High prices boosted 9-month profits in 1996

Robert J. Beck
Associate Managing Editor-Economics

Laura Bell
Statistics Editor

• A look at 9 months, third quarter financial results [.pdf file]

A significant portion of the increase in revenues from higher prices moved to the bottom line. Both revenues and profits were up significantly in the third quarter, adding to the improved results in 1996.

A sharp increase in oil and natural gas prices in fourth quarter 1996-owing to a tighter supply/demand balance squeezed by cold winter weather-also underpinned higher profits that are expected to be reported for that quarter.

Profits, prices up sharply

Total profits for 137 companies OGJ surveyed were up 31.4% from the same 9 months in 1995 (see table, pp. 42-43).

This accompanied an 11.3% increase in revenues. Third quarter 1996 earnings were 40.1% higher than the same period in 1995, and third quarter revenues were up 16%.

Of the 137 companies sampled, 98 showed 9-month earnings up from a year ago. Only 19 companies posted lower earnings, and another 20 posted losses. For the latter group, 10 of the companies showed reduced losses compared with the same period the year before.

Higher oil and gas prices were the major reason for the jump in revenues and profits. However, increased demand for natural gas, refined products and crude oil also contributed to improved earnings.

The average worldwide price for export crude oil averaged $19.09/bbl for the first 9 months of 1996, up 13% from a year earlier. The average price for posted West Texas intermediate crude oil was $20.40/bbl, up 15.3% from the same period in 1995. And the price for light sweet crude on the New York Mercantile Exchange (Nymex) averaged $21.15/bbl, up 14.4%.

The Nymex futures price for natural gas averaged $2.35/MMBTU for the first 9 months and was up 49.7% from the same period a year earlier. The average spot price for natural gas was $2.17/MMBTU, up 52.8% from a year earlier.

Independents vs. integrateds

The most impressive gains in earnings were by the large independents and the integrated companies.

For the first 9 months, earnings rose 47.1% from a year ago for the 78 large independents sampled. For this group, revenues were up 29% during the first 3 quarters. In the third quarter, profits for the large independents were 25.8% higher than in 1995, and revenues were up 36.2%.

Of the large independent companies, 58 showed higher earnings, 11 lower earnings, and 9 losses.

The 22 integrated companies in the sample posted 9-month 1996 earnings that were up 29.2% from the same period in 1995 while revenues rose 9.7%. For the third quarter, integrated firms' profits were up 41.7% and revenues 14.2%. All the integrated companies posted a profit for the first 9 months of 1996, with 19 showing higher earnings and only three with lower profits.

For the 34 smaller independent companies sampled, profits moved up to $50.9 million from a loss of $6.2 million for the first 9 months a year earlier. For this group of smaller producing companies, 20 had increased profits, four companies lower profits, and 10 had losses.

The survey also included three companies that are exclusively refiners and not involved in exploration and production. For this group, profits were up 23.2% and revenues up 22.1%. However, the sample was too small to draw many conclusions. One company had improved earnings, one company lower earnings, and the third posted a loss.

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