Twenty-eight major energy companies reported that their net earnings were nearly cut in half to $20.6 billion in fiscal 2002 due to supply-induced lower prices for natural gas and crude oil and the collapse of the energy trading business that year, according to the Energy Information Administration’s (EIA) annual report to Congress on the industry’s performance.

In a nutshell, it was a rough year. The reporting companies’ net income level in 2002 was the second lowest in eight years and well below their peak earnings of $53.2 billion in 2000, the EIA said.

The Department of Energy (DOE) agency attributed the “steep decline” in the reporting companies’ profitability primarily to reduced gas prices caused by a glut in U.S. supply in the first half of the year, and to an excess supply of petroleum (crude oil and refined products) that squeezed refining margins for most of the year.

Domestic wellhead gas prices averaged $2.95/Mcf in 2002, down 27% from $4.02/Mcf for the prior year. U.S. oil prices at the wellhead averaged $22.50 a barrel, 3% off from 2001.

In addition, the post-Enron collapse of the energy trading business took its toll on the reporting companies in 2002, the EIA said in its report, titled “Performance Profiles of Major Energy Producers [in] 2002,” which was released last week and forwarded to Capitol Hill.

“The companies that were most affected by energy trading activity (El Paso, Williams Cos., and ChevronTexaco through its Dynegy subsidiary) registered a drop in net income of 138%, compared to a 38% drop in net income for other [reporting] companies” that had little or no involvement in trading, according to the agency report.

“Unusual items, which are charges against and additions to net income of a non-recurring nature, had a sizable effect in 2002 as they did in 2001,” the EIA said. It estimated that $7.9 billion of the total $11.9 billion in charges were for asset write-downs. “Most of the write-downs stemmed from lower projected cash flows from oil and gas projects, but nearly $5 billion in asset write-downs appeared to be related to energy trading activities,” the report noted.

The reporting companies’ restructuring charges, which usually accompany downsizing and planned divestitures, came to $1.5 billion, and discontinued operations reduced net income by $1 billion.

Excluding the effects of the unusual items, annual net profits for the reporting companies fell 37% to $32.5 billion in 2002. But when the one-time charges were added, profits fell more sharply (by 45%) to $20.6 billion that year.

The EIA culled the financial and operating information from 28 major U.S. energy companies, which included Anadarko Petroleum Corp., BP America Inc., Dominion Resources Inc., El Paso Corp., ExxonMobil Corp., Shell Oil, Williams Cos., ChevronTexaco Corp and Conoco (Conoco’s merger with Phillips was not approved until late in 2002).

The operating revenues of the 28 companies were $699 billion in 2002, which was equal to about 10% of the $7 trillion in revenues of the Fortune 500 largest U.S. corporations. The companies produced 49% of the total domestic oil in 2002, and accounted for 45% of the natural gas production, the EIA said.

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