Conglin Xu
Senior Editor-Economics
Laura Bell
Statistics Editor
The long decline in crude oil prices continued to slam North American oil companies' second-quarter upstream earnings, which were partly offset by higher oil volumes and lower operating costs. Meanwhile, strong gasoline demand and higher margins helped boost independent refiners' earnings and provided a cushion for the drop of earnings of integrated oil companies.
During this year's second quarter, a sample of 63 oil and gas producers and refiners with headquarters in the US collectively posted a net loss of $15.15 billion compared with profits of $25.46 billion for second-quarter 2014. Fifty-one producers incurred a net loss for the period. In this year's first 6 months, the group reported a combined net loss of $25.5 billion compared with earnings of $48 billion for last year's first half.
Crude oil prices for this year's second quarter improved from those in first-quarter 2014, but were still significantly lower than 2014's second quarter. The average quarterly West Texas Intermediate and Brent marker prices increased to $57.94/bbl and $63.50/bbl, respectively, in this year's second quarter compared with a respective $48.63/bbl and $55.17/bbl for the first quarter, but decreased from $102.99/bbl and $109.77/bbl, respectively, for second-quarter 2014. Front-month NYMEX gas futures averaged $2.74/MMbtu for the second quarter vs. $4.58/MMbtu a year earlier.
During the first quarter, the US rig count fell by 792 rigs to 1,048. In this year's second quarter, the count fell by 189 units. An increase in drilling efficiency and well productivity led to continued growth in US production despite falling rig counts. During the second quarter, total US crude oil production of 9.58 million b/d was up 11% from a year ago and up 1% from this year's first quarter, according to data from the US Energy Information Administration.
Refining cash margins in this year's second quarter averaged $24.32/bbl for the West Coast, $11.88/bbl for the Gulf Coast, and $6.73/bbl for the East Coast, according to Muse, Stancil & Co. In the same quarter last year, cash margins for these areas were $17.75/bbl, $9.68/bbl, and $2.43/bbl, respectively. As infrastructure builds out, some of the crude price advantages of Midwest refiners erode, resulting in less excessive margins of $15.35/bbl from $18.59/bbl a year earlier. Refinery throughput and refinery utilization rates were also high during the quarter, reaching 16.33 million b/d and 93% vs. second-quarter 2014's 16.17 million b/d and 90%.
Meanwhile, a group of 11 producers and pipeline operators based in Canada reported a combined net loss of $1 billion (Can.) in this year's second quarter and a net loss of $4 billion (Can.) in this year's first half. An increase in general corporate tax rate to 12% from 10% in Alberta incurred higher tax charges to firms.
US firms
ConocoPhillips reported a second-quarter net loss of $164 million, down from second-quarter 2014 earnings of $2.1 billion, primarily reflecting lower realized prices. ConocoPhillips's 6-month earnings were $122 million compared with first-half 2014 earnings of $4.2 billion.
The company has cut its 2015 capital expenditures guidance to $11 billion from $11.5 billion and operating cost guidance to $8.9 billion from $9.2 billion. Reductions in future deepwater exploration spending also were announced.
For this year's second quarter, production from continuing operations, excluding Libya, was 1.6 million boe/d, an increase of 39,000 boe/d compared with the same period a year ago. The company says it's on track to reach the higher end of its 2015 production target of 2-3% growth over 2014 production from continuing operations, excluding Libya.
EOG Resources Inc. reported second-quarter net income of $5.3 million compared with second-quarter 2014 net income of $706.4 million, as lower commodity price realizations offsetting higher cash settlements from commodity derivative contracts and lower operating expenses. In the second quarter, overall total company production decreased 3% compared with the same prior year period, reflecting divested production related to Canadian operations. Total capital expenditures decreased 40% compared with the prior year.
Due to improved well productivity and reduced completed well and operating costs, the company is generating good returns in all their key assets with $50/bbl oil, said William R. Thomas, chairman and chief executive officer. Meanwhile, for the period Aug. 1 through Dec. 31, 2015, EOG has crude oil financial price swap contracts in place for 10,000 b/d at a weighted average price of $89.98/bbl.
Occidental Petroleum Corp. announced second-quarter net income of $176 million compared with a loss of $218 million for the first quarter and income of $1.4 billion for second-quarter 2014. Second-quarter capital was $250 million lower than the first quarter and more than 25% lower than the same period last year.
The company's second-quarter production increased 658,000 boe/d from last year's 580,000 boe/d, an increase of 13% with 78% of the increase from oil, led by Permian Resources. Operating costs in the US were down to $13/boe from $14.5/boe in 2014.
Hess Corp. posted a net loss of $567 million for the most recent quarter, including a noncash goodwill impairment charge of $385 million compared with net income of $930 million in last year's second quarter. The company's exploration and production activities had a net loss of $502 million in the second quarter compared with second-quarter 2014 net income of $1 billion.
Oil and gas production increased to 391,000 boe/d compared with 319,000 boe/d in second-quarter 2014. The average worldwide crude oil selling price, including the effect of hedging, was down 45% to $55.83/bbl in this year's second quarter from second-quarter 2014.
ExxonMobil Corp. reported estimated second-quarter earnings of $4.2 billion compared with $9.1 billion a year earlier, as higher downstream and chemical earnings were more than offset by the impact of weaker upstream realizations and lower asset management gains. In this year's first half, earnings were $9.3 billion, down $9 billion from 2014.
Upstream earnings were $2 billion in this year's second quarter, down $5.9 billion from second-quarter 2014, as lower liquids and gas realizations offset volumes effects. US upstream operations recorded a loss of $47 million, down $1.2 billion from second-quarter 2014. In this year's first half, upstream earnings were $4.9 billion, down $10.8 billion from first-half 2014.
The company's second quarter production of 4 million boe/d increased 3.6% from second-quarter 2014, with liquids up 11.9% and natural gas down 5.8%. Production for the first 6 months increased 3% from 2014, with liquids up 8.9% and natural gas down 3.6%. Liquids volumes benefited from new developments in Angola, Canada, Indonesia, and the US.
ExxonMobil's second-quarter downstream earnings were $1.5 billion, up $795 million from second-quarter 2014, driven by higher margins, continued strong demand, and the quality of the company's product and asset mix. Earnings from the US downstream were $412 million, down $124 million from second-quarter 2014.
Chevron Corp. reported earnings of $608 million for this year's second quarter, down from earnings of $5.7 billion in second-quarter 2014. Included in the quarter were impairments of $1.96 billion and other charges of $670 million relating to project suspensions and adverse tax effects, all of which were noncash charges stemming from a downward revision in the company's longer-term crude oil price outlook.
US upstream operations incurred a loss of $1.04 billion in the second quarter compared with earnings of $1.05 billion in the same quarter last year. The decrease was due to sharply lower crude oil realizations and higher depreciation expenses, primarily reflecting impairments, partially offset by higher crude oil production and lower operating expenses. Net production of 730,000 boe/d in the second quarter was up 63,000 b/d, or 9%, from a year earlier.
US downstream operations earned $731 million in this year's second quarter compared with earnings of $517 million a year earlier, due to higher margins on refined product sales, partially offset by the absence of a 2014 asset sale gain and lower earnings from the 50%-owned Chevron Phillips Chemical Co. LLC.
Refinery crude oil input of 916,000 b/d in this year's second quarter increased 155,000 b/d from the same year-ago period, with the absence of the second-quarter 2014 major crude unit turnaround at the El Segundo, Calif., refinery.
Refiners
Phillips 66 announced second-quarter earnings of $1.02 billion compared with earnings of $997 million in this year's first quarter and $872 million in second-quarter 2014. The company's refining adjusted earnings were $604 million in the second quarter compared with $495 million in this year's first quarter. The increase in earnings was largely driven by improved realized gasoline margins, partially offset by reduced distillate and secondary product margins. Distillate margins declined primarily due to a seasonal reduction in demand, while secondary product margins were down mainly due to higher crude costs.
Phillips 66's worldwide refining crude utilization was 90% in this year's second quarter. A major turnaround was recently completed at Humber, UK, refinery.
Valero Energy Corp. reported net income from continuing operations of $1.4 billion in the most recent quarter compared with $593 million in second-quarter 2014. The refining segment reported second-quarter operating income of $2.2 billion vs. $1.1 billion in second-quarter 2014, primarily resulting from a $3.87/bbl increase in throughput margin from $9.84/bbl in second-quarter 2014 to $13.71/bbl in this year's second quarter.
Second-quarter refining throughput volumes averaged 2.8 million b/d, an increase of 87,000 b/d from second-quarter 2014, primarily attributable to less maintenance activity. Valero's refineries operated at 96% throughput capacity utilization in this year's second quarter.
Tesoro Corp. posted record second-quarter net earnings from continuing operations of $620 million. The refining segment's operating income was $753 million for the quarter, compared to $358 million in second-quarter 2014, benefiting from a substantially improved margins environment and lower operating expenses partially offset by turnarounds and maintenance activities.
The Tesoro Index was $21.61/bbl for this year's second quarter with a realized gross refining margin of $19.13/bbl, or 89% of the Tesoro Index compared with a realized gross refining margin of $13.11, or 101% of the Tesoro Index last year.
HollyFrontier Corp. reported second-quarter net income of $373 million compared with $185 million for the quarter ended June 30, 2014, reflecting improved margins and strong refining results. Consolidated refinery gross margin was $17.42/bbl, a 20% increase from second-quarter 2014.
Canadian firms
All financial figures are in Canadian dollars unless noted otherwise.
Imperial Oil Ltd.'s second-quarter earnings were $120 million, reflecting a net charge, largely noncash, of $320 million associated with the recently enacted Alberta corporate income tax rate increase. Earnings in second-quarter 2014 were $1.2 billion, which included a gain of $478 million associated with the divestments of conventional upstream producing assets.
Imperial's gross production during the second quarter averaged 344,000 boe/d, up 57,000 boe/d from 2014 due to increased Kearl and Cold Lake production. This result was the company's highest quarterly production level in nearly 8 years.
Refinery throughput averaged 373,000 b/d compared with 418,000 b/d in the same period of 2014, reflecting planned turnaround activity at the Sarnia refinery. Capacity utilization excluding the turnaround continued to remain high at 97%.
Canadian Natural Resources Ltd. incurred a net loss in the second quarter of $405 million compared with net earnings of $1.07 billion in second-quarter 2014 and a net loss of $252 million in this year's first quarter. The net loss in the recent quarter reflected higher deferred income tax liability of $579 million due to the increase in the Alberta provincial corporate income tax rate.
Suncor Energy Inc.'s net earnings were $729 million in this year's second quarter compared with net earnings of $211 million in the same quarter in 2014, which included impairment charges. Net earnings for this year's second quarter included a $423 million deferred income tax charge related to a 2% increase in the Alberta corporate income tax rate, an aftertax foreign exchange gain on the revaluation of US dollar denominated debt of $178 million, and an aftertax gain of $68 million on the disposal of the company's share of certain assets and liabilities of Pioneer Energy LP in the refining and marketing segment. Suncor is cutting 2015 capital expenditures by $400 million to $5.8-6.4 billion.
Suncor's total upstream production was 559,900 boe/d in this year's second quarter compared with 518,400 boe/d in the prior year's same quarter, due primarily to increased oil sands production and the continued ramp up of Golden Eagle production in the UK.
The company's average refinery utilization improved to 90% in the second quarter compared with 85% in the prior year's quarter. Solid refinery utilization and a favorable downstream business environment resulted in refining and marketing operating earnings of $631 million.
TransCanada Corp. reported net income for this year's second quarter of $494 million compared with $472 million for the same period in 2014. Higher earnings from the Canadian Mainline, NGTL System, Keystone, Bruce Power, and Eastern Power were partially offset by lower contributions from US power and western power.