Oil prices drive earnings in fourth quarter 2010

An abundance of production and volumes in storage sent natural gas prices lower during the final 2010 quarter, such that the price of Henry Hub averaged 12.5% less at $3.799/MMbtu. For the entire year, the average 2010 Henry Hub price was up 11% from 2009 due to price strength in the first 3 quarters of the year.

US producers

Although the overall trend among the sample of US companies shows an improvement in results for both the final 2010 quarter and the year due to higher oil and gas prices, some of the producers registered losses for the periods and others showed declines in revenues and earnings from a year earlier. The large integrated companies in the group posted strong increases in results year-on-year, but some of the independent producers announced declines and losses for the recent quarter and for 2010.

Among the largest earnings increases were those recorded by Chevron Corp., ConocoPhillips, and Marathon Oil Corp., while ExxonMobil Corp. posted the biggest fourth-quarter 2010 earnings at $9.5 billion, up 55% from a year earlier.

Marathon's earnings for the fourth quarter, up 99% to $706 million, and for 2010, up 76% to $2.57 billion, were higher on improved income in its exploration and production segment outside the US, in which income in the recent quarter increased to $479 million from $439 million a year earlier, and in the company's refining, marketing, and transportation segment, in which fourth-quarter income recovered to $213 million from a year-earlier loss of $18 million.

Marathon said its refining and wholesale marketing gross margin was 8.99¢/gal in the 2010 fourth quarter compared with 0.62¢/gal in the fourth quarter of 2009, and 7.06¢/gal for full-year 2010 compared with 6.1¢/gal for all of 2009.

Primary factors contributing to the increased refining, marketing, and transportation segment income for the fourth quarter and full-year 2010 include a wider sweet/sour crude differential and increased sales volumes primarily resulting from Marathon's Garyville refinery expansion, the company said.

Anadarko Petroleum Corp. was among the nine independent producers in the sample of US companies that posted positive but lower net income as compared with fourth-quarter 2009 results.

Despite higher revenue on a 9% increase in sales volumes from 2009, Anadarko's net income declined by 46% in the 2010 fourth quarter to $129 million, as the company incurred higher costs and expenses and recorded a loss on commodity derivatives vs. a gain a year earlier.

Refiners

Refiners reported mostly improved results from a year earlier due to higher product prices and margins.

US cash refining margins were higher on average in the 2010 fourth quarter than a year earlier for US Gulf Coast, Midwest, East Coast, and West Coast refiners, according to Muse, Stancil & Co.

For example, the US Gulf Coast cash margin averaged $4.12/bbl in the recent quarter, up from $1.06/bbl in the final 2009 quarter. The margin for US Midwest refiners climbed to $9.77/bbl from $3.22/bbl over the same periods.

For all of 2010, average cash refining margins were up from 2009 by 63% for East Coast refiners, by 56% for Midwest refiners, and by 47% for Gulf Coast refiners, but 9% lower for West Coast refiners due to unusually high margins in January and February of 2009.

Refiners' acquisition costs for crude were higher during 2010 than a year earlier, but a strengthening in demand for products also pushed up prices that users paid for gasoline, diesel, distillate, propane, and jet fuel.

Tesoro Petroleum Corp. posted $3 million in earnings for the 2010 fourth quarter on $5.5 billion in revenue. This compares with a net loss of $179 million on $4.67 million in revenue in the 2009 fourth quarter.

Tesoro said for the fourth quarter of 2010, West Coast benchmark diesel margins were up nearly 100% from a year earlier, while gasoline margins gained over 40%. Increased planned and unplanned refinery downtime among California refiners and marginal improvements in clean product demand drove crack spreads higher in the quarter. Excluding business interruption insurance proceeds, the company said that it captured a gross margin of $11.15/bbl.

Tesoro also said its results in the recent quarter benefitted from an improvement in clean product yields due to increased reliability and less turnaround activity. In addition, discounts for foreign heavy crude oil relative to domestic alternatives widened year-over-year. And in the Midcontinent region, increased US crude oil production as well as logistics disruptions at the end of the third quarter increased the discounts for local crude oil relative to WTI.

Canadian firms

Three of the 10 companies in a sample of Canadian firms, which includes producers and transporters, posted a net loss for the final 2010 quarter, but all in the sample recorded positive net income for the year.

Talisman Energy Inc. posted a net loss in the fourth quarters of both 2009 and 2010. But for all of 2010, net income was $648 million (Can.), a 48% increase from the previous year due to higher commodity prices, improved operating performance, and noncash gains on derivatives, the company said.

The Calgary-based oil and gas producer reported that its cash flow last year was $3.1 billion (Can.), down 23% from 2009, due to higher cash taxes in 2010 and lower cash proceeds from financial instruments.

Suncor Energy Inc. reported a surge in fourth-quarter earnings to $1.35 billion (Can.) from fourth-quarter 2009 net income of $457 million (Can.). Full-year 2010 earnings gained 85% from 2009 to reach $3.57 million (Can.).

On Aug. 1, 2009, Suncor completed its merger with Petro-Canada. So results for the year ended Dec. 31, 2010, reflect results of post-merger Suncor, and the comparative figures for the year ended Dec. 31, 2009, reflect results for 5 months of the postmerger Suncor and 7 months of legacy Suncor before the merger.

Suncor said the earnings increase in the recent quarter was primarily due to improved margins and increased refined product sales, higher realized prices in its oil sands segment and in its international and offshore segment, as well as increased oil sands production.

Service, supply companies

A sample of 14 oil and gas service and supply companies combined in the fourth quarter of 2010 for a 45% increase in net income. But these companies' combined 2010 earnings climbed 13% from 2009. In general, results for the group improved throughout 2010 due to increased activity in light of the continuing worldwide economic recovery.

Houston-based Cameron reported that its revenues for the fourth quarter of 2010 were a record $1.81 billion, up 23.5% from the prior year, and revenues for the year were $6.1 billion, up from $5.2 billion a year earlier, also setting a record for the company.

Cameron Pres. and Chief Executive Officer Jack B. Moore said the increased revenues were due primarily to record deliveries of subsea equipment, where revenues exceeded 2009 levels by more than $450 million. The company also noted that total orders increased for the third quarter in a row.

Moore said he expects Cameron's capital spending to increase considerably this year due to a combination of factors, including an increased level of maintenance spending. He also expects the company will spend about $50-75 million to expand its facilities in Brazil, including enhancements to subsea manufacturing capacity, aftermarket exposure, and research and development capability.

"We will invest nearly $50 million in creating a fleet of Cameron equipment to increase our presence in the frac valve, tree, and manifold markets, further expanding our exposure in shale gas," Moore said.

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