Conglin Xu
Managing Editor-Economics
Laura Bell
Statistics Editor
A group of 56 US-based oil and gas producers and refiners reported a combined net income of $8.1 billion for this year’s first quarter, down nearly 50% from earnings in last year’s first quarter. Collective revenues totaled $227.6 billion, flat with revenues a year ago.
Both oil benchmarks were down more than one-third in the last quarter of 2018. Thanks to a tightening supply picture with a new round of production cuts by the Organization of Petroleum Exporting Countries and Russia and production losses in major oil producing countries, crude prices strengthened during this year’s first quarter but remained weaker compared with the first-quarter 2018.
Brent averaged $63/bbl during this year’s first quarter compared with $67.70/bbl in fourth-quarter 2018 and $66.80/bbl in first-quarter 2018. West Texas Intermediate averaged $54.90/bbl in this year’s first quarter compared with $59/bbl in fourth-quarter 2018 and $62.89/bbl in first-quarter 2018.
The impact of lower oil prices was partly offset by higher volumes. During this year’s first quarter, US crude oil production averaged 11.85 million b/d compared with 10.23 million b/d for first quarter 2018, according to the US Energy Information Administration. Natural gas liquids production increased to 4.68 million b/d from 4 million b/d a year earlier.
Meanwhile, high gasoline inventory levels and narrowed North American crude differentials weakened refining results in this quarter.
According to Muse, Stancil & Co., refining cash margins in this year’s first quarter averaged $13.63/bbl for the Midwest, $3.39/bbl for the West Coast, $3.25/bbl for the Gulf Coast, and $1.16/bbl for the East Coast. In the same quarter of the prior year, these refining margins were $20.27/bbl, $3.33/bbl, $8.61/bbl, and $2.88/bbl, respectively. National refining utilization rate averaged 88% during the quarter, down from 90% a year ago.
North American differentials narrowed as a result of imposed production curtailments in Canada and additional takeaway capacity in the Permian basin.
Prices for Western Canadian Select (WCS) at Hardisty increased to $42.50/bbl in this year’s first quarter, more than double the average price in fourth-quarter 2018 and compared with $38.60/bbl in first-quarter 2018. The WTI/WCS differential narrowed during this year’s first quarter to average $12/bbl compared with $24/bbl in the same period of 2018.
Due to warmer weather, gas prices at Henry Hub averaged $2.94/Mcf for the first 3 months of 2019, down from $3.04/Mcf during the first quarter of 2018.
A sample of 12 companies based in Canada, including oil and gas producers and pipeline operators, reported combined earnings of $5.55 billion (Can.) in this year’s first quarter. In the first quarter of last year, this group’s combined earnings were $2.67 billion (Can.). The increase in earnings was primarily due to stronger WCS prices, which offset the impact of the production curtailment.
The Canadian dollar averaged 75¢ in this year’s first quarter, a decrease of 4¢ from first-quarter 2018.
US producers
ExxonMobil Corp. reported estimated first-quarter earnings of $2.4 billion, down nearly 50% from $4.7 billion in first-quarter 2018. Capital and exploration expenditures for the quarter were $6.9 billion, up 42% from the prior year, reflecting key investments in the Permian basin.
Production reached 4 million boe/d, up 2% from first-quarter 2018. Excluding entitlement effects and divestments, production was up 3% from first-quarter 2018. Upstream liquids production rose 5% compared with first-quarter 2018, driven by Permian unconventional growth of nearly 140%.
ExxonMobil reported a loss of $256 million in its downstream business for this year’s first quarter compared with earnings of $940 million a year ago, reflecting lower margins and higher scheduled maintenance. During the quarter, ExxonMobil achieved first sales of on-specification Group II basestocks from the advanced hydrocracker at the Rotterdam refinery in the Netherlands.
The company’s chemical earnings also were down 50% from a year earlier, due to weaker margins.
Chevron Corp. earned $2.65 billion in this year’s first quarter, down 27% from a year ago. Foreign currency effects decreased earnings in this year’s first quarter by $137 million. Sales and other operating revenues in the first quarter were $34 billion compared with $36 billion in the same period a year ago.
US upstream operations earned $748 million in this year’s first quarter compared with $648 million a year ago. The increase was mainly because of higher crude oil production partially offset by lower crude oil and natural gas realizations.
US net production of 884,000 boe/d in this year’s first quarter was up 151,000 b/d from the same period a year ago. Production increases from shale and tight properties in the Permian basin and major capital projects and base business in the Gulf of Mexico were partially offset by normal field declines and the impact of asset sales.
International upstream operations earned $2.38 billion in this year’s first quarter compared with $2.7 billion a year ago. Net production of 2.15 million boe/d in this year’s first quarter was up 35,000 b/d from a year ago.
Chevron’s US downstream operations earned $217 million in this year’s first quarter, down from earnings of $442 million a year ago. The decrease was mainly because of lower margins on refined product sales and lower earnings from the 50%-owned Chevron Phillips Chemical Co. LLC.
International downstream operations earned $35 million in this year’s first quarter, down from $286 million a year ago. The decrease in earnings was largely due to lower margins on refined product sales. Refinery crude oil input of 669,000 b/d in this year’s first quarter decreased 43,000 b/d from the year-ago period, mainly due to the sale of the company’s interest in the Cape Town refinery in third-quarter 2018.
ConocoPhillips reported first-quarter earnings of $1.8 billion compared with first-quarter 2018 earnings of $900 million. Excluding special items, first-quarter adjusted earnings were $1.1 billion compared with first-quarter 2018 adjusted earnings of $1.1 billion. Special items for the current quarter included an unrealized gain on Cenovus Energy equity, recognition of deferred revenue, and amounts recognized from the PDVSA International Chamber of Commerce (ICC) settlement.
Production excluding Libya for this year’s first quarter was 1.3 million boe/d, an increase of 94,000 boe/d compared with the same period a year ago. The volume impact from acquisitions and dispositions was a net benefit of 30,000 boe/d. Excluding this impact, production increased by 64,000 boe/d. This remaining increase was mainly because of growth from the Big 3 unconventionals, major projects in Alaska, Europe, and Asia Pacific, and development programs. Growth more than offset normal field decline, downtime from a planned turnaround in Qatar, and mandated production curtailment in Canada.
EOG Resources Inc. reported first-quarter net income of $635 million compared with first-quarter 2018 net income of $639 million. Total company crude oil volumes rose 20% compared with first-quarter 2018 to 435,900 b/d. Natural gas liquids production increased 19%, while natural gas volumes grew 11%, contributing to total company production growth of 17%.
EOG has reached agreements that provide access to crude oil export capacity on the Gulf Coast. Export capacity available to EOG will increase from 100,000 b/d in 2020 to 250,000 b/d in 2020 and subsequent years.
Concho Resources Inc.’s net loss for this year’s first quarter was $695 million compared with net income of $835 million for first-quarter 2018. Excluding certain noncash and special items, mainly loss on derivatives, first-quarter adjusted net income was $144 million, compared with adjusted net income of $149 million for first-quarter 2018.
The company’s production for this year’s first quarter was 328,000 boe/d, an increase of 44% from first-quarter 2018 and 7% from fourth-quarter 2018. Average production for this year’s first quarter totaled 210,000 boe/d, an increase of 46% from first-quarter 2018 and 6% from fourth-quarter 2018.
US refiners
Phillips 66 reported first-quarter earnings of $204 million compared with $2.2 billion in fourth-quarter 2018 and $524 million in first-quarter 2018. Excluding special items of $17 million in this year’s first quarter, adjusted earnings were $187 million compared with fourth-quarter 2018 adjusted earnings of $2.3 billion.
Refining had an adjusted pretax loss of $219 million in this year’s first quarter compared with adjusted pretax income of $2 billion in fourth-quarter 2018. The decrease was a result of a decline in realized margins, as well as lower volumes due to maintenance activity and unplanned downtime. Realized margins were down 56% to $7.23/bbl in the first quarter, driven by narrowing of inland crude differentials, primarily Canadian crude, and lower clean product realizations.
Phillips 66’s worldwide crude utilization rate was 84%, down from 99% in fourth-quarter 2018. Pretax turnaround costs for this year’s first quarter were $148 million compared with fourth-quarter 2018 costs of $130 million.
Marathon Petroleum Corp. reported a first-quarter loss of $7 million. This compares with income of $37 million in the first-quarter 2018.
The refining and marketing segment’s loss from operations was $334 million in the first quarter compared with a loss of $133 million in the same quarter of 2018. The decrease in R&M income was mainly driven by narrower crude discounts across the medium and heavy sour crude slate. Additionally, high industry gasoline inventories following the fourth quarter’s strong production environment resulted in weaker gasoline margins particularly in January.
Refinery capacity utilization was 95%, resulting in total throughputs of 3.1 million b/d for the first quarter, which was 1.2 million b/d higher than the throughput for first-quarter 2018. The increase was mainly due to the addition of the legacy Andeavor refineries.
The company’s midstream business’ income from operations, which mainly reflects the results of MPLX and Andeavor Logistics LP (ANDX), was $908 million in the first quarter of this year compared with $567 million for first-quarter 2018. The increase was due to contributions of $220 million from Andeavor Logistics and a $121 million increase in Midstream segment results driven primarily by growth across MPLX’s businesses.
Retail segment income from operations was $170 million in this year’s first quarter compared with $95 million in first-quarter 2018. The increase in earnings was mainly related to the addition of the legacy Andeavor retail operations as well as a $24 million year-over-year increase in MPC’s legacy Speedway segment earnings.
Valero Energy Corp. reported net income of $141 million for this year’s first quarter compared with $469 million for first-quarter 2018.
The company’s refining business reported $479 million in operating income for this year’s first quarter compared with $811 million for first-quarter 2018. The $332-million decrease was mainly driven by narrower discounts for medium and heavy sour crudes relative to Brent oil and weaker gasoline margins.
Refinery throughput capacity utilization was 91%, with throughput volumes averaging 2.9 million b/d in this year’s first quarter, which was 66,000 b/d lower than first-quarter 2018 because of maintenance. The company exported a total of 318,000 b/d of gasoline and distillate during this year’s first quarter.
Biofuel blending costs were $91 million in this year’s first quarter, which were $115 million lower than in first-quarter 2018. The lower cost was mainly due to lower Renewable Identification Number (RIN) prices.
HollyFrontier Corp. reported first-quarter net income of $253.1 million compared with $268.1 million for first-quarter 2018. Adjusted net income for this year’s first quarter was $93.2 million compared with adjusted net income of $137.3 million for the first quarter of 2018.
The company’s refining and marketing business reported adjusted EBITDA of $193.4 million compared with $200.9 million for the first quarter of 2018. This decrease was primarily driven by lower crude differentials which resulted in a 1% decrease in the consolidated refinery gross margin. Crude oil charge also decreased, primarily due to the planned turnaround at the Tulsa East refinery and unplanned maintenance at the El Dorado refinery.
Canada firms
All financial figures are presented in Canadian dollars unless noted otherwise.
Suncor Energy Inc.’s operating earnings were $1.21 billion and net earnings were $1.47 billion in the first quarter of 2019 compared with operating earnings of $985 million and net earnings of $789 million in the prior year’s quarter.
First-quarter operating earnings were favorably influenced by an inventory valuation gain associated with improving crude prices, increased overall upstream production and sales volumes, narrower heavy crude oil differentials, and strong sales from the company’s refining assets. These factors were offset by lower WTI pricing from a year ago and higher overall operating and transportation costs. In this year’s first quarter, results also included aftertax insurance proceeds of $264 million related to the company’s assets in Libya.
In addition to the factors explained in operating earnings above, the net earnings for this year’s first quarter also included a $261 million unrealized aftertax foreign exchange gain on the revaluation of US dollar denominated debt. Net earnings in the prior year’s quarter included an unrealized aftertax foreign exchange loss of $329 million on the revaluation of US dollar denominated debt, and a $133 million noncash aftertax gain in the E&P segment.
Suncor’s total upstream production was 764,300 boe/d during this year’s first quarter compared with 689,400 boe/d in the same quarter a year ago, with the increase primarily due to the ramp up of Fort Hills production, improved asset reliability at Syncrude, and the Hebron ramp-up. This was partially offset by the impact of mandatory production curtailments in the province of Alberta.
Suncor’s refining and marketing business delivered record quarterly operating earnings of $1 billion.
Imperial Oil Ltd.’s net income for this year’s first quarter was $293 million compared with net income of $516 million for the same period in 2018.
Upstream net income was $58 million in the first quarter, up $102 million from the same period of 2018. Improved results reflect the impact of higher Canadian crude oil realizations and higher Syncrude and Norman Wells. Results were negatively impacted by higher operating expenses and lower Cold Lake volumes.
Imperial’s downstream net income was $257 million in the first quarter compared with net income of $521 million in first-quarter 2018. Earnings decreased mainly due to lower margins and the impact of refinery reliability events. Refinery throughput averaged 383,000 b/d compared with 408,000 b/d in first-quarter 2018. Capacity utilization was 91% compared with 96% in first-quarter 2018.
Driven by stronger WCS prices, Cenovus Energy Inc. generated net earnings from continuing operations of $110 million in the first quarter compared with a net loss of $914 million in the same period in 2018.
To comply with the government of Alberta’s mandatory curtailment program, Cenovus’s first-quarter oil sands production was approximately 343,000 b/d, 5% below that of first-quarter 2018. The company said it continues to inject steam at normal rates where it has cut output. The practice raises its cost per barrel of oil produced and steam-oil ratios but allows it “to continue mobilizing and storing production-ready barrels in its reservoirs for sale at a later date when curtailment is eased.”
Cenovus completed construction of the Christina Lake Phase G expansion project ahead of schedule and 25% under budget.
Canadian Natural Resources Ltd. posted net earnings of $961 million in this year’s first quarter, increases of $1,737 million and $378 million over the fourth and first quarter of 2018 levels, respectively. The company achieved quarterly production volumes of 1 million boe/d in the first quarter, a decrease of 4% from the 2018 fourth quarter level, reflecting the mandatory production curtailments.
Driven by strong operating results and operating cost efficiencies, Enbridge reported net earnings of $1,891 million for this year’s first quarter compared with $445 million in first-quarter 2018. Adjusted earnings were $1,640 million for the this year’s first quarter compared with $1,375 million in the first quarter of 2018.
