Price/demand strength buoys 1st half profits

Robert J. Beck
Associate Managing Editor-Economics
Laura Bell
Statistics Editor

Higher oil prices and increased petroleum product consumption have boosted first half profits for a sampling of North American oil and gas companies.

Most of the increase was due to extremely favorable financial results in the first quarter. Oil prices weakened in the second quarter, and profits and revenues for this sample of companies were off slightly from the same quarter a year earlier.

Higher demand for petroleum worldwide also helped to boost earnings, although demand for natural gas in the U.S. slipped from a year ago.

Profits up 8.5%

Total profits for the 145 companies that the Oil & Gas Journal surveyed were up 8.5% in the first half compared with the same period in 1996 (see table, pp. 54-55 [72,584 bytes]).

The increase in earnings was in part due to a 4.4% increase in total revenues. Most of the increase from year-ago levels was due to improved results in the first quarter. For the 1996-97 second quarter comparison, profits were down 1.3% this year, while revenues fell 0.7%.

Of the 145 companies sampled, 102 posted higher first half earnings this year than a year ago. Another 28 companies showed lower profits than in first half 1996, and 14 companies posted losses for the first half. For five firms in the latter group, the loss was less than in the same period of 1996. The remaining company showed no change in profits from a year earlier.

Higher prices, demand

Higher crude prices and robust petroleum demand prevailed much of the first half, underpinning a strong financial showing for the survey group overall.

Average natural gas prices for the first half were close to the same level as a year earlier, although a cold snap early in the winter kept gas prices very strong at the year's outset. Natural gas demand in the U.S. was down slightly from the first 6 months of 1996. Both worldwide and U.S. average petroleum product demand was higher for the first half of this year than a year ago.

The worldwide price for export crude oil averaged $19.09/bbl for the first 6 months of 1997, up 2.5% from first half 1996. In the U.S., the first half average price for West Texas intermediate (WTI) crude oil was $20.47/bbl, up 3.7% from a year earlier.

The average U.S. spot price for natural gas was $2.38/MMBTU vs. $2.23/MMBTU in first half 1996, an increase tied to the price surge in January. In contrast, the average natural gas futures price was down from first half 1996, averaging $2.23/MMBTU vs. $2.42/MMBTU a year earlier.

According to estimates from the International Energy Agency, first half worldwide demand for oil averaged 73.15 million b/d, up 2.2% from 71.55 million b/d in 1996.

In the U.S., demand for petroleum products averaged 18.353 million b/d, up 0.9% from 18.189 million b/d in first half 1996.

U.S. natural gas consumption slipped slightly to 11.734 tcf from 11.935 tcf in 1996. Slightly warmer weather than a year earlier reduced U.S. demand in first half 1997.

Small independents top list

For first half 1997, the sharpest gains in earnings were posted by the small independent companies.

A group of 43 small independents in OGJ's survey posted an increase of 132% in net earnings, with revenues up 42.3%. Of the small independents, 25 companies had higher profits, while seven posted lower profits and 10 recorded losses.

The larger independent companies logged an earnings increase 15.1% from last year's first half. Revenues moved up 20.8% in the first half.

Excluding Enron, the large independents posted a 37.8% increase in profits. For this group of 76 companies, 60 had increased profits, while 12 posted declines in earnings and four had a loss.

The 23 integrated companies in the sample posted first half earnings that were up 6.4% from 1996. Revenues for this group increased 1.5%. Profits moved up for 15 of the companies, while eight had lower earnings. None of the integrated companies had a loss in the first half this year, and only one did in first half 1996.

The survey also included three companies that are exclusively refiners and not involved in exploration and production. For this group, profits in the first half this year were up 50.4%, and revenues increased 16.3%. Two companies had increased profits, and one company showed lower profits.