Third-quarter oil and gas profits plummet, but it's not all bad news
OIL company profits fell sharply in the third quarter, but upstream growth suggests recovery may be under way.
ExxonMobil's third-quarter net profit fell by 65% compared with the same period a year earlier, to $4.73bn, or $0.98 a share; this was worse than the consensus forecast of $1.06 a share. Chevron's third-quarter net profit fell by 51% to $3.83bn, or $1.72 a share, but that was much better than the consensus forecast of $1.47 a share (see p24). Third-quarter profit at ConocoPhillips, the third largest US oil company, collapsed by 71% to $1.5bn, or $1 a share, although this was higher than the predicted $0.95 a share.
Declining profits were the result of lower commodity prices and weaker product margins, primarily caused by the global economic crisis. In the third quarter, the price of Brent crude averaged $68.10 a barrel, a drop of 41% from the year-earlier period. There was some increase from the second quarter: North Sea Brent was up by 15%, because of an improvement in energy demand. But Shell's boss, Peter Voser, said: "The outlook remains uncertain and we are not expecting a quick recovery."
Shell posted a 62% year-on-year drop in third-quarter profit to $3.25bn. Of the other European majors, BP reported a 33.7% drop in net profit for the third quarter to $5.34bn, compared with the same period in 2008, while Total saw its profit in the period fall by 54%, to €1.869bn ($2.8bn).
Refining and marketing (R&M) proved a particular drag on oil companies' bottom lines. Marathon Oil, the biggest refiner in the US Midwest, said its average R&M margin in the third quarter was $7.62 a US gallon, down significantly from $25.19/USG in third-quarter 2008. Consequently, its earnings from the sector dropped by 80% to $158m, contributing to an 80% drop in net profit for the period to $413m.
"We are in a very challenging environment in the refining business," said David Rosenthal, ExxonMobil's vice-president of investor relations. "The severity and depth of the downturn this year is very dramatic."
But it was not all bad news. Eric Fox, founder of Brittain Capital Management, notes that while profits were down, many companies achieved robust oil and gas production growth during the quarter, partly offsetting lower prices. Chevron was the leader among the majors, reporting an 11% growth in third-quarter oil and gas production compared with third-quarter 2008. BP's production rose by 7%, while ExxonMobil registered production growth of 5%.
However, this was outstripped by some independents' production growth. Apache achieved record oil and gas output in the third quarter, with a 19% boost from its operations in Australia, Egypt and the North Sea taking production to over 0.6m barrels a day of oil equivalent (boe/d) – even as its profits slumped by 63%. Hess saw its crude output rise by 16% as its profits fell by 55%. And even minnow Southwestern Energy's 38% growth in oil and gas production – to around 140,000 boe/d – could not prevent a 45.8% drop in profit.
With production growth strong, the global economy recovering and oil prices "off the floor", as one analyst put it, there is a feeling that the worst could be behind the oil sector.