Using third quarter income statements from 21 of the largest U.S.-based exploration and production (E&P) companies -- both majors and large independents -- the Energy Information Administration (EIA) estimates overall profit rose 69% from the same period a year ago. The EIA report, issued Thursday, came one day after Congress questioned top E&P officials about record high profits (see related story).
The EIA notes the 21 E&Ps reviewed reported 3Q2005 net income of $26 billion on revenues of $295.1 billion, excluding special items. That equals about a 9% margin. The increases were attributed to higher crude oil and natural gas prices, higher refining margins, slightly higher demand in the countries comprising the Organization for Economic Cooperation and Development and higher foreign refinery throughput.
The companies' "petroleum line of business," both oil and natural gas production and petroleum refining/marketing, registered a 51% increase in net income. There was a 43% increase in oil and gas production net income, which was augmented by a 73% increase in refining/marketing net income. All lines of business fared better in 3Q2005 relative to 3Q2004, with the exception of chemicals, according to EIA.
Crude oil and natural gas prices increased "by almost one-half relative to the prices of a year ago," and the average U.S. natural gas wellhead price increased 49% quarter over quarter, from $5.28/Mcf to $7.87/Mcf. The higher gas prices were attributed to high world oil prices, 4% growth in the U.S. economy, the anticipation of reduced hydroelectric generation in the Pacific Northwest and declining domestic production -- along with lost production following Hurricanes Katrina and Rita.
"A 2% increase in demand and a 10% decline in net imports of natural gas (chiefly due to liquefied natural gas) put additional upward pressure on domestic natural gas prices, overshadowing a 9% increase in the opening level of working gas in storage in 3Q2005 relative to 3Q2004."
Overall earnings for domestic upstream operations rose 32% from 3Q2004, the EIA reports. "Domestic upstream earnings increased relative to a year ago as the effects of higher crude oil prices and natural gas prices overwhelmed the effects of large U.S. production decreases."
EIA notes an 11% decline in domestic crude oil production was accompanied by a 7% reduction in domestic natural gas production by U.S. majors reporting crude oil and/or gas production.
"Financial results were consistent as 10 of the 12 companies that reported separate income for domestic upstream operations recorded higher earnings than a year ago," according to the report. "The companies that reported higher earnings cited higher commodity prices that were either magnified by higher production levels (due to both drilling efforts and to acquisitions), or that outweighed the effect of lower production levels, which were due to Hurricanes Katrina and Rita, natural field declines, and entitlement effects associated with production-sharing agreements."
EIA adds the lower production levels following the hurricanes and the higher production costs were cited in the press releases of the companies reporting lower earnings as reasons for lower earnings than a year earlier.
Worldwide, downstream gas and power earnings rose 13% because of several factors, EIA reports. Weather was warmer in 3Q2005 over 3Q2004, with 48% fewer U.S. gas-weighted heating degree days and 28% more cooling degree days), which contributed to higher earnings for seven of eight companies reviewed. The seven companies that reported higher earnings cited higher natural gas liquids prices, reduced operational costs and warmer than normal weather in electric service areas. The company with lower earnings cited high gas prices, which adversely affected its power generation operations, trading losses, and adverse effects of the hurricanes.
EIA actually reviewed 23 companies in its quarterly report, but only 21 were included in the compilation of corporate revenue and corporate net income. The U.S. operations of BP plc and Royal Dutch Shell are included in the results of the U.S. lines of business, but not in the foreign or corporate results because both of the companies are based in London.
Besides BP and Shell, the other companies reviewed by EIA were Amerada Hess Corp., Anadarko Petroleum Corp., Apache Corp., Burlington Resources Inc., Chesapeake Energy Corp., Chevron Corp., ConocoPhillips Inc., Devon Energy Corp., Dominion Resources Inc., EOG Resources Inc., Equitable Resources Inc., ExxonMobil Corp., Kerr-McGee Corp., Lyondell Chemical Co., Marathon Oil Corp., Occidental Petroleum Corp., Sunoco Inc., Tesaro Petroleum Corp., Valero Energy Corp., Williams Cos. Inc. and XTO Energy Inc.
The complete report is available at http://www.eia.doe.gov/.
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