OGJ200 Quarterly
4Q06 earnings, revenues slump for OGJ200 group
The combined earnings of the OGJ200 group declined 9.5% during the fourth quarter of 2006 (4Q06). The group’s revenues for the quarter were down 10.5% from a year earlier.
Decreased production volumes, increased expenses, and lower refining margins contributed to the reduced collective earnings. For the quarter, average oil prices were little changed from the final quarter of 2005, but natural gas prices were substantially lower from a year earlier.
US-based, publicly traded oil and gas producing companies comprise the OGJ200 list of firms that are featured in Oil & Gas Journal’s most recent annual special report, which ranks the companies primarily by yearend assets (OGJ, Sept. 4, 2006, p. 20).
The OGJ200 group contains 134 companies. The results of 15 of these qualifying companies are not included in this compilation, as these firms had not yet filed their 4Q06 results with the US Securities & Exchange Commission by press time.
Fourth-quarter results
On the New York Mercantile Exchange, the near-month futures price of crude averaged $60.21/bbl during the final 2006 quarter, compared to $60.02/bbl a year earlier. And natural gas during 4Q06 averaged $7.263/MMbtu vs. $12.861/MMbtu in the final 2005 quarter.
Refining margins were down sharply, too. For the recent fourth quarter, the US Gulf Coast cash refining margin declined 41% from a year earlier, and the US West Coast margin was 26% lower than in the final 2005 quarter, according to Muse, Stancil & Co.
Thirty-seven of the OGJ200 companies reported a net loss for 4Q06. And another 63 companies in the group reported a slide in earnings as compared to the final quarter of 2005. Only 16 of the firms posted a gain in quarterly earnings year-on-year.
The company in the OGJ200 group that announced the largest earnings gain for 4Q06 is Aurora Oil & Gas Corp. Net income for Aurora, ranked No. 71 by assets, during 4Q06 was $2 million, up from $43,000 in the final quarter of 2005.
During 4Q06, Aurora modified its approach to estimating capitalized interest. This change in estimate resulted in an additional $3.2 million of capitalized interest for the entire fiscal year, which was recorded in the fourth quarter. Of this amount, $1.9 million was related to prior quarters.
Also during 4Q06, Aurora modified its approach to estimating oil and natural gas depreciation, depletion, and amortization. The company’s original accounting approach was to amortize all capitalized costs of oil and natural gas properties considered proven developed, on the unit-of-production method using estimates of proved developed reserves. However, capitalized costs of oil and natural gas properties can be amortized on a unit-of-production method based on all proved oil and natural gas reserves.
As of Dec. 31, 2006, all of Aurora’s proven reserves were evaluated by an independent petroleum engineering group, which resulted in an 89 bcfe increase in proved reserves associated with the full cost pool. This change in estimate from proved developed reserves to proved reserves as well as an updated reserve report resulted in a reduction of $2.7 million in oil and gas depreciation, depletion, and amortization.
Another big earnings gainer is Plains Exploration & Production Co. This Houston-based company reported 4Q06 net income of $383.6 million on revenues of $207.6 million, compared to net income in the fourth quarter of 2005 of $70.8 million.
Plains Exploration & Production said that its net income for both periods includes a gain on the sale of oil and gas properties, a charge for extinguishment of debt, and other items. Without the effects of these items, net income for 4Q06 would have been $35.2 million, compared to $31 million, in the final 2005 quarter.
Top 20 companies
The earnings of the top 20 firms as ranked by assets were down 7.7% from the final quarter of last year, and their revenues declined nearly 11%.
The same companies make up the group of top 20 for 4Q06 results as for results of the third quarter of 2006. The only change within the group is that Apache Corp. and Chesapeake Energy Corp. switched rankings. Chesapeake Energy’s assets of $24.4 billion at the end of 2006 place it at the No. 9 ranking currently, surpassing now No. 10 ranked Apache’s $24.3 billion in assets.
This group of 20 companies had a combined $853 billion in assets at the end of 2006. This is 91% of the total assets of the entire OGJ200 group. And with $397 billion in stockholders’ equity, the top 20 accounted for 92% of the entire group’s equity.
The top 20 companies’ combined market capitalization at yearend 2006 was $1 trillion. At the end of the third quarter of 2006, the same 20 firms had a collective market cap of $902 billion.
In addition to the rankings by total assets, the OGJ200 ranks the companies by capital and exploratory spending, revenue, net income, and stockholders’ equity. At the top of all of these rankings is ExxonMobil Corp.
For all of 2006, ExxonMobil’s capital and exploratory spending was $19.9 billion. ConocoPhillips was second with $15.6 billion in spending, followed by Chevron Corp. with total 2006 spending of $13.8 billion.
Strong upstream and chemicals earnings drove ExxonMobil’s 4Q06 results, with net income totaling $10.25 billion. Still, the company’s earnings were 4% lower than in the fourth quarter of 2005. Revenues were down 9%.
Upstream earnings of $6.22 billion were down $818 million from the fourth quarter of 2005, primarily on lower natural gas realizations and lower gas production volumes driven by lower European demand, ExxonMobil reported.
Chemical earnings were $1.24 billion, up $407 million from the fourth quarter of 2005 as a result of improved margins and higher volumes. Downstream earnings were $1.96 billion, down $430 million from the final 2005 quarter due to lower refining and marketing margins.
ConocoPhillips announced that its net income for 4Q06 declined 13% from a year earlier. Various factors drove the decline, including weather-related transportation delays in Alaska that impacted the company’s production during the quarter and unplanned downtime related to compressor maintenance at Britannia field in the North Sea. Also, ConocoPhillips’ downstream business was impacted by much lower margins.
No. 18 Pioneer Natural Resources Co. posted an 80% decline in earnings for 4Q06. Income from continuing operations was $27 million, as compared to $83 million for the fourth quarter of 2005.
Pioneer Natural Resources’ 4Q06 results included unusual items, including a $33 million incremental reclamation charge resulting from the denial of the company’s application to “reef-in-place” the debris from its platform in East Cameron 322 field which was destroyed in Hurricane Rita during 2005.
Other unusual items the company sustained are $43 million of estimated insurance recoveries for debris removal associated with East Cameron 322 and a charge of $18 million related to previously drilled discoveries that had been suspended pending additional commercialization, appraisal, and/or technical work.
Fast growers
For 4Q06, the fastest growing company in the OGJ200 group was Pioneer Oil & Gas. Based in South Jordan, Utah, Pioneer recorded a 30% surge in stockholders’ equity from the preceding quarter. At the same time, the company’s net income grew 108%, and long-term debt remained nil.
In the last 3 months of 2006, Pioneer’s revenue soared to $3 million from $624,524 a year earlier as a result of increased project and lease sales income. The company is ranked No. 110 by assets.
The fastest growing companies are determined primarily by growth in stockholders’ equity. For a company to qualify for this list, it must have reported positive net income for the third and fourth quarters of 2006, and it must have posted an increase in earnings in the most recent quarter from the third quarter of 2006. Excluded from this list are limited partnerships, subsidiaries, and newly public companies.
Normally this list includes the top 20 fast growers. But for this edition of the OOGJ200 Quarterly, because so few firms reported an increase in earnings for the final 2006 quarter as compared with the third quarter, there are only 18 companies that qualified for the list.
Ranked No. 31 by assets, Plains Exploration & Production is the second company on the fast growers list. For 4Q06 Plains Exploration & Production posted a 41% jump in earnings from the third quarter, while the Houston-based firm’s stockholders’ equity climbed 21%.
The highest ranking company by assets to qualify for the list of fast growers is No. 4 Anadarko Petroleum Corp. During 4Q06, Anadarko’s stockholders’ equity increased 8% to $14.9 billion. Meanwhile, the company’s net income was up 31% from the third quarter to $1.9 billion.
Marilyn Radler,
Senior Editor - Economics Oil & Gas Journal
Laura Bell,
Statistics Editor Oil & Gas Journal