Financial Update: Independent producer income soars by 109% in third quarter
The news continues to be very good for US-based independent E&P firms as well as domestic service and supply companies. Both categories showed significant increases in earnings in the third quarter of 2006 over the year-ago quarter, according to the latest information from the Energy Information Administration of the US Department of Energy. However, refiners and marketers recorded more modest earnings growth, says the EIA.
Each quarter the EIA takes a sampling of financial results from 42 independent energy companies to determine financial trends in the energy industry. Earnings for all three of these types of companies (producers, service companies, and refiners/marketers) grew by an average of 70% in the third quarter of 2006 compared with earnings in the same period of 2005 (see Table 1).
Year-to-date growth for both revenue and earnings mirrored the growth in third-quarter totals for all three types of independent energy companies.
The crude oil price during the third quarter increased by more than one-tenth relative to the prices of a year ago, while the price of natural gas fell more than one-fourth. The US refiner average acquisition cost of imported crude oil increased 12% relative to the year-ago quarter, from $56.69 per barrel in 3Q05 to $63.68 per barrel in 3Q06 (see Table 2).
This was the 17th consecutive quarter in which crude oil prices increased relative to their year-earlier levels, after 6 consecutive quarters of falling or unchanged crude oil prices (relative to a year earlier).
The average US natural gas wellhead price fell 26% between 3Q05 and 3Q06 from $7.89 per thousand cubic feet to $5.82 (see Table 2). This price decline ended a streak of 9 consecutive quarters in which natural gas prices increased or were unchanged relative to their year-earlier levels.
Independent producers’ earnings grew substantially during this period. Net income of the independent oil and gas producers included in this report rose 109% between 3Q05 and 3Q06, as revenues rose 19% (see Table 1).
Independent oil and gas producer earnings were boosted by a 12% increase in the price of crude oil over year-ago prices, although natural gas prices declined (see Table 2).
Oilfield service and supply company revenue and earnings increased with higher drilling rig counts and day rates. Net income of US oilfield service companies included in the EIA report jumped 75%, as revenues rose 37% (see Table 1).
US oilfield service company earnings were strengthened by an increase in the worldwide rig count of 11% from 2,836 in 3Q05 to 3,154 in 3Q06, according to Baker Hughes data. Higher rig counts and the resulting higher demand for rig services directly increased the demand for the equipment and services supplied by oilfield service companies.
This increase in demand raised day rates on equipment and margins on overall operations, thereby increasing companies’ profits. The Petrodata Day Rate Indices were sharply higher in 3Q06 from 3Q05.
US rig count growth rate over the year-ago quarter of 20% exceeded the 11% worldwide growth rate. Decomposing the total US rig count into its components, the natural gas rig count grew 15% while the oil rig count grew 58% over the period (see Figure 1). The natural gas rig count has now increased for 15 consecutive quarters relative to its year-earlier level.
Breaking down overall (oil plus natural gas) rig counts on a regional basis shows that while rig counts grew 20% in the US from 3Q05 to 3Q06, they declined 1% in Canada and grew a modest 3% in the rest of the world.
Earnings of the independent refiners included in the EIA report increased 10% -- from $522 million in 3Q05 to $576 million in 3Q06 (see Table 1). This was due to an increase in refining margins of 16% over the year-ago quarter (see Table 2).