NGI The Weekly Gas Market Report
Four of the five largest U.S. energy companies reportedblockbuster fourth quarter and year-end profits yesterday, charmedby soaring commodity prices in the oil and gas marketplace.ExxonMobil Corp. was the leader of the pack, stunning Wall Streetwith the highest ever annual profit report for a listed companywith net earnings that were twice those reported by Microsoft inthe fourth quarter of 2000.
Other majors, including Chevron Corp., Texaco Inc. and USX MarathonGroup also reported record earnings for the quarter. Conoco, whichrounds out the Top Five list, announced its record earnings earlierthis week. (see Daily GPI, Jan. 23).
Also taking a seat at the high earnings table are theindependents, which are seeing their earnings fed by high commodityprices in both the crude oil and natural gas markets. In the latestbatch of announcements, Occidental Petroleum and Kerr-McGee Corp.,and to the north, Petro-Canada and Shell Canada recorded recordearnings.
Forecasters predict that the high earnings reports are not over,as the demand for energy continues to rise. Analyst Bruce Lanni ofA.G. Edwards predicted that “most likely,” energy prices andearnings for the industry will “continue to surprise Wall Street”through this year. The pre-earnings forecasts, which have beenbelow actual earnings almost across the board in average estimatesby First Call/Thomson Financial analysts, are off because ofunexpected fourth quarter jumps in prices for natural gas and oil,according to analysts.
ExxonMobil, the world’s largest publicly traded oil and gascompany, reported the highest full-year profits ever by a U.S.company, earning $1.46 a share in the fourth quarter, and erasingFirst Call analysts’ forecast average of $1.31 a share. ExxonMobilofficials said fourth-quarter income, excluding merger expenses andspecial items, was $5.12 billion, up from $2.7 billion, or 77 centsa diluted share for the same period of 1999. Revenue was up $64.13billion from $54.58 billion for the quarter.
ABN Amro analyst Gene Nowak called ExxonMobil’s results”awesome.” Fahnestock & Co. analyst Fadel Gehit, who was notsurprised by the earnings, said ExxonMobil was on the “forefront ofefficiency” in its bid to keep costs down and profits up.
After doing well in its previous three quarters, commodityprices in the fourth quarter capped the record profits by theIrving, TX-based giant, sending ExxonMobil’s earnings from itsexploration and production unit to $1.4 billion, an increase of$624 million from 1999. Upstream earnings were $2.4 billion, upfrom $831 million for the same period of 1999.
ExxonMobil’s profit of $16.9 billion topped a previous recordheld by U.S. banking giant Citigroup, which recorded $10.8 billionin profits in 1999.
In the understatement of the day, ExxonMobil Chairman Lee Raymondsaid that “the combined assets of the new company continue to performwell and financial results for the upstream and downstream businessessignificantly exceeded the same period last year.” The company, formedin 1999 when Exxon bought Mobil for about $81 billion (see Daily GPI,Dec. 1, 1999), is raising its budget for2001, with an increase of 15% to 20%.
Chevron, the second-largest U.S. oil and gas company, saw fourthquarter earnings rise 88%, with its profit from operations reaching$1.54 billion, or $2.39 a share, handily beating First Call averageestimates of $2.21. In the fourth quarter of 1999, earnings were$819 million, or $1.24 in 1999. Revenue was up 23%, standing at$13.5 billion compared with $11 billion a year ago.
San Francisco-based Chevron, which expects to complete its mergersometime this spring with No. 3 major Texaco (see Daily GPI, Oct. 17, 2000), took charges totaling $49million, or 7 cents a share, which resulted in net income of $1.49billion, or $2.32. In the fourth quarter of 1999, the company had $281million in gains and $291 million in charges, which resulted in netincome of $809 million, or $1.23 a share.
“Another strong operating performance in the fourth quartercapped the most profitable year in our company’s history,” saidChevron CEO Dave O’Reilly. Touting the company’s exploration andproduction results, which are up 53% from a year ago, O’Reilly saidthat higher crude oil and natural gas prices spurred the highearnings, but added that earnings were “further bolstered by higherproduction.”
No. 3 Texaco also recorded record profits in the fourth quarterwith earnings of $840 million, or $1.55 a share compared with $370million or 67 cents in 1999. First Call had predicted earnings of$1.51. Revenue for the fourth quarter was up 37%, standing at $14.4billion, compared with $10.6 billion a year earlier.
The White Plains, NY-based company recorded a quarterly loss onasset sales of $17 million and had charges of $272 million forwrite-downs, $116 million for environmental and legal issues and$10 million for merger costs. For the same period of 1999, Texacohad $3 million in asset sale losses, and had charges of $81 millionfor write-downs, $42 million for environmental and legal charges,and $7 million for restructuring.
Houston-based Marathon, the separately traded unit ofPittsburgh-based USX Corp. and the fifth largest U.S. energy giant,recorded profits from operations at $386 million, or $1.25 a share- a jump from First Call’s estimate of $1.14 a share. For the sameperiod of 1999, Marathon had a profit of $148 million, or 47 cents.Revenue was up 10%, standing at $8.05 billion from $7.3 billion ayear earlier.
Marathon had a final loss of $310 million, or $1 a share, aftertaking $696 million in charges related to a joint venture withKinder Morgan Energy Partners LP.
Among the independents reporting earnings this week, Kerr-McGeemore than doubled its earnings in the fourth quarter. The OklahomaCity-based company saw its net income excluding special items riseto $276 million, or $2.67 a share, up from $130 million, or $1.51 ayear ago. First Call had expected the company to earn $2.82 in thequarter.
Revenues increased to $1.1 billion, up from $816 million.Exploration and production profits also more than doubled, risingto $446 million, from $216 million in 1999, mostly because ofhigher sales and lower exploration costs.
Like Kerr-McGee, Los Angeles-based Occidental Petroleum Corp.missed Wall Street’s expectations for the fourth quarter butrecorded hefty profits nonetheless. The high energy prices scoredfor the oil and gas division, but took a toll on the company’schemical businesses, hurt by the higher raw material costs.
Occidental earnings excluding special items were $349 million,or 94 cents a share, compared with $192 million, or 52 cents ashare in fourth quarter 1999. First Call had predicted the companywould earn $1.05 for the quarter. Revenues were up to $3.9 billionfrom $2.6 billion a year earlier.
Calgary-based Petro-Canada saw its annual net earnings rise toC$893 million, or C$3.28 a share, compared with C$233 million orC$.086 in 1999 “far outstripping its previous best year” of C$306million in 1997’s net earnings.
“Petro-Canada’s performance reflects both an exceptionalbusiness environment and our success in capitalizing on thatenvironment,” said CEO Ron Brenneman. He attributed the higherearnings to the company’s strong upstream business and its”excellent” finding and development cost performance “even in theface of rising industry costs.”
Another Calgary operation, Shell Canada Ltd., said its year-endearnings of C$858 million or C$3.04 a share were a record, comparedwith earnings in 1999 of C$641 million or C$2.22. Its fourthquarter earnings were C$296 million, or C$1.08 per share, comparedwith C$358 million or C$1.24 in 1999. Fourth quarter 1999 earningswere C$106 million, excluding the sale of its Plains business, aC$32 million impairment provision for the Peace River in-situ oilsands operation and partners fees.
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