Record-high commodity prices boost first-quarter 2022 earnings

Across late 2021 and early 2022, supply constraints and a continued recovery in demand have led to steady increases in oil and gas prices. The OPEC and participating non-OPEC oil producing countries (OPEC+) decided to stick to plans for a gradual oil output increase. Meantime, global demand for crude oil continued to increase due to improved economic conditions, a result of easing COVID-19 restrictions. In first-quarter 2022, Russia’s invasion of Ukraine and subsequent sanctions against Russia dramatically added to the tightening of global oil and gas markets. Crude oil prices and some regional natural gas prices rose to levels not seen in years.

Brent crude oil prices averaged $101.20/bbl in first-quarter 2022, compared with $61.00/bbl in first-quarter 2021 and $79.60/bbl in fourth-quarter 2021. West Texas Intermediate (WTI) averaged $95.20/bbl in first-quarter 2022, compared with $58.10/bbl in first-quarter 2021, and $77.3/bbl in fourth-quarter 2021.

Driven by high realized sales prices across upstream and downstream businesses, North American oil and gas producers reported a surge in revenues and net income for first-quarter 2022. The results were partly offset by winter storm-related operational damages.

A group of 51 US-based oil and gas producers and refiners recorded a collective net income of $26.37 billion for first-quarter 2022, compared to earnings of $10.25 billion in first-quarter 2021. Total revenues were $340.54 billion for the quarter, compared to $204.31 billion a year ago.

US crude oil production in the first quarter averaged 11.42 million b/d, compared with 10.66 million b/d for the same quarter a year ago, according to the US Energy Information Administration (EIA) data. Natural gas liquids (NGL) production averaged 5.52 million b/d during the first quarter, up from 4.84 million b/d for the same quarter a year ago.

Drilling activity continued to increase, driven by higher oil prices. Baker Hughes data show that the number of active oil rigs in the US increased to 531 at end March from 480 at end December. This also compared to 324 rigs at end March 2021.

US oil inventories remain well below their 5-year average as the market tightened. US commercial crude oil stock at the end of March 2022 was 412 million bbl, compared to 501 million bbl at the end of the same quarter a year ago, and a 5-year average of 480.8 million bbl. Product stock at the end of the first quarter was 736 million bbl, compared to 799 million bbl at the end of the previous year’s first quarter, and a 5-year average of 799 million bbl.

On Mar. 1, the US Department of Energy (DOE) committed to releasing 30 million bbl of crude oil from the US Strategic Petroleum Reserve (SPR) to ensure an adequate supply of petroleum in response to Russia’s further invasion of Ukraine. At end March 2022, the White House announced plans to release 1 million b/d from the SPR over a 6-month period, for a total release of about 180 million bbl, dwarfing previous emergency releases. US SPR at end March 2022 was 564 million bbl, compared to 637 million bbl at the end the year-ago period, and a 5-year average of 655.2 million bbl.

US gross refinery inputs were 16.05 million b/d in first-quarter 2022, compared with 14.2 million b/d for the same quarter a year ago and 16.02 million b/d in the previous quarter. Average refinery utilization rate was 89.4% in first-quarter 2022, compared to 78.4% in first-quarter 2021, and 88.8% in fourth-quarter 2021.

According to Muse, Stancil & Co., refining cash margins in first-quarter 2022 averaged $17/bbl for Middle-West refiners, $21.81/bbl for West Coast refiners, $16.67/bbl for Gulf Coast refiners, and $8.76/bbl for East Coast refiners. In the same quarter 2021, these refining margins were $11.30/bbl, $8.38/bbl, $3.76/bbl, and $2.86/bbl, respectively.

Natural gas prices at Henry Hub averaged $4.66/MMbtu in first-quarter 2022, compared with $3.56/MMbtu in first-quarter 2021, and $4.77/MMbtu in fourth-quarter 2021.

European demand for LNG and European gas prices were high due to supply uncertainty related to the Russian invasion of Ukraine and the need to replenish European gas inventories. US LNG exports averaged 11.56 bcfd during the first quarter, up 2.35 bcfd (+25.45%) over first-quarter 2021, and 1.25 bcfd (+12%) over fourth-quarter 2021 as demand surged.

The number of active gas rigs in the US increased to 137 at end March from 106 at end December. This also compared to 92 rigs at end March 2021. US marketed gas production rose to 102.61 bcfd in first-quarter 2022 from 97.48 bcfd in first-quarter 2021.

A sample of 14 companies based in Canada, including oil and gas producers and pipeline operators, announced combined income of $12.66 billion (Can.) in first-quarter 2022. In first-quarter 2021, the group’s combined earnings totaled $4.25 billion.

In Canada, market egress improved as Enbridge’s Line 3 pipeline replacement began operations Oct. 1, 2021. Increased market egress from western Canada has resulted in a more balanced market for heavy crude oil, contributing to less pricing volatility and stronger Western Canada Select (WCS) pricing. WCS heavy differential as a percentage of WTI averaged 15% in first-quarter 2022, narrower than 19% and 21% in fourth-quarter 2021 and first-quarter 2021, respectively.

US oil, gas producers

ExxonMobil Corp. posted a net profit of $5.5 billion for first-quarter 2022, up from net earnings of $2.73 billion for first-quarter 2021, but down from $8.9 billion for fourth-quarter 2021. Results included an unfavorable identified item of $3.4 billion associated with the company’s planned exit from Sakhalin-1 in northeastern Russia in response to Russia’s war in Ukraine (OGJ Online, Mar. 1, 2022). Excluding identified items, adjusted earnings of $8.8 billion were slightly higher than the prior quarter. First-quarter capital and exploration expenditures were $4.9 billion.

First-quarter 2022 upstream earnings were $4.5 billion compared with $6.1 billion in fourth-quarter 2021. Excluding identified items, earnings were $7.7 billion, an increase of $1.1 billion from the previous quarter, primarily due to higher liquids prices and lower expenses, partly offset by lower volumes driven by weather-related impacts, fewer days in the quarter, price entitlement effects, and divestments. Average realizations for crude oil increased 28%.

Oil-equivalent production in the first quarter was 3.7 MMboe/d due to weather-related unscheduled downtime, planned maintenance, lower entitlements associated with higher prices, and divestments. Excluding entitlement effects, government mandates, and divestments, oil-equivalent production was down 2%.

Liquids volumes were down 119,000 b/d, while natural gas volumes were down 132 MMcfd. By the end of the quarter, production had fully recovered from weather-related impacts.

First-quarter 2022 downstream earnings were $300 million compared with $1.5 billion in fourth-quarter 2021. Improved industry fuels refining margins and lower expenses were partially offset by lower basestock margins and lower volumes, driven by higher turnaround activity. 

Chevron Corp. posted a net income of $6.26 billion for first-quarter 2022, compared with a net income of $1.38 billion in the prior year’s first quarter.

The company’s worldwide net oil-equivalent production was 3.1 MMboe/d in first-quarter 2022, down slightly year over year. International production decreased 8%, while US production increased 10% compared to the same period a year ago.

Capital expenditures in the quarter rose to $2.8 billion from $2.5 billion a year earlier, with US upstream operations receiving $1.3 billion versus $1.05 billion in the year-prior period. Permian basin unconventional production grew to a record 692,000 boe/d in the quarter, an increase of 14% from 2021’s average, and Chevron expects that number to grow to 700,000-750,000 boe/d for all of 2022.

ConocoPhillips recorded net earnings of $5.76 billion for first-quarter 2022, compared with first-quarter 2021 earnings of $982 million and fourth-quarter 2021 earnings of $2.6 billion. Excluding special items, first-quarter 2022 adjusted earnings were $4.3 billion, compared with first-quarter 2021 adjusted earnings of $900 million.

Production for first-quarter 2022 was 1.75 MMboe/d, an increase of 220,000 boe/d from the same period a year ago. After adjusting for closed acquisitions and dispositions, the conversion of previously acquired Concho contracted volumes from a two-stream to a three-stream basis, and 2021 Winter Storm Uri impacts, first-quarter 2022 production decreased by 36,000 boe/d or 2% from the same period a year ago. This decrease was primarily due to downtime and seasonality impacts as new production from the Lower 48 and other development programs more than offset decline.

The company adjusted its 2022 operating capital guidance to $7.8 billion from $7.2 billion, reflecting higher partner-operated spend in Lower 48 and inflationary impacts.

Occidental Petroleum Corp. had first-quarter 2022 earnings of $4.68 billion, compared with a net loss of $346 million a year earlier. Total average global production of 1.08 MMboe/d for first-quarter 2022 was within guidance. Permian and Rockies exceeded or came in at the high end of guidance, with average production of 472,000 boe/d and 286,000 boe/d, respectively. Gulf of Mexico average production of 138,000 boe/d was within guidance. International average production volumes were 183,000 boe/d.

Diamondback had a net profit of $779 million in first-quarter 2022 compared to $220 million in the year-prior period. Revenue more than doubled to $2.4 billion and operating income nearly tripled to $1.66 billion as it achieved an average selling price of $97.03/bbl, up from $74.5/bbl in fourth-quarter 2021 and $56.94/bbl in early 2021. In the first 3 months of 2022, Diamondback’s production averaged 222,800 b/d. 

Devon Energy Corp. posted net income of $989 million for first-quarter 2022, compared with net income of $213 million for the prior year’s same quarter.

Production averaged 575,000 boe/d in the first quarter, an increase of 15% year over year, with oil accounting for 50% of the volume. This performance was driven by the company’s Delaware basin asset which accounted for nearly 70% of total production. Devon estimates that first-quarter production was reduced by 15,000 boe/d, or 3%, due to winter weather curtailments.

Chesapeake Energy Corp. posted a net loss of $764 million in the first 3 months of this year, which included a top-line loss of more than $2.1 billion on derivatives. Adjusted earnings were $913 million, compared with $510 million in early 2021. Production for the quarter averaged 620,000 boe/d, with the company’s gas holdings in the Marcellus and Haynesville basins growing their combined output to 3,077 MMcfd from 1,793 MMcfd in the prior-year period and their average sales price rising to about $4.50/Mcf from $2.50/Mcf.

US independent refiners

Marathon Petroleum Corp. had net earnings of $845 million for first-quarter 2022 as compared to a net loss of $242 million for first-quarter 2021. Segment adjusted EBITDA was $1.4 billion for first-quarter 2022, versus $23 million for first-quarter 2021.

Marathon Petroleum’s refining and marketing (R&M) margin was $15.31/bbl for first-quarter 2022, versus $10.16/bbl for first-quarter 2021. Crude capacity utilization was 91%, resulting in total throughput of 2.8 million b/d for first-quarter 2022. This compares to crude capacity utilization of 83% for first-quarter 2021, which resulted in total throughput of 2.6 million b/d.

Phillips 66 announced net earnings of $582 million for first-quarter 2022, compared to a net loss of $654 million for first-quarter 2021 and net earnings of $1.3 billion for fourth-quarter 2021.

Refining had adjusted pre-tax income of $140 million in the first quarter, compared with adjusted pretax income of $404 million in fourth-quarter 2021. The decrease was due to lower realized margins, as well as lower clean product volumes driven by planned maintenance.

First-quarter realized margins were $10.55/bbl, down from $11.60/bbl in fourth-quarter 2021. Favorable impacts from higher market crack spreads were more than offset by higher RIN costs, lower Gulf Coast clean product realizations, lower secondary product margins, and inventory impacts. The higher RIN costs were primarily due to the absence of the reduction in the 2021 compliance year obligation recorded in fourth-quarter 2021.

The chemicals segment reflects Phillips 66’s equity investment in Chevron Phillips Chemical Co. LLC. Chemicals first-quarter 2022 pre-tax income was $396 million, compared with $436 million for fourth-quarter 2021. Chemicals results in the fourth quarter included a $14 million benefit from insurance proceeds associated with winter-storm-related damages, partially offset by a $2 million reduction to equity earnings for pension settlement expense.

Valero Energy Corp. had a net profit of $905 million for first-quarter 2022 as compared to a net loss of $704 million for first-quarter 2021 and net income of $1 billion for fourth-quarter 2021.

Valero’s refining segment reported $1.45 billion of operating income for first-quarter 2022, compared to a $592 million operating loss for first-quarter 2021. First-quarter 2022 adjusted operating income was $1.47 billion, compared to an adjusted operating loss of $506 million for first-quarter 2021. Refinery throughput volumes averaged 2.8 million b/d for first-quarter 2022, which was 390,000 b/d higher than first-quarter 2021.

Valero’s renewable diesel segment, which consists of the Diamond Green Diesel (DGD) joint venture, reported $149 million of operating income for first-quarter 2022, compared to $203 million for first-quarter 2021. Renewable diesel sales volumes averaged 1.7 million gallons/day (gpd) in first-quarter 2022, which was 871,000 gpd higher than first-quarter 2021. The higher sales volumes in first-quarter 2022 were attributable to the startup of the DGD expansion project (DGD 2) in fourth-quarter 2021.

Canadian firms

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

Suncor Energy Inc. recorded a net profit of $2.95 billion for first-quarter 2022, up from net earnings of $821 million in first-quarter 2021 and $1.55 billion in fourth-quarter 2021.

In first-quarter 2022, Suncor’s oil sands segment delivered its highest quarterly adjusted funds from operations on record of $3.4 billion, compared to $1.53 billion in the prior year quarter, supported by strong production from the company’s in situ assets, including Firebag, and the ramp-up of production at Fort Hills, allowing the company to capture strong upstream pricing. Combined oil sands upgrader utilization was 96% compared to 97% in the prior year quarter.

Refining and Marketing (R&M) generated $1.6 billion in adjusted funds from operations in first-quarter 2022, compared to $1.17 billion in first-quarter 2021. The first quarter of 2022 included a first-in, first-out (FIFO) inventory valuation gain, including the impact of commodity risk management activities, of $729 million before-tax, compared to $432 million before-tax in the prior year quarter. On a LIFO basis Suncor’s refining and marketing gross margin improved nearly 20% compared to the prior year quarter. Refinery utilization in first-quarter 2022 was 94%, compared to refinery utilization of 92% in the prior year quarter, as the company’s Canadian refineries continued to outperform the national refining industry average.

Cenovus Energy Inc. posted net income of $1.63 billion for first-quarter 2022, compared with net income of $220 million for first-quarter 2021. Total upstream production was about 800,000 boe/d. Total downstream throughput was 502,000 b/d.

To reflect significant changes in the commodity pricing environment as well as the disposition of the Tucker and Wembley assets in the first quarter, Cenovus has updated its 2022 corporate guidance. Changes include a $300 million increase in total capital expenditures for the year to an updated range of $2.9-3.3 billion, entirely related to an increase in projected capital spend to complete the Superior Refinery rebuild in 2022.

Imperial Oil reported the highest first-quarter net income in over 30 years of $1.17 billion with upstream income of $782 million and downstream income of $389 million, driven primarily by strong market conditions.

Imperial Oil had upstream production of 380,000 b/d for first-quarter 2022, impacted by extreme cold weather and unplanned downtime at Kearl. Downstream quarterly refinery capacity utilization was 93%, the third consecutive quarter above 90%. The company also completed construction of the Sarnia products pipeline, providing enhanced access to the high-value Toronto market and reducing transportation costs.