Third-quarter 2009 earnings fall sharply from 2008 peaks

Jan. 11, 2010
Lower oil and natural gas prices and depressed refining margins resulted in a sharp reduction in the third-quarter 2009 earnings of oil and gas producers and refiners.

Lower oil and natural gas prices and depressed refining margins resulted in a sharp reduction in the third-quarter 2009 earnings of oil and gas producers and refiners.

The combined earnings of three samples of companies were down across the board for the third quarter and first 9 months of 2009. OGJ looked at groups of US-based oil and gas producers, Canadian producers and pipeline operators, and service and supply firms, each of which posted declines as compared to the year-earlier periods.

In the third quarter of 2009, the front-month futures price of oil on the New York Mercantile Exchange averaged $68.25/bbl, down from $118.22/bbl in the corresponding 2008 period. Meanwhile, gas futures on the NYMEX averaged $3.441/MMbtu in the third quarter of 2009, down from $8.987/MMbtu a year earlier.

US operators

The sample of oil and gas producers based in the US posted a combined 74% decline in earnings in the third quarter of 2009 compared with a year earlier. For the first 9 months of the year, earnings fell 86%.

Commenting on the integrated firms' third-quarter results in light of the sharp drop in oil prices in the recent quarter as compared with the same period in 2008, the Centre for Global Energy Studies (CGES) said, "The real significance of these figures is that the companies' downstream elements failed to offset the performance of their upstream components, as one would expect to happen in integrated enterprises."

GGES said, "In the case of Chevron [Corp.] and ExxonMobil [Corp.], the downstream figures are dramatically worse. Usually, one would expect refinery operations to ameliorate the losses resulting from a falling oil price, due to improved margins, but in this instance downstream profits have also been squeezed, particularly in the [Organization for Economic Cooperation and Development], most likely because the steep run up in oil prices since March 2009 has not been mirrored by similar increases in oil product prices."

Chevron reported third-quarter earnings of $3.8 billion—a 52% decline from a year ago. The major's upstream earnings were down 41% from a year ago, and the company's downstream segment earnings fell to $194 million from $1.8 billion in the comparable quarter in 2008. Chemical earnings climbed to $164 million in the recent quarter from $70 million, Chevron reported.

ExxonMobil reported that its upstream earnings, excluding special items, were $4 billion, down $5.3 billion from the third quarter of 2008. Lower oil and gas realizations accounted for the majority of the decline, reducing earnings by $4.9 billion. Higher operating costs reduced earnings by $300 million.

Downstream earnings of $325 million were down $2.7 billion from the third quarter of 2008. Lower refining margins drove the decline, ExxonMobil said, reducing earnings by $2.6 billion. Petroleum product sales of 6.3 million b/d were 387,000 b/d lower than last year's third quarter, mainly reflecting asset sales and lower demand.

Stone Energy Corp., based in Lafayette, La., is the only company in the sample of US operators to report an increase in its third-quarter profits from its year-earlier positive earnings. But for the first 9 months of 2009, the company incurred a loss largely due to a $340 million writedown in its oil and gas properties.


Weak product demand and relatively strong crude prices hurt the third-quarter results of US refiners via meager refining margins.

With revenues of $19.49 billion, Valero Energy Corp. posted a $629 million loss in the 2009 third quarter, compared with $1.15 billion in earnings a year earlier.

Holly Corp. reported that its net income for the third quarter of 2009 decreased to $31 million from $52 million in the same period of 2008, mostly due to industry-wide reduced refinery gross margins relative to the high levels in the 2008 third quarter.

While comparing the 2009 third quarter to the prior year's third quarter, Holly said the impact of the overall margin decreases was somewhat mitigated by substantial production gains. Overall refinery gross margins for the recent quarter were $8.27/bbl, compared to $15.17/bbl for the third quarter of 2008.

For the 3 months ended Sept. 30, 2009, Holly's refinery production levels increased 79% from a year earlier due to production from its newly acquired Tulsa refinery and production gains resulting from the recent Navajo and Woods Cross refinery capacity expansions. Scheduled downtime for major maintenance at the Navajo refinery in the first quarter of 2009 and at the Woods Cross refinery in the third quarter of 2008 also impacted production gains, the company reported.

Canadian companies

A sample of 11 companies with headquarters in Canada combined for a 75% decrease in net income from the 2008 third quarter.

Most of these firms reported lower results for the quarter and for the first 9 months of the year, but Suncor Energy Inc. posted an increase in third-quarter earnings. And EnCana Corp. recorded increased profits for the quarter and the first 9 months.

Suncor's earnings reflect the first quarterly results since its merger with Petro-Canada. As a result of the merger, Suncor holds a 12% share in the Syncrude oil sands joint venture located near Suncor's existing oil sands operations in Fort McMurray, Alta.

EnCana reported that its financial performance was significantly enhanced by commodity-price hedges, which contributed $913 million in realized after-tax gains to cash flow in the third quarter.

Canadian Natural Resources Ltd. posted a 77% decline in third-quarter earnings from 2008 and a 65% drop in earnings for the first 9 months of 2009 as compared to a year earlier. The company reported that its total oil and natural gas liquids production for the recent quarter was up 17% from year-earlier volumes, reflecting production increases from Horizon oil sands mining and upgrading, as well as from Baobab and Olowi fields off West Africa, offset by the temporary curtailment of steaming and production at Primrose East and planned maintenance in the North Sea.

Canadian Natural Resources' gas production for the 2009 third quarter was down 13% from a year earlier as expected due to the company's reallocation of capital towards higher-return oil projects.

Service, supply firms

A sample of 22 oil field service and supply companies posted a collective 54% decline in third-quarter 2009 earnings on a 26% decline in revenues as a result of the worldwide slowdown in drilling activity.

The group recorded a collective 46% drop in earnings in the first 9 months of 2009 as compared with a year earlier, as revenues fell 17%. Five of the companies posted a loss in the recent quarter compared to just one in the third quarter of 2008.

Chad C. Deaton, Baker Hughes Inc. chairman, president, and chief executive officer, said the company's third-quarter North America operating margins rebounded from their second-quarter 2009 lows, and aggressive cost cutting in the first half of 2009 enabled it to absorb additional price decreases and improve profitability on modest activity increases. But Deaton added that international results were disappointing with revenue less than expected and price discounting greater than expected during the recent quarter.

Weatherford International Ltd. announced that its third-quarter revenues were $2.15 billion, or 15% lower than the same 2008 period, against a backdrop of a 39% decline in the global rig count.

North America was primarily responsible for Weatherford's earnings decline, the company said, with revenues decreasing 47% against a 52% decline in the rig count, while international revenues were up 12% against an 11% decrease in the international rig count.

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