US major oil firms' first quarter 2002 earnings to 'reflect intense pressure'

US major oil companies' first quarter 2002 adjusted net income is expected to be 63% lower, year-on-year, marking the lowest quarterly earnings for the group since second quarter 1999, according to UBS Warburg LLC. Many of the US integrated oil firms are expected to report earnings this week, UBS said.

April 22, 2002

2 min read

By OGJ editors
HOUSTON, Apr. 22 -- US major oil companies' first quarter 2002 adjusted net income is expected to be 63% lower, year-on-year, marking the lowest quarterly earnings for the group since second quarter 1999, according to UBS Warburg LLC. Many of the US integrated oil firms are expected to report earnings this week, UBS said.

"Individually, we expect company earnings to fall 48-97% [year-on-year], with the larger declines for those companies most leveraged to [refining and marketing] margins, and natural gas and crude oil prices," UBS said.

Despite the recent rise in oil prices, which should improve overall profitability, UBS said that it expects first quarter results "to reflect the intense pressure of the companies faced for most of the quarter.

"Significantly weaker downstream margins, sluggish oil product growth, and diminished crude oil and natural gas prices underpin our forecast for declining earnings from the US integrated oil sector," UBS noted. And while this reporting period represents a weak quarter for the industry as a whole, it is also expected to mark the bottom of the current earnings cycle, UBS forecast.

UBS expects the adjusted exploration and production earnings of the eight US majors it tracks to decline 56%. "This reflects the sharp decline in North American natural gas realizations from their [first quarter 2001] peaks, as well as lower crude oil prices," the firm said.

Meanwhile, downstream adjusted earnings faced an 87% year-on-year decline. "With sluggish global demand for oil products and severely depressed margins for both refining and fuels marketing, we expect [first quarter 2002] downstream earnings to be the weakest in over 2 years," UBS said.