Oil Corp. and Occidental Petroleum Corp. Meanwhile, others such as Apache Corp., ConocoPhillips, and Hess Corp. posted positive net income after recording a loss for the last quarter of 2008.
ExxonMobil Corp. and Chevron Corp. reported a decline in earnings for the final 2009 quarter compared with fourth-quarter 2008 results. Both of these integrated firms announced a climb in upstream earnings and a decline in downstream results.
ExxonMobil announced its fourth-quarter 2009 upstream earnings were $5.78 billion, up $146 million from the fourth quarter of 2008. Higher crude oil realizations increased earnings by $1.8 billion, while lower gas realizations reduced earnings by $1.2 billion. Lower gains from asset sales decreased earnings by $600 million. On an oil-equivalent basis, the company's production increased nearly 2% from a year earlier.
Downstream operations recorded a loss of $189 million in the recent quarter, down $2.6 billion from a year earlier, ExxonMobil reported, while its chemicals earnings of $716 million were $561 million higher than in the fourth quarter of 2008.
Chevron's annual earnings decreased 56% in 2009 as a result of lower oil and gas prices and a decline in refined product sales margins, driven by a weak global economy.
Fourth-quarter 2009 earnings declined 37% from the final 2008 quarter. But upstream results benefited from higher oil prices as Chevron's net oil-equivalent production for the quarter was 9% higher than a year earlier, driven by new production from several major capital projects.
"In our downstream business, our operated refineries continued to run reliably during the fourth quarter. However, this operational success did not offset the effects of low margins on the sale of gasoline and other refined products due to weak demand and excess supply worldwide," said Chevron Chairman and Chief Executive Officer John Watson.
Refiners
Weak refining and marketing margins continued to plague the results of the refining companies in the sample of US-based firms.
The US gulf coast cash refining margin in the fourth quarter of 2009 fell to average $1.07/bbl, according to Muse Stancil & Co. A year earlier the same margin averaged $5.45/bbl.
Valero Energy Corp. reported that its fourth-quarter 2009 results include $18.87 billion in revenues and a $1.4 billion loss. This compares to a nearly $3.3 billion loss in the final 2008 quarter.
For all of 2009, the San Antonio-based refiner posted a $1.98 billion loss vs. a $1.13 billion loss for 2008. "Weak demand, narrow margins, and low discounts in the fourth quarter exemplified how difficult refining conditions were in 2009," said Bill Klesse, Valero's chairman and chief executive officer.
"While 2009 may have been the bottom for refining profitability, there's too much inventory and spare refining capacity in the industry right now for margins to rebound quickly. Economic growth will help demand recover in 2010, but we also expect new refining capacity to come online in the US and around the world. Therefore, 2010 is expected to be another challenging year for the industry while refiners close marginal capacity and wait for demand growth to work down spare capacity," Klesse said.
Canadian firms
A sample of eight oil and gas producers and pipeline operators based in Canada recorded a combined 16% decline in earnings in the final 2009 quarter and an 11% dip in revenues compared with their year-earlier results.
For the year 2009, these companies fared much worse as a group vs. their 2008 results. Earnings for 2009 fell 58%, while the group's revenues declined 28% to $107 billion (Can.).
Imperial Oil Ltd. posted net income for the 2009 fourth quarter of $534 million (Can.), down 19% from the same period in 2008 on a 1% decline in revenues. While upstream earnings in the recent quarter were up from the same 2008 period, downstream earnings were sharply impacted by lower product demand and margins.
Imperial announced that its upstream net income was $491 million (Can.), up 46% from the corresponding 2008 quarter. Increased earnings were primarily due to higher oil prices. Net income from downstream operations was $52 million (Can.) in the fourth quarter of 2009, down 80% from a year earlier.
TransCanada Corp. reported earnings for fourth quarter 2009 of $387 million, up from $277 million in fourth quarter of 2008. The company said that the increase in its earnings, which include results of its power business, was primarily due to higher earnings from natural gas storage, better results in some of its power operations, and lower interest expense from increased capitalization of interest related to the company's capital growth program.
Partially offsetting the increases to TransCanada's earnings were business development costs associated with its Alaska Pipeline Project with ExxonMobil (OGJ Online, Jan. 29, 2009).
Service, supply companies
A sample of 19 service and supply companies posted a collective 48% decline in fourth-quarter 2009 earnings, with revenues off 21% from a year earlier. Results were impacted by the worldwide contraction in oil and gas drilling activity.
The Baker Hughes Inc. count of active rotary rigs in the US declined to average 1,108 rigs in the final 2009 quarter, down from 1,898 rigs a year earlier.
Only one of these firms in this sample of contractors reported improved, positive results for the recent quarter, while eight incurred a loss for the 3 months ended Dec. 31, 2009. For the year 2009, four of the companies in this sample incurred a net loss.
Offshore drilling contractor Noble Corp. reported that its fourth-quarter 2009 earnings climbed to $446.4 million from $418.6 million a year earlier. This includes a $6.5 million benefit related to a settlement of tax-related issues in the Middle East as well as an increase in the company's drilling services revenues and reimbursements from the 2008 fourth quarter.
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