First-quarter earnings increase amid mixed factors

May 26, 2014
A sample of 59 US-based oil and gas producers and refiners collectively posted first-quarter earnings of $22.7 billion, a decrease of 11% from the same quarter in 2013.

Conglin Xu
Senior Editor-Economics

Laura Bell
Statistics Editor

A sample of 59 US-based oil and gas producers and refiners collectively posted first-quarter earnings of $22.7 billion, a decrease of 11% from the same quarter in 2013. When excluding the contingent $4.02 billion loss associated with Anadarko Petroleum Corp.'s Tronox Adversary Processing settlement agreement, however, total earnings of the sampling of companies for the quarter increased 4.5% compared with a year ago.

During this year's first 3 months, US crude oil production averaged 8.1 million b/d compared with 7.1 million b/d during the same period in 2013. This rise was driven by strong production increases from plays in the Eagle Ford, Bakken, and Permian basin areas and underpinned upstream earnings for operators in these areas.

Meanwhile, the spread between Brent and West Texas Intermediate crude narrowed to the single digits, nearly $9 below the average in the same quarter a year ago, as WTI prices have strengthened on the depleting stocks at Cushing, Okla. The tightening differentials threatened profits of refiners.

Separately, a sample of 13 oil and gas producers and pipeline companies headquartered in Canada posted a combined net income of $5.5 billion (Can.) compared with $3 billion (Can.) in the prior year's first quarter, primarily supported by a weaker Canadian dollar and higher realized liquids prices.

In addition, higher natural gas prices in North America relative to the previous year's quarter helped increase earnings of the industry but production disruptions at some international operations, like in Libya, tempered profits.

Prices, refining margins

During this year's first quarter, the front-month futures price of WTI crude on the New York Mercantile Exchange averaged $98.61/bbl compared with $94.36/bbl in the same quarter in 2013. Brent crude futures, meanwhile, declined 4.2% to average $107.92/bbl in this year's first quarter.

As the removal of bottlenecks from Cushing to the Gulf Coast, the WTI and Light Louisiana Sweet (LLS) crude oil differential narrowed by $13.83/bbl vs. first-quarter 2013, while the small premium of US to Brent in last year's first quarter was replaced by a discount of $3.14/bbl.

Front-month NYMEX gas futures averaged $4.71/MMbtu in third-quarter 2013, an increase of 35% from a year ago.

According to Muse, Stancil & Co., refining cash margins in the first quarter of 2014 averaged $21.93/bbl for the Midwest, $12.84/bbl for the West Coast, $9.24/bbl for the Gulf Coast, and $2.79/bbl for the East Coast. In the same quarter last year, these refining margins were $32.33/bbl, $18.60/bbl, $7.51/bbl, and $3.67/bbl, respectively.

The composite cost of US and imported crude for refiners averaged $97.36/bbl in this year's first quarter, down from $107.60/bbl a year earlier, according to the US Energy Information Administration.

A Canadian loonie was worth an average of 91¢ compared with 99¢ in first-quarter 2013. Due to a weak Canadian dollar, the price of Canada's benchmark crude, Western Canada Select (WCS), averaged $75.55/bbl in the first quarter, up 21% from a year earlier.

US producers

ExxonMobil Corp.'s first-quarter earnings were $9.37 billion, a $400 million decrease from first-quarter 2013, due to lower downstream and chemical earnings and higher corporate and financing expenses, which were partly offset by higher upstream earnings.

The company's upstream earnings were $7.8 billion in this year's first quarter, up 11% from the previous year, primarily reflecting higher natural gas realizations, positive liquids mix effects, and asset management impacts. The company's oil-equivalent production decreased 5.6% from first-quarter 2013.

Downstream earnings for this year's first quarter were $813 million, down $732 million from a year ago, due to lower refining margins. Chemical earnings decreased $90 million due to lower margins.

Chevron Corp. reported earnings of $4.5 billion for this year's first quarter compared with $6.2 billion for first-quarter 2013, primarily due to lower prices and volumes for crude oil.

The company's worldwide net oil-equivalent production was 2.59 million b/d in this year's first quarter compared with 2.65 million b/d in first-quarter 2013. In the US, net liquids component of oil-equivalent production decreased 4% to 438,000 b/d in this year's first quarter, while net natural gas production decreased 3% to 1.21 bcfd. Internationally, net liquids component of oil-equivalent production declined 2% to 1.28 million b/d, while net gas production was essentially unchanged at 4.04 bcfd.

The company's average sales price of crude oil and natural gas liquids were $91/bbl in the US and $99/bbl internationally in this year's first quarter, respectively down from $94/bbl and $102/bbl in the same quarter a year ago. The US average sales price of natural gas was $4.77/Mcf, compared with $3.11/Mcf in first-quarter 2013, while the international price was $6.02/Mcf vs. $6.07/Mcf in last year's first quarter.

Downstream, Chevron's US operations earned $422 million in this year's first quarter compared with earnings of $135 million a year earlier, mainly due to higher margins on refined product sales and a gain on the sale of an interest in pipeline affiliate. International downstream operations earned $288 million in this year's first quarter compared with $566 million for the same period in 2013, mainly due to lower margins on refined product sales and exchange rate effect.

ConocoPhillips reported first-quarter net income of $2.14 billion vs. $2.15 billion in first-quarter 2013. Adjusted earnings excluding special items increased to $2.3 billion from $1.8 billion. The company's production from continuing operations, excluding Libya, for the first quarter was 1.53 million boe/d. This production, adjusted for dispositions and downtime, represented a 3% year-over-year increase.

The company's operations in the Eagle Ford and Bakken collectively delivered 183,000 boe/d for the quarter, a 41% increase compared with first-quarter 2013. Both plays achieved new peaks in output of 163,000 boe/d (Eagle Ford) and 54,000 boe/d (Bakken). Ongoing production growth in the Canadian oil sands and major projects ramp ups in the Europe segment also contributed to the company's strong production during the quarter.

Marathon Oil Corp. reported first-quarter earnings of $1.15 billion vs. net income in first-quarter 2013 of $383 million. The strong financial performance was driven primarily by the company's three high-quality US resource plays, including Eagle Ford, the Bakken, and Oklahoma, that delivered a combined average net production of 154,000 boe/d in this year's first quarter, up 26% year-over-year.

Hess Corp.'s net income for the quarter ended Mar. 31 was $421 million compared with $1.27 billion in the prior year's first quarter, primarily reflecting the impact on operating earnings related to divesting exploration and production assets and downstream businesses. Hess's asset sales lowered production by 77,000 boe/d vs. the previous year's first quarter, while extended shutdowns caused by civil unrest in Libya reduced production by 23,000 boe/d. However, excluding production from Libya and assets sold and classified as held-for-sale, pro forma production was 297,000 boe/d in this year's first quarter, up 11% from first-quarter of 2013.

Refiners

Valero Energy Corp. reported net income of $836 million for this year's first quarter compared with first-quarter 2013 income of $652 million. Operating income from the refining segment increased by $67 million, mainly due to higher throughput margin and volumes, partially offset by higher energy costs and depreciation expense.

First quarter refining throughput volumes averaged 2.7 million b/d, an increase of 135,000 b/d from first-quarter 2013. Throughput margins improved, primarily reflecting increases in light sweet and sour crude oil discounts vs. Brent in the US Gulf Coast, which more than offset declines in gasoline and diesel margins relative to Brent in most regions.

The company's ethanol segment achieved record first-quarter operating income of $243 million compared with $14 million a year ago, due to higher gross margins driven by weather-related supply disruptions as well as lower industry inventories.

Marathon Petroleum Corp. reported earnings of $207 million for this year's first 3 months compared with $730 million in last year's same quarter. Refining and marketing segment income from operations was $362 million in this year's first quarter compared with $1.11 billion in first-quarter 2013. The decrease was primarily due to narrower crude oil differentials, higher turnaround costs, and lower refinery throughput, primarily due to the turnaround activities. The decrease was partially offset by higher crack spreads and more favorable net product price realizations.

Phillips 66 announced first-quarter earnings of $1.57 billion, with solid performance and improved margins in midstream and chemicals businesses. This compares with first-quarter 2013 earnings of $1.4 billion. Refining earnings were $306 million during the quarter compared with first-quarter 2013 earnings of $418 million. The decrease was primarily attributed to lower volumes due to planned turnaround and maintenance activities, as well as weaker realized refining margins.

HollyFrontier Corp. announced first-quarter net income of $164 million compared with $343 million for the quarter ended Mar. 31, 2013. The decrease was principally due to the company's lower first-quarter refining margins, which were $14.75/bbl and 37% down from first-quarter 2013.

Canadian firms

All financial figures in this section are presented in Canadian dollars unless noted otherwise.

Suncor Energy Inc., Canada's largest oil and gas company, announced record net earnings for this year's first quarter of $1.49 billion, an increase of 37% from first-quarter 2013, led by strong upstream price realizations driven in part by a weakening Canadian dollar and increased inland crude pricing.

Suncor's strong results during the quarter were driven by a more profitable portfolio comprised of nearly 100% crude oil weighted production compared with 92% in the prior year's quarter. The company reported total upstream production of 545,300 boe/d for the first quarter, down from 596,000 boe/d in first-quarter 2013, reflecting the sale of the conventional natural gas business and the shut-in of oil production in Libya, which was partially offset by higher production in Alberta's oil sands.

Suncor also had increased rail shipments of inland-priced crudes to the Montreal refinery, which averaged 20,000 b/d in this year's first quarter and aims to reach 35,000 b/d in the second quarter. The company also started transporting heavy crude on TransCanada's Gulf Coast pipeline in the quarter, which has provided more than 70,000 b/d of additional access to US Gulf Coast pricing. The increased market access also supported the company's financial performance.

Imperial Oil Ltd.'s earnings in the first quarter of 2014 were $946 million, up 19% from the same period in 2013. Upstream earnings in the first quarter were $452 million, an increase of $152 million from the same period of 2013, primarily due to higher liquids realizations, Kearl production, and higher Syncrude volumes. These factors were partially offset by higher royalty costs, lower Cold Lake volumes and higher energy costs.

The company's downstream net income was $488 million in the first quarter vs. $478 million in first-quarter 2013, reflecting improved reliability, partially offset by lower refining margins. The company's refinery throughput averaged 378,000 b/d, up from 357,000 b/d in 2013, adjusted for the first-quarter 2013 shutdown of Dartmouth refinery. Chemical net income was $43 million in the first quarter, up from $35 million in the same quarter in 2013, supported by higher margins.

Husky Energy Inc. posted net income of $662 million in the first quarter, a 24% increase from the prior year's first quarter. Upstream production averaged 326,000 boe/d for the first quarter compared with 321,000 boe/d a year earlier, reflecting additions from the Sandall heavy oil thermal development and the Ansell liquids-rich gas resource project. Average realized pricing for the company's crude oil, natural gas liquids, and bitumen in the first quarter was $87.32/bbl vs. $68.32/bbl in first-quarter 2013.