Conglin Xu
Senior Editor-Economics
Laura Bell
Statistics Editor
A group of 58 US-based oil and gas producers and refiners reported full-year 2018 net earnings of $54.75 billion on revenues of $1,012 billion compared with full-year net earnings of $44.38 billion on revenues of $835.21 billion in 2017.
The group also reported fourth-quarter 2018 net earnings of $23.13 billion compared with earnings of $27.63 billion in the previous year’s fourth quarter. The group’s revenues totaled $261.75 billion in fourth-quarter 2018 compared with $228.21 billion in the same year-ago quarter.
The Brent price averaged $71/bbl for the full-year 2018 compared with $54/bbl in 2017. Crude oil prices increased throughout the first three quarters of 2018 because of solid demand combined with production cuts by members of the Organization of Petroleum Exporting Countries.
Late in the year, continued US shale growth, record production from Russia and Saudi Arabia combined with unexpected short-term waivers from Iranian sanctions granted to several countries, led to excess supply conditions, resulting in a decrease in oil prices. In response, OPEC agreed to new production cuts in early December.
Prices for West Texas Intermediate crude for the full-year 2018 averaged $65/bbl compared with $51/bbl in 2017. Differentials to Brent have ranged $3-10/bbl in 2018 mainly because of pipeline and infrastructure constraints that have restricted flows of inland crude to export outlets along the Gulf Coast.
For 2018, with most of the growth coming from the Permian region of Texas and New Mexico, US crude oil production averaged 10.95 million b/d compared with 9.35 million b/d in 2017, according to the US Energy Information Administration.
The pipeline capacity constraints in the Permian region led to the increased differential between WTI at Cushing, Okla., and the WTI price at Midland, Tex. In August 2018, this differential had grown to more than $16/bbl, up from 43¢/bbl in January. However, industry efficiencies in pipeline utilization and increased trucking and rail transport in the region allowed crude oil production to continue to grow at a higher-than-expected rate.
Although crude prices weakened in the fourth quarter, natural gas prices strengthened with higher LNG prices and increased seasonal demand. Henry Hub natural gas spot prices averaged $3.80/MMbtu in fourth-quarter 2018 compared with $2.90/MMbtu a year earlier.
For full-year 2018, gas prices at Henry Hub increased to $3.15/MMbtu from $2.99/MMbtu in 2017. Marketed gas production for 2018 increased to 32.72 bcf from 29.2 bcf a year earlier, according to EIA.
In 2018, flattening year-over-year growth in gasoline demand in the US combined with high levels of refinery output had contributed to low or negative motor gasoline refining margins along the East and Gulf Coasts. At the same time, strong growth in distillate demand had driven increased distillate prices and refining margins.
According to Muse, Stancil & Co., refining cash margins for refiners in 2018 averaged $24.89/bbl for the Midwest, $14.38/bbl for the West Coast, $7.76/bbl for the Gulf Coast, and $2.78/bbl for the East Coast. In 2017, these refining margins were $13.95/bbl, $16.59/bbl, $9.67/bbl, and $5.05/bbl, respectively.
During 2018 and 2017, US refinery utilization rates were both 93%. Refinery operable capacity was 18.59 million b/d in 2018 compared with 18.61 million b/d in 2017.
Meanwhile, following the Dec. 22, 2017, enactment of the US Tax Cuts and Jobs Act (TCJA), US oil and gas firms incurred significant tax benefits.
A group of 12 companies based in Canada, including oil and gas producers and pipeline operators, reported net earnings of $13.43 billion (Can.) for 2018, down from $18.78 billion (Can.) in 2017. The Canadian group reported total earnings of $1.66 billion (Can.) in fourth-quarter 2018 compared with $4.16 billion (Can.) in the same quarter a year ago.
Canadian oil producers experienced challenges throughout 2018 with the widening light-heavy crude differentials, which reached historical highs in fourth-quarter 2018.
While WTI crude oil prices improved in 2018, abundant crude oil supply and limited pipeline takeaway capacity caused the average price of Western Canadian Select crude to decrease vs. 2017. The differential between WTI and WCS averaged $26.31/bbl, a 120% increase compared with 2017, reaching a record of $52/bbl in fourth-quarter 2018.
On Dec. 2, 2018, the Alberta government announced a temporary mandatory oil production curtailment for Alberta producers, starting in January 2019, to address the record-high differentials. Following the announcement, the WTI-WCS differential narrowed.
In both 2018 and 2017, the average exchange rate between the US and Canadian dollars was 77¢. In fourth-quarter 2018, the Canadian dollar relative to the US dollar weakened as the quarterly average exchange rate moved to 76¢ from 79¢ a year ago.
US oil and gas producers
ExxonMobil Corp. reported estimated earnings of $20.8 billion for 2018 compared with $19.7 billion a year earlier. Excluding US tax reform and asset impairments, earnings were $21 billion compared with $15.3 billion in 2017.
The company’s upstream earnings were $14 billion, up $724 million from 2017. Downstream earnings of $6 billion increased $413 million from 2017, thanks to higher margins and volume effects. Chemical earnings of $3.35 billion decreased $1.17 billion from 2017, due to weaker margins and other effects.
ExxonMobil’s fourth-quarter 2018 earnings were $6 billion compared with $8.4 billion in the same quarter in 2017. Earnings excluding tax reform and impairments were $6.4 billion compared with $3.7 billion in the same 2017 quarter.
Chevron Corp.’s full-year 2018 earnings were $14.8 billion compared with $9.2 billion in 2017. Included in 2018 were impairments and other charges of $1.59 billion and a gain on an asset sale of $350 million. Foreign currency effects increased earnings in 2018 by $611 million.
Chevron’s net production increased more than 7% in 2018 to a record 2.93 million boe/d. During 2017-18, production increased from shale and tight properties in the Permian basin, base business in the Gulf of Mexico, and major international capital projects, primarily Wheatstone and Gorgon in Australia. The company expects that 2019 production will continue to rise by 4-7%, excluding the impact of asset sales.
Chevron reported fourth-quarter 2018 earnings of $3.7 billion compared with $3.1 billion in the same 2017 quarter, which included $2.02 billion in tax benefits related to tax reform.
ConocoPhillips reported fourth-quarter 2018 earnings of $1.9 billion compared with fourth-quarter 2017 earnings of $1.6 billion. Excluding special items, fourth-quarter 2018 adjusted earnings were $1.3 billion compared with fourth-quarter 2017 adjusted earnings of $500 million.
ConocoPhillips reported full-year 2018 earnings of $6.3 billion compared with a net loss of $825 million in 2017. Excluding special items, full-year 2018 adjusted earnings were $5.3 billion compared with full-year 2017 adjusted earnings of $700 million.
In 2018, ConocoPhillips’s full-year production, excluding Libya, reached 1.24 million b/d, with underlying production increasing more than 5%. The increase was largely attributable to growth from the Eagle Ford, Bakken, and Delaware unconventional plays, development programs in Europe and Alaska, and ramp-up of major projects in the Asia-Pacific region.
EOG Resources Inc. reported a company record net income of $3.4 billion for the full year 2018 compared with $2.6 billion for 2017. Total company crude oil volumes rose 19% to 399,900 b/d. Natural gas liquids production increased 31%, while natural gas volumes grew 11%, contributing to total company production growth of 18%.
EOG Resources reported fourth-quarter 2018 net income of $893 million compared with fourth-quarter 2017 net income of $2.4 billion. The decrease was due to the absence of a $2-billion income tax benefit in fourth-quarter 2017.
Occidental Petroleum Corp. reported US oil and gas full-year 2018 earnings of $621 million vs. losses of $589 million in 2017. Excluding substantial items affecting results, US oil and gas results in 2018 increased from 2017 due to an 18% increase in average realized oil prices, 22% higher volumes and lower depreciation, depletion, and amortization (DD&A) rates.
Oxy’s international oil and gas earnings reached $1.9 billion in 2018 vs. $1.8 billion in 2018. The improved international oil and gas earnings in 2018 reflected a respective 34% and 33% increase in realized oil prices in the Middle East and Colombia.
Oxy’s full-year production volumes reached 658,000 boe/d in 2018 vs. 602,000 boe/d in 2017. The production increase for ongoing operations mainly reflected higher Permian resources production, which increased by 52% from the prior year because of developmental drilling activity and improved well performance.
Chesapeake Energy Corp. reported net income of $775 million for full-year 2018 compared to $813 million in 2017. Average production for 2018 of 521,000 boe/d increased by 4% compared to 2017 levels, adjusted for asset sales, and consisted of 90,000 bbl of oil, 2.278 bcf of natural gas, and 52,000 bbl of NGL.
US refining
Phillips 66’s pretax income increased to $7.45 billion in 2018 from $3.55 billion in 2017. The increase mainly reflected higher realized refining and marketing margins, higher earnings from equity affiliates in midstream and chemical businesses, and a lower US federal corporate income tax rate.
The increase was partly offset, however, by a $2.7-billion provisional income tax benefit from the enactment of the Tax Act recognized in December 2017. Overall, the company’s net earnings increased $489 million, or 10%, to $5.6 billion in 2018.
Pretax income for the refining business increased $2.5 billion in 2018 compared with 2017, mainly because of higher realized refining margins. The company’s worldwide refining crude oil capacity utilization rate was 95% in both 2018 and 2017.
Net income attributable to Marathon Petroleum Corp. decreased $652 million to $2.78 billion in 2018 compared with 2017. Increased income from operations was more than offset by the absence of a tax benefit of $1.5 billion resulting from the TCJA in 2017 and increased net income attributable to noncontrolling interests in 2018.
Marathon Petroleum Corp.’s total refining capacity for yearend 2018 and 2017 reached 3 million b/d and 1.88 million b/d, respectively. The increase in 2018 was primarily because of the acquisition of Andeavor in October 2018, which added 10 refineries with 1.11 million b/d of total refining capacity.
For yearend 2018, net income attributable to HollyFrontier stockholders was $1.1 billion compared with net income of $805.4 million for yearend 2017. Overall gross refining margins per barrel sold for 2018 increased 53% over yearend 2017 because of higher crack spreads and crude oil basis differentials. The company’s refinery utilization decreased slightly from 96% in 2017 to 94.4% in 2018.
Valero Energy Corp.’s revenues increased $23.1 billion in 2018 compared with 2017 primarily because of increases in refined product prices associated with sales made by the company’s refining business. This improvement in revenues was partially offset by higher cost of sales of $22 billion mainly because of increases in crude oil and other feedstock costs.
Valero’s refining margin increased $1.2 billion in 2018 compared with 2017, mainly because of higher distillate margins, higher throughput volumes, and lower costs of biofuel credits. The increase was partly offset by a decrease in gasoline margins.
Chevron Corp.’s average crude oil distillation capacity utilization was 93% in 2018 and 2017. At the company’s US refineries, crude oil distillation capacity utilization averaged 97% in 2018 compared with 98% in 2017. At the Richmond refinery in California, first production started at a hydrogen plant in November 2018 and full operation of the project is expected this year. At the refinery in Salt Lake City, construction continues for the alkylation retrofit project. Project start-up is expected in 2020.
Canadian firms
(Note: All totals in this section are reflected in Canadian dollars.)
Suncor Inc. reported net earnings for 2018 of $3.29 billion compared with $4.46 billion in 2017. The aftertax unrealized foreign exchange loss on the revaluation of US dollar denominated debt was $989 million in 2018 compared with an aftertax gain of $702 million in 2017. Operating earnings in 2018 were $4.31 billion compared with $3.19 billion in 2017.
Suncor’s operations in 2018 were highlighted by successful ramp-up of operations at both Fort Hills and Hebron. Oil sands production increased to 628,600 b/d in 2018 compared with 563,700 b/d in 2017.
Refining and marketing attained several new records in 2018 and achieved 93% average refinery utilization, despite the completion of the most intensive planned maintenance program in the company’s history.
Suncor reported a net loss of $280 million in fourth-quarter 2018 compared with net earnings of $1.382 billion in the same 2017 quarter. The decrease was primarily a result of unfavorable Western Canadian crude oil differentials, including a substantial widening of synthetic crude oil differentials. In addition, results for fourth-quarter 2018 included a $637-million unrealized aftertax foreign exchange loss on the revaluation of US dollar denominated debt, as well as a noncash impairment loss on one of the company’s equity investments.
Cenovus Energy Inc. reported a net loss of $2.7 billion for 2018, reflecting the $2.1-billion write-off of exploration and evaluation costs in the Deep basin, a loss on the sale of the Cenovus Pipestone Partnership, and an onerous contract provision related to real estate of $629 million.
The company’s upstream financial results were impacted in 2018 by widening light-heavy oil price differentials, which reached historical highs in last year’s fourth quarter, as well as realized hedging losses of $1.6 billion largely in the first three quarters of the year. At the same time, the wider differentials created a feedstock cost advantage for the company’s jointly owned refineries.
Cenovus’s production at the Christina Lake and Foster Creek oil sands operations was nearly 363,000 b/d in 2018, 24% higher than the previous year, mainly due to Cenovus’s asset acquisition in 2017, which included the remaining 50% of Foster Creek and Christina Lake.
Imperial Oil Ltd. posted full-year 2018 net income of $2.314 billion, including strong fourth-quarter earnings of $853 million. Results for 2018 compare with net income of $490 million in 2017, which included upstream noncash impairment charges of $566 million.
The year for Imperial Oil was characterized by strong downstream performance. The company’s downstream business earned more than $2.3 billion in 2018—a best-ever result excluding 2016, which reflected gains from asset sales.
