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Dips in output and prices dent majors’ results

Improved refining margins prove a silver lining as big players unveil disappointing full-year figures

Lower oil and gas prices and ailing production ate into the majors’ profits full-year profits for 2012, but there was a welcome boost from soaring refining margins.

Brent oil prices fell to a 16-month low of about $89 a barrel at the end of June 2012 after soaring to $124/b in February. US natural gas prices have traded well below levels seen in recent years, falling to below $2 per million British thermal units (Btu) in April and struggling to pass $3.50/Btu for most of the year.

ConocoPhillips’ 2012 full-year earnings were down by a third compared with 2011, at $8.4bn. The company’s 2012 fourth-quarter earnings tumbled by two thirds to $1.4bn as assets sales, lower production and weaker oil and natural gas prices all weighed on profits.

Chevron’s net income for 2012 dropped by $700m year-on-year to $26.2bn. Its upstream earnings were $23.8bn, down by $1bn year-on-year as its US earnings suffered from lower crude and natural gas prices.

Chevron said its average sales price for crude oil and natural gas liquids was $91/b in the fourth quarter of 2012, down from $101/b the year before. Its average sales price for natural gas was $3.22/m Btu, down from $3.62/m Btu in the fourth quarter of 2011.

Reduced earnings

Anglo-Dutch supermajor Shell’s full-year upstream earnings were down by $600m in 2012 to just over $20bn. Shell said its earnings were reduced by increased operating expenses, higher exploration costs and lower natural gas prices in the US.

French major Total also reported a drop. Its full-year adjusted operating income was down by 6% year-on-year to $32.1bn. The company said lower fourth-quarter production and higher exploration expenses all put pressure on profits. But the major’s revenue was boosted a lower tax rate for upstream activities in the fourth quarter of 2012 of 54.8%. This was lowered from a rate of 59.9% in the fourth quarter of 2011, partly due to the company’s asset exchange programme in Norway and the reversal of a non-deductable loss, Total said.

Total said its operating costs increased to $22.8/barrels of oil equivalent (boe) in the fourth quarter of 2012, compared to $18.9/boe in the fourth quarter of 2011. This was due to several new project start-ups, including Pazflor, Halfaya and Usan, as well as increased exploration expenses. 

BP’s earnings continued to buckle under the weight of its financial liability for the Macondo blowout and oil spill. The company’s full-year replacement cost profit (RPC) - its profit in real terms- tumbled to $11.9bn in 2012, half its 2011 figure. BP’s 2012 fourth quarter RCP tumbled to $2.1m, down from $7.6bn the year before.

BP said it suffered a $5.3bn loss in 2012 from non-operating items and that when these were considered, the company’s underlying replacement cost profit, the figure which takes into account one-off costs which couldn’t been predicted, was just $4bn less than 2011 at $17.6bn.

BP said its financial liability for the Macondo clean-up operation cost it $4.1bn in the fourth quarter of 2012 alone, most of which was to settle federal criminal charges related to the spill. BP said it paid just over $5bn in 2012 for spill-related charges.

However BP’s cash flow was still down year-on-year, even excluding the spill’s impact, as asset divestments reduced its total output. BP’s net cash from operating activities was down by $6.2bn compared with 2011, to $29bn. Fourth-quarter revenue was $500m lower year-on-year, at $5.7m. 

BP said there is still “significant uncertainty” surrounding further costs the company will have to pay in relation to the spill. In a further blow to the company, the US Environmental Protection Agency said in February 2013 that BP was barred from entering into any new contracts with the US government.

BP also said negative tax effects affected its profits. BP’s effective tax rate (ETR) on its RCP was 48% in the fourth quarter of 2012, compared to 30% in the same period the year before. The full year ETR was 37%, BP said, up from 33% in 2011.

On 22 October 2012, the UK major reached a complex deal with Rosneft, under which the Russian company agreed to pay $17.1bn for BP’s 50% stake in TNK-BP. BP will receive a 13% equity stake in Rosneft, on top of its existing 1.25% stake. Then BP will use $4.8bn of the cash it receives from Rosneft to buy another 5.7% slice of the Russian firm, taking BP’s total interest to 19.75%. The deal, which is expected to close in the first quarter, is expected to lift both BP’s profit and production.

The supermajors said oil and gas production fell in 2012 for several reasons including asset sales, field declines and security concerns. 

BP’s full-year production was down by 6% year-on-year to just over 2.3m barrels of oil equivalent a day (boe/d). The company said it expects output to tumble again this year, down to 150m boe/d, because of asset sales in the North Sea and South China Sea. 

Chevron’s full-year production was down by around 63,000 boe/d year-on-year to 2.61m boe/d because of field declines and the continued shut-in of the Frade field offshore Brazil. The company’s fourth-quarter output was however boosted by around 40,000 boe/d year-on-year to 2.67m boe/d, as project ramp-ups in Nigeria, the US and Thailand took effect.

The major's did, however, receive a financial boost from downstream earnings which soared as refining margins imporved

ExxonMobil’s full-year liquids production was 2.2m barrels a day (b/d), a fall of 127,000 b/d year-on-year. The company said asset sales, field decline and the effect of lower Opec production quotas all caused output to fall. This was, however, partly offset by ramp-ups in its West Africa operations and lower downtime, the company said. ExxonMobil’s full-year natural gas production was also down to 12.3m cubic feet a day (cf/d), a fall of 840,000 cf/d year-on-year.

Shell’s full-year production was up by 1% to 3.3m boe/d, driven by a 5% rise in natural gas production. Shell’s full-year liquids production was, however, down by 2% to 1.6m b/d.

Shell said that excluding the impact of divestments and project exits, its production in 2012 was actually 3% higher than in 2011. This was because of new field start-ups and the continuing ramp-up of its Pearl gas-to-liquids project in Qatar and the Pluto liquefied natural gas (LNG) project in Australia. Pearl and Pluto added 225,000 boe/d to Shell’s production in 2012, the company said.

ConocoPhillips’ full year production was 1.57m boe/d, down 30,000 boe/d year-on-year, due to lower output from its operations in Alaska and Europe, as well as asset disposals. 

Falling production

Total’s production was down by 2% year-on-year to 2.29m boe/d because of field decline, seasonal maintenance and the Elgin-Franklin blowout. Flooding in Nigeria and security disruptions in Yemen and Syria also caused production shut downs, the company said.  Total is aiming for production growth of 3% per year up to 2015, aiming to reach 3m boe/d by 2017 by start-ups at Anguille in Gabon, Angola LNG, Kashagan, offshore Kazakstan, and the extension of OML 58 in Nigeria.   

 The majors did, however, receive a financial boost from downstream earnings which soared as refining margins improved. Total’s earnings from refining and chemicals were up 54% year-on-year to over $1.8bn.

Total said downstream earnings were boosted by the European Refining Margin Indicator (ERMI) increasing to $36 per tonne (/t) in 2012, up from $17.4/t in 2011. In the fourth quarter, the ERMI averaged $33.9/t compared to $15.1/t in the fourth quarter of 2011. 

ExxonMobil’s downstream earnings were also up by more than 50% to $13.2bn due mainly to stronger refining margins. The company’s oil product sales were down by 239,000 b/d to 6.2m b/d, because of asset sales and the restructuring of its downstream business in Japan.

Chevron’s international downstream earnings were also up $166m on the year, to $2.3bn. The company’s US downstream earnings were up by a third year-on-year to over $2bn.

Shell’s full-year downstream earnings were up by $1bn year-on-year to $5.3bn compared and a 1% rise in oil products sales.

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