Increase in crude oil prices to near record levels in 2Q06 boosts earnings for US-based independents.

Continued good news for independent exploration and production companies - income jumped 92% between the second quarter of 2005 and the second quarter of 2006, as revenues rose 38% during the same period (see Table 1). Independent producer earnings were boosted by a 38% rise in the price of crude oil over year-ago prices (see Table 2).

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Each quarter, the Energy Information Administration (EIA) of the US Department of Energy measures the financial performance of energy companies based on a sampling of the companies’ quarterly earnings reports and press releases. For purposes of the agency’s quarterly financial report on US independent oil companies, the EIA tracks the earnings for 44 independent energy companies, including oil and gas producers, service and supply (oilfield) companies, and refiner/marketers.

Net income for all three categories of energy companies grew 79% in the second quarter of 2006 (2Q06) over earnings in the second quarter of 2005 (2Q05). The EIA attributes much of the growth to higher crude oil prices and improved refining margins, although it was noted that natural gas prices held steady during this period (see Table 2).

Year-to-date growth for both revenue and earnings mirrored the growth in second quarter totals for all three types of independent energy companies.

Oilfield service companies’ revenue and earnings increased with higher drilling rig counts and day rates. Net income of US-based oilfield service companies included in the report jumped 82%, as revenues rose 35% (see Table 1).

US oilfield service company earnings were strengthened by an increase in the worldwide rig count of 13% from 2,493 in 2Q05 to 2,827 in 2Q06, 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 service and supply 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 2Q06 from the comparable period in 2005.

US rig count growth rate over the year-ago quarter of 22% exceeded the 13% worldwide growth rate.

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Decomposing the total US rig count into its components, the natural gas rig count grew 16% while the oil rig count grew 72% over the period (see Figure 1). The natural gas rig count has now increased for 14 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 jumped 22% in the US from 2Q05 to 2Q06, they grew 17% in Canada and were flat in the rest of the world.

Earnings of the independent refiners included in the report increased 32%, from $206 million in 2Q05 to $272 million in 2Q06 (see Table 1). This is attributed to an increase in refining margins of 39% over the year-ago quarter (see Table 2).

The gross refining margin is the difference between the composite wholesale refined petroleum product price and the composite refiner acquisition cost of the crude oil.

Independent producer income grows 92% in second quarter

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